Vladimir Tenev and Baiju Bhatt, two students from Stanford created platforms for finance companies who believed that they could create an app that would help people by removing commission fees. Tenev and Bhatt intended to help millennials, they believed that if people had student loans why not let the market pay back the student? The idea was to give millennials a foot in the door, since most millennials do not have thousands of dollars in capital. The app has an interesting business model and value proposition which is causing an uproar in other well-known brokerages.
RobinHood was intended for a niche market, aiming primarily at millennials, however as RobinHood gained attention and momentum it has become an alternative to other well-known, established brokerages.
In order to analyze RobinHood, I will begin by mentioning the app has many advantages compared to other brokerages. The app creates a portable way to manage your stocks and finances by linking your bank account to your RobinHood account. The marketers intended the audience to find it easy, reliable, and commission-free for its users. Other brokerages may be complicated with the influx of information they give, while RobinHood appeals to a novice by providing a chart and news regarding the stock. RobinHood has had advertisements and has gained popularity and momentum by some notable celebrities who have given the app two thumbs up.
RobinHood’s business model is simple, they aim to cut out the middle-man, or disintermediation. Instead of getting a broker or paying additional fees for each trade, RobinHood gives the user the freedom to make their own trades free, effectively saving the user money and time. Their business to consumer supply chain saves money and time while giving the consumer free reign. Instead of using a broker and paying fees like Etrade, RobinHood allows the user to buy and sell stock directly to the stock market without any additional costs.
Their value proposition gives investors the most money they can make without having to pay commissions on each trade. They stand apart from other brokerages by giving commission-free trades and allowing an entire new target market into the stock market. Instead of managing the money through others, thus giving the user the most bang for their buck. Solely an app, this appeals to millennials as they are the targeted market with their affinity for app usage.
While most brokerages have a minimum account balance in order to have an account, RobinHood has no minimum requirement. Ideal for users with less money to invest in. For example, if you had $300 to invest, you could put it into your RobinHood account and choose which stocks you want to invest in without having to pay $10 on each trade. This is a market that the “big dogs” say, Etrade, Ameritrade, and Scottrade, are all too familiar with, but the possibility of skipping the middle-man is advantageous for people that don’t want to spend $10 on small trades.
Users who invest on RobinHood see the results immediately, while other brokerages may have a delay, RobinHood provides a simple interface that any novice could understand. RobinHood has implemented a unique, portable way to reach its consumers without the hassle of fees and information overload.
Their source of revenue works by cutting out the middle-man and giving the stock trades directly to the consumer. Their site explains that they earn revenue by “payment for order flow”, which entails they earn money from a third party for handling the transaction. Also, from users who upgrade to margin accounts and interest from untouched balances. They have earned $66 million from investors such as Snoop Dogg, NEA, and Google Ventures. By having enough downloads of their app they are also gaining revenue while simultaneously garnering attention. At the moment, they only have an app but have released merchandise, and are working on expanding internationally.
RobinHood was intended for a niche market but has sparked the interest of celebrities and more traditional investors are taking notice. Etrade, Ameritrade, Scottrade are more well-known brokerages and have established a firm market base, however RobinHood is creating a new, innovative approach to stock trading. When the app was released for android, within its first day of coming to the market, RobinHood received 50,000 downloads in the playstore. RobinHood created its popularity were through advertisements, and traction from the online community.
RobinHood has created value for its target customers by giving them commission-free trades with a likable interface. In order to create an account, you simply have to download it onto your smartphone, there is no need to make any calls, all you have to do is provide your information to link to your accounts and you are set.
ZxcfhjvWith its value proposition, disintermediation business model, and revenue, RobinHood has propelled itself and has garnered the attention from more traditional brokerages. With the intention of bringing a new segment into the stock market, they have effectively gained more consumers in the process. Only time will tell if other brokerages will feel a large impact on their businesses, now that RobinHood is circulating.
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