Traditional Brokerages Must Embrace Web 2.0, Gartner Says

If they want to compete with Internet brokerages, traditional investment firms must embrace Web 2.0 technologies, according to a new report from Gartner. The research firm points out that new Internet brokerages target niche markets looking for specific functionality and services rather than attempting to compete with large firms for the mass market. "Rather than build a business model on mass marketing and economies of scale, the new class of brokerages emphasizes discrete sets of functionality," explained David Schehr, research director for Gartner, in a release.

In addition, Internet brokers use the Web as a transformational rather than a supplemental channel and leverage Web 2.0 functionality -- including new programming techniques, blogs and social communities -- to enhance service, the report says. For example, Internet brokerages leverage Web-specific technologies such as Really Simple Syndication (RSS) to deliver content in new ways. "Further, many of the new-era brokers are adopting aspects of the collaborative Web, including blogs, community-based interaction, and ongoing efforts to develop mash-ups and other composite applications," Schehr added.

Meanwhile, traditional brokerages use the Internet simply as another channel through which to provide the same content and services that they provide through branches, telephone and regular mail. "Investment services firms must begin to understand the role of the Web as more than just another channel for traditional forms of communication and interaction," Schehr said.

According to Schehr, Internet brokerages aim to attract potential customers who are looking for the mix of services they have to offer through Web search and community links. "In this way, they can be successful without the massive scale that has characterized previous generations of brokerages," he said.