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Investing and the social media revolution

  • 27 June 2012

Investors can tap into the social networking trends that saw Microsoft announce a $1.2 billion deal yesterday to acquire Yammer, a Twitter service for companies.

Microsoft's acquisition of the four-year-old internet start up is a defensive move by the software giant, making up for lost ground in backing social networking for businesses, as reported by the Financial Times.

Businesses are increasingly using social networks for corporate purposes, whether to communicate internally or reach out to their customers. Investors in turn are starting to bypass mainstream media, and mine information on sites such as Twitter for investment decisions.

Businesses adopting social networking

Microsoft claims that Yammer already has more than 5 million corporate users, including employees at 85% of the Fortune 500 companies.

Yammer allows employees to join a secure, private social network for free, which can then lead their corporate IT departments to subscribe to premium management and administration tools, as highlighted by this post on GeekWire.

Steve Ballmer, Microsoft chief executive officer, was quoted in the Seattle Times as prizing Yammer not just for its social networking capabilities, but also for this "viral adoption model".

Ballmer said: "Yammer now has a sales model that we like: viral adoption by the end user, the consumer inside some kind of professional organization, with the option for IT to buy enterprise-level capability and management."

Social networking for investors

Professional investors are also starting to use social networking, particularly to access breaking news before it hits traditional outlets, as covered by Inside Investor Relations yesterday.

Robert Peck, president of Co-Rise Co, a digital media-focused merchant bank was quoted saying: "If you see a lot of people on Twitter talking very negatively about RIM shares, and then RIM shares start to decline an hour later, you can see investors are harnessing the data on StockTwits or Twitter."

Joshua Brown, vice president of investments at Fusion Analytics Investment Partners and author of the Reformed Broker blog, also considers that buy side institutions are increasingly using social media to source and discover their own information.

Although the numbers are difficult to establish, Brown asserted that: "Almost everyone at a buy-side company or an independent of some stripe is on Twitter.

"It doesn't mean they're tweeting, but they are listening."

Moneywise emphasised last week that many companies now have Twitter accounts used to communicate not just with customers but also increasingly with investors, while traders are taking to the platform in their thousands.

Angus Campbell, head of market analysis at Capital Spreads, was quoted as saying that he thinks the speed at which stories spread on Twitter has proven the micro-blogging platform's worth to investors: "Twitter is now playing an important role in trading, as it is a quicker medium of communicating than blogs and emails."

Finding your way through the Twittersphere

The major issue remains identifying which voices to trust, amidst the clamour of the social networking sites.

Investors can narrow their Twitter searches by putting the dollar ($) symbol in front of the search term, to discover a mass of financial comment and news.

Information is further refined on the financial communications platform StockTwits, which aims to organise streams of information around stocks and markets.

StockTwits aggregates and sorts all the $ tweets, and moderates the streams. Filtering the information means, according to Paul Pearman, the site's executive editor, that "people can't just come along and pump and spam stocks".

The platform claims that more than 150,000 investors, market professional and public companies use it to share information and ideas about the market and individual stocks, with many millions more viewers.

In London, hedge fund Derwent Capital already offers investors the chance to use Twitter to gauge the mood of the stock market. It follows tweets and charts the number of times certain words rise above or fall below average, according to reports by the BBC.

Paul Hawtin, Derwent's chief executive officer  and founder, said investors accept that "fear and greed" drive markets, but before social networking no one has had the technology or data "to be able to quantify human emotion".

The fund uses a tracker developed by academics from the universities of Indiana and Manchester. The researchers' paper on "Twitter mood predicts the stock market" is published here.

Social networking as a source of news

However investors select their sources, web-savvy experts argue that social media could be a better source of information than reading the press or watching the news, where an editor or producer determines which opinions get aired.

Inside Investor Relations quoted Brown as saying: "People who have a publicist get on television. It doesn't mean they're necessarily good or smart – or right. Social media, on the other hand, really are a meritocracy."

 

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