umfundi wrote: Valuethinker wrote:
Random Musings wrote:Since the thought is that the techology value is the key (not AUM) - I would think Schwab or whomever can do it far cheaper than $100 MM.
It isn't a complicated model.
Generally with disruptive innovation ...
I think of "disruptive" as implying a short time. Oops! You're out of business. Or, you're fabulously successful.
Although many of the examples of disruptive innovation are from tech, many are not. In tech the time cycles are usually, but not necessarily short. If you remember the Go Computer and Jerry Kaplan's book about it ('Start Up') what became in essence the ipad, someone sank several hundred million of venture capital into that in the early to mid 90s, and failed. Later came the Palm Pilot, which was successful for a time, but is now dead.
So even in tech, the theory of Disruptive Innovation, as outlined by Clay Christensen (see above) is not necessarily over a short time period.
Nucor and its approach to steel making disrupted the US industry over literally decades.
In a way the speed of the tech industry is anomalous (although Boston Scientific did something similar in heart stents-- I vaguely recall they went from 0 to 40% market share in about 4 years?). In most industries, it takes a lot longer. And lots of false starts and failures from new entrants.
Jack Bogle was innovative but not disruptive. It's taken decades. The trend is obvious and probably unstoppable. "You don't need a weatherman to know which way the wind blows."
It's really about language, but when someone says Disruptive Innovation (and I should probably have capitalized it) then they probably mean what Christensen is talking about.
Is there space or even a need for disruption in what Wealthfront is trying to do? (What are they trying to do?)
Put small or unsophisticated investors in auto-pilot value-added investment choices at the lowest possible cost? Maybe, but where's the disruption in that?
The overarching trend is the velocity and availability of information. Abetted by social, mobile and the cloud. I fail to see the relevance of that to individual investors or, in particular, for my retirement plan and IRAs.
The internet was big, but it has whittled us down to 1 search engine (at least in Anglo Saxon countries), 1 Ebay, 1 Amazon etc. So the firm moving at the right time can extract most of the market value that is there.
I agree I don't see obvious barriers to competition around Wealthfront-- you succeed by creating a business and then building barriers around it. Amazon has its logistics prowess and its high customer trust. Ebay has number of bidders and liquidity. Google has the best data, etc.