Note: The portions of the Internet other than the World Wide Web and e-mail are excluded from these predictions as they are largely inaccessible to (or are largely unused by) the majority of users and do not carry significant amounts of commercial activity.

Current Situation and Analysis:

The phenomenal growth of the Internet, both as a communications tool and as a community in and of itself, has provided an opportunity for commercial organizations to expand their market reach through corporate pages on the World Wide Web (Web). Such Web pages provide provide contact with customers otherwise not exposed to a company’s products or advertising. The large and seemingly continually growing number of pages owned and run by financial service companies lends credence to the expectation that on-line transactions do and will comprise an important sector of this industry’s market share in the future; companies unable to provide their services electronically will loose overall market share to those who can and do, especially as the Securities and Exchange Commission (SEC) and technological advances give the green light to electronic trading. One example of this is Merrill Lynch, a traditional full-price brokerage which already had a Web site, which shocked the financial world by announcing their offering of on-line discount brokerage services; in order to maintain their prominence in the long-term they had to elect to provide comparable electronic services.

Thus both new and established companies have been forced to create Web sites which (1) generate leads, (2) provide data and information to keep potential consumer interest, and (3) provide for electronic transactions. Finding and informing potential customers electronically expands reach, requires fewer employees, lowers printing and mailing costs, and allows companies to “keep more of the take” as potential customers pay for network connections and software that would have to be provided if private networks were used. On the consumer side, electronic interaction and transactions are often less expensive in terms of both time and money. Thus consumers demand electronic interaction and transactions and companies, no matter how established in the traditional business world, must provide them in order to remain competitive. Additionally, companies must take full advantage of the on-line forum in order to maintain even their off-line performance.

A fringe benefit of the deluge of financial Web sites is the increased availability of a variety of inexpensive or free financial data and information. However, just as the very nature of the Internet is dynamic, the existence and availability of financial data and information is in a state of flux and will be for some time to come. Currently magazine, newspaper, and Web site authors all seem to agree on one thing: the number of sites offering financial data and information continues to increase, though the focus over the past few years has changed from individual sites to corporate sites, likely due to financial concerns.

This increase in information providers, however, does not necessarily mean that the amount of data net of replication is increasing; it does mean that the amount of data derived information (data presented in different manners providing different interpretations) is increasing sharply. This data and information is not immune to normal market forces for quantity and price and as the number of competing data and information providers continues to increase, market pressures have reduced the price, often to nothing; Firm A simply cannot sell the same data that Firm B is giving away unless Firm A is offering an additional or unique service. For example, stock quotes, which are not proprietary, are provided for free on just about every Web site while magazine and newspaper articles, which are proprietary, require a fee for access. Additional economic cost is incurred by the consumer through such devices that benefit site hosts as advertising banners, required registration, etc...
Even as the price to consumers of financial data and information falls, the costs of providing that information in a manner consistent with consumer expectations is increasing. As consumers become more familiar with the Web interface they demand faster, more informative, and more intuitive Web sites. These new user interface elements are not inexpensive to produce and maintain. This may help explain the shift of on-line financial information from individual and small corporate sites to larger corporate sites whose underlying resources are more plentiful.

Despite consumer demand and the continual rush to create and update commercial Web sites only 31% of all commercial Web sites are profitable from current sales.¹ This is shockingly low considering the high percentage of companies that maintain Web sites. It was previously thought that companies sponsoring sites, aside from the federal government, do so in the hope that the advertising value of the site will increase revenues and decrease costs enough for the site to prove a profitable venture; as time passed companies would require that sites be financially viable. This still seems a valid thought though other factors have entered the equation. Most importantly companies must increasingly offer on-line content and services in order to just retain, rather than increase, market share; simply maintaining current market share may prove vital enough to make Web sites economically viable when they aren’t profitable. Additionally, revenue from current sales due to Web presence does not constitute the only Web-based revenue for a company.

In addition to sales, Web-based revenue may derive from advertising and user fees. The majority of financial sites continue to devote portions of their space to advertisements, both for products of their own and products of other companies, and more advertisements are appearing on a regular basis. However just a few short years ago the supply of advertising sites exceeded demand and kept advertising revenues low. Surprisingly, as more companies (new or previously established) have gone on-line they have increased the demand for on-line advertising. Indeed, worldwide Internet advertising revenue will reach $1.5 billion in 1999 and is expected to hit $15 billion by 2003.² In contrast, user fees, or subscriptions, continue to be in the situation where the supply of data and information is much greater than the demand, making it necessary, as well as difficult, for companies to convince consumers that their particular subset of data and information exceeds their competitors’ in quantity or quality and thus merits the monetary cost.

With so many companies competing for advertising and user dollars to provide revenue from their Internet presence it seemed likely that many sites would be unable to recover either their set-up costs or their maintenance costs and thus would have to close down. While this has proven true for many independent sites, corporate sites have remained irrespective of profitability. Indeed, the number of corporate sites has increased, possibly due to the previously mentioned feeling that an Internet presence is necessary for maintenance of market share. While this change in focus from individual to corporate sites has not changed the amount of data and information, net of replication, available it has changed the nature and bias of interpreted information. However, the validity or accuracy of available data and information has not been and should not be adversely affected by the change in either available quantity or source as consumers are quick to identify overpriced, biased or inaccurate information and switch sources.

Conclusions:

The number of financial sites currently available is not supported by current funding mechanisms and levels however economic viability, rather than profitability, has become an end in itself. Thus individual sites have largely given way to corporate sites whose deeper pockets can support the monetary costs of this economic viability.

To be economically viable, sites must draw customers with unique information or services and keep them with copies of information and services available elsewhere. Thus replication of data and information will continue to increase as the number of corporate sites increases. While this many not affect the types or quantities of raw data, net of replication, available it may well affect the presentation, interpretation and cost. As long as federal government agencies continue to maintain their sites in a format free to users raw data will remain free. However, raw data is not necessarily valuable in and of itself and so a place will still exist for interpreted data and information put up by companies and financed by advertising or user fees.

While electronic transactions are an important source of revenue and market share for retail and financial service companies they are not a required for economic viability of corporate sites. As consumers have grown to expect easily available data and information about corporate products and services corporate Web sites have become necessary for the maintenance of market share through brand awareness, customer service and information. Thus while electronic transaction capability is necessary to retain market share in some industries, while it does provide for additional Web-based revenue, and while it adds significantly to the value of the Web, it has not proven vital to the existence of corporate web sites across all industries.

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Footnotes:

¹ <http://www.bizinter.net/WebMyth.htm0>

² <http://www.idg.net/crd_advertising_12202.html>

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