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& DESIGN Home Page Architecture Brand Equity Auto Design Game Room SMALLBIZ Smart Answers Success Stories Today's Tip INVESTING Investing: Europe Annual Reports BW 50 S&P Picks & Pans Stock Screeners Free S&P Stock Report SCOREBOARDS Hot Growth 100 Mutual Funds Info Tech 100 S&P 500 B-SCHOOLS Undergrad Programs MBA Blogs MBA Profiles MBA Rankings Who's Hiring Grads | | MARCH 26, 2001 PERSPECTIVE By Geoffrey Smith Why Mutualfunds.com Was Doomed from the Start New Web-only financial portals -- even ones with great domain names -- have little hope of luring consumers from established banks and brokers
The rapid demise of mutualfunds.com is a lesson in why Internet startups in financial services are getting their clocks cleaned by established industry giants. Even with the benefit of hindsight and the return of free-flowing capital, it's doubtful that future Web entrepreneurs would be able to resurrect mutualfunds.com and build it into a viable company. BIG DREAMS. Early last year, a formidable group of veteran fund executives and financiers, including Defense Secretary Donald Rumsfeld, invested $3 million in mutualfunds.com. Their goal was to make a run at building a powerhouse Web site that would become a major player in the fund industry. "Our hope was that we'd have a $1 billion market cap," says Abraham Gorelick, the company's former marketing chief and its second employee. The idea behind mutualfunds.com was to build a major financial portal with multiple revenue sources. The site would include an online university that would generate fees for such offerings as courses for becoming a chartered financial analyst or a stockbroker. There was to be a job-listing board for fund-industry execs. There was a planned matching service for consumers to find investment advisers, and there were going to be proprietary analytical tools that advisers could use as well, for a fee. Finally, the site also was going to be a financial portal for consumers to buy and sell mutual funds, maintain investment accounts, and view news and educational material. Gorelick, now unemployed, attributes the site's failure to bad timing. No doubt that's true. The effort got under way near the peak of the Internet cycle, quickly grew to about 23 employees, and ran out of money just nine months later, when investors balked on proposed second-round financing of $15 million. The site shut down before any significant revenue-generating services were launched. Only one piece of the effort survived. A group of six or seven employees received separate funding to pursue the online-university end of the site, which they operate at www.acadient.com. DUBIOUS BENEFIT. Still, timing isn't the only problem. As a financial portal, mutualfunds.com was doomed from the start. Consumers already have -- and had at the time -- a slew of financial information and portfolio-management tools available on the Web. Yahoo!, AOL, and numerous other large portals already have substantial amounts of content, big infrastructures, well-known brand names, and loads of Web traffic. To bring in investors, mutualfunds.com would have needed some major advantage over its competitors as a hook. This it didn't have. With rare exceptions, such as E*Trade and Ameritrade, even massive marketing expenditures haven't succeeded in attracting large numbers of investors to independent financial Web sites. Mutualfunds.com would have allowed consumers to keep their money at existing fund companies, while offering centralized servicing for those accounts. That's a dubious benefit, considering that consumers maintain investments with multiple fund companies through fund supermarkets at numerous online brokers. What's more, consumers have been highly reluctant to let stand-alone Web sites take over control of their assets in any form. They've shown an overwhelming preference for using online services offered by their existing banks and brokers. The mutualfunds.com story shows the door is shut for new Web-only financial portals, even ones with great domain names. The tide is so strong right now against such firms that even today's leading independent players, including Yahoo and Microsoft's Moneycentral.com, may not have what it takes to maintain viable long-term growth. If you want to respond to this column, please e-mail me at the address below.  Smith covers a wide variety of topics, including personal finance issues, from BusinessWeek's Boston bureau. You can e-mail him at geoff_smith@businessweek.com  | | |
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