When I did a presentation of Twitter at our Enterprise and Government 2.0 event a few weeks ago, I spoke openly about one particular problem I have with social media. In short, I’m one of those people that thinks great ideas come along only once in a while, and I like to take my time to think about them, what it all means, how I might be able to contribute to the understanding of it / development of it, etc. As the blogosphere, twitter, and all the rest have exploded in popularity, not only can the continuous stream of information become overwhelming, but it’s easy to get caught up the game of only talking about what’s new – this week, today, or in the last couple of hours. There’s just so much information out there, that all the older stuff can get buried very, very quickly – as anyone who manages a blog can tell you.

In turn, today I wanted to go back and re-visit what is probably my very favorite example of Wikinomics in action- Motley Fool (investment advice), which launched the Motley Fool Beta Caps community in the Spring of 2006. It’s a site that represents how a company with a “traditional” business model can embrace the principles of wikinomics, community and collaboration in a very thoughtful way – while actually making money in the process. The key is that they have used the insights from their community to enhance their core value proposition, rather than replacing it. (Note: you can read Don’s original post about it from December 2006 here).

So some people believe in the efficient market hypothesis (EMH), which says everything that is collectively known about a stock is already priced into it – thus you cannot beat the market, which is the ultimate example of the “wisdom of crowds” in action. But many investors think otherwise (such as the most famous of all, Warren Buffett), and it’s important to remember that on the stock market opinions are weighted by capital – the “vote” of somebody managing a $100 Billion pension fund counts for a lot more than mine.

The Motley Fool is clearly not a believer the EMH, and built a business selling investment newsletters – basically their expert stock picks, which tend to focus on companies out of favor with the large funds and popular analysts. Given they were/are selling this unique expertise, one might think they would be highly resistant to any notion that a community – or the “wisdom of crowds” – might be able to identify the best stocks, as it could theoretically crush their business model (i.e. why by a newsletter when you can get the best ideas for free?). There are many, many companies that have reacted just that way to wikinomics-type developments. But instead, Motley Fool decided to embrace the notion, launching the aforementioned Caps Community in the Spring of 2006.

This community now represents the aggregated intelligence of some 130,000 investors (according to the press releases – it looks more like 60,000 on the site, with a subset of that being very active). The heart of this intelligence is a transparent stock picking process – when you picked it, at what price, and what you expected to happen, over a given time frame, with some description of why if you so choose. All if this information can be aggregated by user, by groups of users, and by the community at large. And the beauty of this community is that the knowledge created, and how it is shared, can be valuable to every investor – no matter what their mindset. This is something people often miss.

True believer in the “wisdom of crowds”? Obviously what the crowds is saying is of interest to you so you can do the same. Believer in the “madness of crowds”? Well then, it’s in your best interest to know what they’re thinking, so you can do the opposite. Believe that only a couple of people are likely to be great stock pickers? Then you can check out the top performers on the site over time – a luxury hardly available with (say) most mutual funds. If you want to get a feel for some of the different ways to slice the data, check out the Top Tens Lists page.

But that’s just within the community itself. Where Motley Fool gets really interesting, to me, is the tie-in back to their investment newsletter service. Every abundance creates a new scarcity, and the abundance of information available on Caps highlights the scarcity of time – it takes a lot of time to sift through all of that information on a regular basis. Moreover, my sense is that most investors are likely still a little hesitant to bet their retirements on the information from the community – whether it’s the crowd, EveryDayInvestor (the top-rated Fool), or some sub-group in between. Even with track records established, reading through the generally VERY short explanations for why particular stocks are chosen can give you pause – and we’re talking life-changing decisions here.

This is where the company itself jumps in, melding the community intelligence into their own offerings. Their staff regularly write blog posts and news stories that highlight potentially interesting stocks based on a combination of their own research, and the wisdom of the CAPs community. This one is a typical example – 5 Stocks Making Cash. They looked for companies generating free cash flow growth of 25% annually over 5 years, and cross referenced it with a intelligence of the CAPS community to generate a list of 5 potentially interesting stocks. They then provide a brief overview of one or two, while disclosing any of their own holdings. Similarly, you can check out their “4-Star stocks poised to pop” published on MSNBC a week ago, and many others can easily be found.

Wait a second you say – that’s still free information! Well yes, but it is fairly limited (they’ve done a little of the heavy lifting of sorting through the community intelligence for you), and very little context is provided. If you read through 100s of such stories and posts (as I have), you’ll note that most highly encourage you to use them as a base for your own research – or alternatively play somewhere between $79 and $199 for a newsletter that will do it for you. A typical example would be their Motley Fool Inside Value, which offers up two new ideas a month, and continuing, detailed coverage of all past picks. The more time you spend on the site, from my experience, the more interesting this offer is.

So if you tie it all together, it’s a compelling mixture. The community itself is valuable to the members, but also generates a lot of intelligence for the firm to leverage (and keeps potential customers coming back again and again). Those that never buy a thing  (preferring to do it all themselves) likely didn’t before either, and would be engaged with a different company if Motley Fool hadn’t done this, so there’s not much of a loss there – and there’s at least some advertising revenue here, plus the value of their contributions for everyone else. All the while, anyone that is a little hesitant to just taking that community intelligence on it’s own, or are too time starved to effectively do it, has the opportunity to pay a relatively small amount to have the rest of the heavy lifting done for them. <$200 a year is a mere pittance compared to, say, a 2.5% MER for most investors the Motley Fool would target. Pretty cool set-up.

Of course, the REALLY big underlying message here is that the Motley Fool better be damn good at what it does – this is all very transparent, so the whole model breaks down if the picks aren’t good. Simple as that. According to their comparison chart, Motley Fool does (and I feel more comfortable with it then other comparisons I’ve seen done in the past). And as far as I can tell, it’s one of the best examples of how a company can take all of this community and collaboration stuff to really enhance an already strong value proposition in a compelling way.

(Full Disclosure: I remain a “lurker” on the Motley Fool Site, after briefly testing out being a community member and deciding it wasn’t for me for various reasons. I am currently conducting an experiment where I purchase – with real money – stocks that emerge from some of these posts that meet 4 criteria: price has crashed recently, the story sounds logical and makes sense to me, it has CAPS community support, and one of the newsletters discloses ownership. I’m comparing the results to advice I steal/ borrow from the likes of Warren Buffett, The Ontario Teacher’s Pension Plan, John Dorfman, and a variety of others. If it performs well, I will very likely become a subscriber to at least one newsletter, strictly because of the time issue).