The kind of entrepreneur I like

Last week we were in Boston and met up with Mukesh Chatter, CEO of MoneyAisle. People ask me the kind of conversation I like having. This is it. A new business that I hadn’t heard of that is adding real value. A smart executive who can explain how it works clearly, cleanly (it lets you buy investment instruments like certificates of deposit through a reverse auction with 80 banks. The price you get is a lot better this way and it also is aimed at taking Google out of the advertising picture). Good story for the turbulent economic times we’re heading into.

I’m off to fly to New York tonight to meet the world’s top designers. More on the other side. Any other entrepreneurs like this? Drop me a line. scobleizer@gmail.com

61 thoughts on “The kind of entrepreneur I like

  1. Ben, it would be more useful if you name the bank and the rate it offered you.

    In my second last paragraph of the previous comment, what I meant, which is clear but still for clarification, is that technically, if MIT professors are benefitting from Moneyaisle, then it is the same conflict as Kevin mentioned in his defence of Moneyaisle. Kevin can’t choose which conflicts we should ignore and which we not. So could Kevin certify that professors of MIT have nothing to gain if Moneyaisle succeeds.

  2. Ben, it would be more useful if you name the bank and the rate it offered you.

    In my second last paragraph of the previous comment, what I meant, which is clear but still for clarification, is that technically, if MIT professors are benefitting from Moneyaisle, then it is the same conflict as Kevin mentioned in his defence of Moneyaisle. Kevin can’t choose which conflicts we should ignore and which we not. So could Kevin certify that professors of MIT have nothing to gain if Moneyaisle succeeds.

  3. Kevin and Emily:

    Bankrate.com runs reverse auction once you order their listings by APY. Moneyaisle also runs an auction. The question you could ask is whose auction is more efficient and better for consumers. Bankrate.com auctions favors consumers, and Moneyaisle.com auction favors bankers. Both businesses take their fee from banks. The main difference is that Bankrate.com is more transparent and Moneyaisle is opaque. Bankrate.com is more efficient so it could pass the savings in terms of higher interest rate to consumers, where moneyaisle can’t.

    An auction is a price setting mechanism, where either one or both sides picks up the best deal. In case the underline auction is a commodity, e.g., a stock on wallstreet, you do not typically run a separate auction for each buyer or seller. You run a common auction, to match the best offers from both sides.

    Money is a commodity. A bank would as happily take my $ as yours. So the bank has no reason to offer you a different APY than me. Therefore it is inefficient to portray it that way. A more efficient way is to run a single auction, and put all the bids on a board. That auction is called posted prices. That’s what you see on bankrate.com. That’s what actually happens on moneyaisle too but in a rather expensive and opaque way. It shows the same highest APY if I run the auction twice consecutively. And thanks God for that, because if not then I would have to run the auction 100′s of times, causing more inefficiency.

    If you compare moneyaisle with Ebay, then you need to study auction 101. Ebay has millions of different types of goods. So posted prices do not makes sense. So one needs to run the expensive procedure of determining the prices, called auction. Where somebody sells multiple items of the same kind, many actually choose the posted price method on Ebay.

    There is another difference on Ebay or say priceline.com. They requires commitment from both the sides. Typically you can squeeze water from stone. Price setting is a zero sum game, in fact negative since one has to spend time and money to come with an agreeable price. So you need to increase the underline value to create benefits on both the side.

    If moneyaisle makes my locking of interest rate a commitment on both sides, then I could have agreed that Moneyaisle could enable additional interest rate for me, in exchange of my commitment. But Moneyaisle does not require any commitment, so there is no reason for any bank to offer any extra interest rate than they post at bankrate.com. Therefore, if you know proxy bidding, what ever they post on bankrate is their proxy bid on Moneyaisle.

    Therefore if WaMu puts 5% APY on bankrate.com. WaMu will put 5% proxy bid at Moneyaisle. So if the second highest on Moneyaisle is at 4.39% APY, WaMu’s proxy bid will end at 4.40% APY at Moneyaisle. So the consumer lost 0.6% APY on Moneyaisle and WaMu got it.

    Now, if you bring ratings, I do not trust anybody’s ratings. Bankrate.com gives me this right so that I could choose the bank I trust even if it offer a little less APY. But why should a consumer trust Moneyaisle ratings. Show the consumers all the bids, so that the consumer could sometimes choose another bank with a little less APY.

    Last, Kevin, since you work for Moneyaisle. Please take a single stand. Your founder says FDIC insurance make deposits a commodity, so there is no reason for the user to choose any lower rate. You say that the ratings are important. Well if it is not important then you may not be showing me the best offer according to my own perceived value of banks. You are forcing me to trust your own rating system. May be I may want to go with a well known bank even if it gives me 2% less APY. A transparent system offers me this choice, an opaque and expensive auction system like Moneyaisle.com does not give me this choice.

    Emily, regarding trusting MIT professor, well it is like trusting a model on her choice of shampoo. It is fine as long as you know that model is not paid, because after all the model perhaps paid more attention to her shampoo choice than us. Moneyaisle could be a fine profitable business because it provides better value to banks, but it may not be the best choice for consumers. Or one day, Moneyaisle may provide better value to consumers too, but that day is not today.

    The current financial situation could be made better by bringing more transparency and not more opaqueness.

  4. Kevin and Emily:

    Bankrate.com runs reverse auction once you order their listings by APY. Moneyaisle also runs an auction. The question you could ask is whose auction is more efficient and better for consumers. Bankrate.com auctions favors consumers, and Moneyaisle.com auction favors bankers. Both businesses take their fee from banks. The main difference is that Bankrate.com is more transparent and Moneyaisle is opaque. Bankrate.com is more efficient so it could pass the savings in terms of higher interest rate to consumers, where moneyaisle can’t.

    An auction is a price setting mechanism, where either one or both sides picks up the best deal. In case the underline auction is a commodity, e.g., a stock on wallstreet, you do not typically run a separate auction for each buyer or seller. You run a common auction, to match the best offers from both sides.

    Money is a commodity. A bank would as happily take my $ as yours. So the bank has no reason to offer you a different APY than me. Therefore it is inefficient to portray it that way. A more efficient way is to run a single auction, and put all the bids on a board. That auction is called posted prices. That’s what you see on bankrate.com. That’s what actually happens on moneyaisle too but in a rather expensive and opaque way. It shows the same highest APY if I run the auction twice consecutively. And thanks God for that, because if not then I would have to run the auction 100′s of times, causing more inefficiency.

    If you compare moneyaisle with Ebay, then you need to study auction 101. Ebay has millions of different types of goods. So posted prices do not makes sense. So one needs to run the expensive procedure of determining the prices, called auction. Where somebody sells multiple items of the same kind, many actually choose the posted price method on Ebay.

    There is another difference on Ebay or say priceline.com. They requires commitment from both the sides. Typically you can squeeze water from stone. Price setting is a zero sum game, in fact negative since one has to spend time and money to come with an agreeable price. So you need to increase the underline value to create benefits on both the side.

    If moneyaisle makes my locking of interest rate a commitment on both sides, then I could have agreed that Moneyaisle could enable additional interest rate for me, in exchange of my commitment. But Moneyaisle does not require any commitment, so there is no reason for any bank to offer any extra interest rate than they post at bankrate.com. Therefore, if you know proxy bidding, what ever they post on bankrate is their proxy bid on Moneyaisle.

    Therefore if WaMu puts 5% APY on bankrate.com. WaMu will put 5% proxy bid at Moneyaisle. So if the second highest on Moneyaisle is at 4.39% APY, WaMu’s proxy bid will end at 4.40% APY at Moneyaisle. So the consumer lost 0.6% APY on Moneyaisle and WaMu got it.

    Now, if you bring ratings, I do not trust anybody’s ratings. Bankrate.com gives me this right so that I could choose the bank I trust even if it offer a little less APY. But why should a consumer trust Moneyaisle ratings. Show the consumers all the bids, so that the consumer could sometimes choose another bank with a little less APY.

    Last, Kevin, since you work for Moneyaisle. Please take a single stand. Your founder says FDIC insurance make deposits a commodity, so there is no reason for the user to choose any lower rate. You say that the ratings are important. Well if it is not important then you may not be showing me the best offer according to my own perceived value of banks. You are forcing me to trust your own rating system. May be I may want to go with a well known bank even if it gives me 2% less APY. A transparent system offers me this choice, an opaque and expensive auction system like Moneyaisle.com does not give me this choice.

    Emily, regarding trusting MIT professor, well it is like trusting a model on her choice of shampoo. It is fine as long as you know that model is not paid, because after all the model perhaps paid more attention to her shampoo choice than us. Moneyaisle could be a fine profitable business because it provides better value to banks, but it may not be the best choice for consumers. Or one day, Moneyaisle may provide better value to consumers too, but that day is not today.

    The current financial situation could be made better by bringing more transparency and not more opaqueness.

  5. William, Bankrate.com order the listings but not according to your benefit but according to its own benefit. Any business would do that. Search engines order the ads according to their own benefit. Same as Moneyaisle.com. A business could only portray that it lists the deals according to consumers benefit, but it always lists the deals according to its benefit. Here is a theoretical proof: your bank has the best interest rate but gives no or overall much smaller commission to bankrate or moneyaisle, in that case they would not perpetually surface your bank’s listing, at least not at the top. The good thing is that you could see lower listings on bankrate.com and moneyaisle would not show you lower listings.

  6. William, Bankrate.com order the listings but not according to your benefit but according to its own benefit. Any business would do that. Search engines order the ads according to their own benefit. Same as Moneyaisle.com. A business could only portray that it lists the deals according to consumers benefit, but it always lists the deals according to its benefit. Here is a theoretical proof: your bank has the best interest rate but gives no or overall much smaller commission to bankrate or moneyaisle, in that case they would not perpetually surface your bank’s listing, at least not at the top. The good thing is that you could see lower listings on bankrate.com and moneyaisle would not show you lower listings.

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