@LARGEA company at the crossroads
By Scott Kirsner, 10/29/2001Fidelity Investments finds itself at one of those fork-in-the-road moments. Always a company known for aggressive investments in new technologies, it's now up to the financial services giant to decide whether to maintain its present level of e-business operations and tech research and development, or scale back in the face of a beaten-down stock market and lower customer trading volumes.
The central question: In the choppy wake of the dot-com party cruise, how much should Fidelity invest in innovation?
A quick tour of the company's technology provinces reveals a company that has done an impressive job of transitioning its business to the Internet.
"The Web has become the customer's window into Fidelity," says Steve Elterich, president of Fidelity's e-business group, which employs 700 people. Even though trades, mutual fund sales, and visits to Fidelity.com are down lately, 88 percent of the company's stock trades come through the Web, and 75 percent of all customer transactions -- questions, quotes, account inquiries -- take place digitally. Elterich says that handling a transaction over the Net costs Fidelity one-twentieth as much as handling that same transaction on the phone with a customer service rep.
But Fidelity, which claims to be the first mutual fund company to have launched a Web site, in 1995, hasn't stopped enhancing its online presence. Among its recently launched initiatives are a specially designed Web site for users of interactive TV systems like AOLTV, and an online chat system that lets customers with questions interact with Fidelity service reps.
No one can argue with the wisdom of deploying digital solutions to bring down costs, especially right now. But when I asked Elterich whether he'd had to put any Web projects on the back burner as a result of the lethargic economy and the drop-off in Fidelity's trading volume, he said something surprising. He said no.
"We haven't reduced our budget," Elterich said. And when I inquired whether Elterich had any plans to trim his 700-person e-business group (which is separate from Fidelity's in-house information technology department) in light of a decrease in overall visits to Fidelity's Web site, he answered, "We're not considering anything along those lines."
The often-heard refrain at Fidelity is "we're different, because we're private." Elterich and others say the company can remain dedicated to developing new technologies for its 16 million-plus customers because, by virtue of being privately held, there's no pressure from shareholders or analysts to cut back on research and development when times are tight. When I visited Fidelity earlier this month, it was like stepping into some parallel universe: Few companies can afford to spend this lavishly on innovation in 2001.
Fidelity's commitment to technology starts at the top, and it goes way back. Ned Johnson, the company's chairman, personally bought Fidelity's first mainframe in 1965, and it's not unusual today for him to show up at Web site design meetings, commenting on fonts and features he thinks need tweaking.
The company employs 700 people in the e-business group -- larger than just about any independent e-business consultancy in Boston -- and another 100 at the Fidelity Center for Applied Technology, which investigates emerging technologies and tests prototypes of new Fidelity services.
At FCAT, demonstration bays show off software and products that might someday be part of Fidelity's business. One contains biometric face-scanners that could eventually replace passwords to grant customers access to their accounts. Another focuses on "multi-modal interfaces," which enable a user to speak a request like, "Show me the price-earnings, price-book, and price-sale ratios of Cisco, GM, and Sun," and see the results displayed in a spiffy chart on the screen of his personal digital assistant.
Charlie Brenner, the senior vice president in charge of FCAT, is careful to point out that his center is dedicated to "applied" technology, not "advanced" technology. This is not frivolous futurism. It's all stuff Fidelity will implement, if it proves viable.
But the questions Fidelity executives face, as they engage in so-called "cost-cutting exercises" that may indeed soon result in staff cuts, are: Which technology projects deliver the biggest impact? How much is it sensible to spend, now that the company has established a defensible Internet beachhead, and rivals are no longer poaching customers with fabulous offers of unlimited stock trades for $9.95 a month?
You could make the argument -- and some within Fidelity do -- that by the time the markets rebound, it may be too late to bulk up systems to handle the increased demand. And by the time customers are ready to adopt new technologies and services that give them more flexible access to the markets, it may be too late to develop them before your competitors do. So Fidelity deserves props for keeping its eye on what's next.
But the company's level of tech investment probably warrants adjustments, given current conditions. Elterich's e-business group added 150 employees last year, and FCAT, founded in the fall of 1999, went from zero to 100 staffers in two years. Fidelity is a technologically aggressive company that has been traveling 70 miles an hour for the past few years. Now, most of its competitors are idling. Doing 40 would still be plenty fast.
Don Haile, Fidelity's chief information officer, grudgingly admits that lower trading volumes mean that he will be spending less this year on mainframes and servers, and that personnel cuts in his group, which includes FCAT but not Elterich's e-business division, were "possible."
Brenner wouldn't comment on the likelihood of layoffs at FCAT, but he did make this observation: "We understand that we're in a cyclical business, and we're constantly adjusting the resources we put into things. But the company's commitment to innovation has been a constant, even through previous downturns."
If and when Fidelity cuts, it'll try to do it as quietly as it can. Some contractors have already been released, and many Fidelity employees who work on Net-related projects are holding their breath, waiting to hear whether they'll soon find themselves "pursuing other opportunities."
Should Fidelity decide to reduce the size of its technology ranks, the company needs to be extremely careful not to get rid of or demoralize its top performers. But the discipline of trying to do more with less can be clarifying. It can force you to focus on the technologies and projects that hold the most promise.
Innovating elsewhere
Earlier this month, the Boston Web strategy firm Viant decided to disband its own forward-looking Innovation Center, amid a layoff of 116 employees.
Almost immediately, David Rose, who had run the Innovation Center, resurfaced with a new start-up, Ambient Devices of Cambridge.
The new company explains its objective as making "devices and technology to move information off the screen and into people's everyday environment." A first product will likely be a frosted-glass orb, illuminated from within by colorful light-emitting diodes, called Stocklight. When linked to an Internet-connected computer, Stocklight would glow one color when a user's portfolio was up, another when it was steady, and a third color when it was down. Think of it as your own personal version of the old John Hancock building's beacon, where different colors indicate the weather forecast. The idea is to liberate Internet information from the computer screen.
What's exciting about Stocklight is that it can be programmed to convey any type of information -- like whether it's snowing at your favorite ski area, whether the Bruins are winning or losing, or what the traffic is like on your usual route to work.
But Rose and his colleagues at Ambient, who include MIT Media Lab alum Benjamin Resner, hope to sell the Stocklight initially to brokerages like Fidelity or Charles Schwab, who would in turn give them to customers to foster loyalty (and, ideally, more stock trades). The company is also prototyping other devices, like a pinwheel that would spin at different speeds to indicate traffic on a Web site, and a pair of "peer-to-peer" picture frames that light up when one member of a couple is thinking of the other. "It's kind of like blowing a kiss over the Internet," Rose says.
Ambient is currently trying to raise $1.5 million in seed funding to develop its first two or three products. "We're aggressively filing provisional patents," Rose says. "Our philosophy is to crank out prototypes, and see which things resonate with companies that might distribute them and with individuals."
When companies cut back on innovation, it has a tendency to pop up elsewhere.
Scott Kirsner is a Boston freelance writer and a contributing editor at Wired and Fast Company magazines.