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This paper presents research done on the effects of the World
Wide Web on the individual stock market investor. It presents
the demographic breakdown, reasons for use, the benefits desired
and the issues faced by users. This study also explores the development
and future of electronic stock trading and digital stock exchanges.
Here are the results
from the surveys from January 1, 1997 to March 15, 1997 and March
16, 1997 to December 25, 1997.
This report represents my student research
project conducted as part of the requirements for the Electronic
Marketing class at the Leavey Graduate School of Business, Santa
Clara University. The report was not written by Santa Clara University,
the Leavey Graduate School of Business, or its faculty. Accordingly,
neither the University, the Leavey Graduate School of Business,
nor its faculty endorses the report's methodology or conclusions.
The University does not authorize the use of its name or the names
of the Leavey Graduate School of Business or the members of its
faculty in connection with any publication or dissemination of
its study or the results of this study.
The opinions and conclusions presented are
mine and is presented without any warranties. Standard Disclaimers
apply. This research may be used for any non-commercial purpose
provided it is properly cited.
1) The single biggest reason people use the
World Wide Web is because of convenience. The biggest concern
users have is security.
2) The majority of Internet users have been
trading for a long time. They are experienced traders, not novices.
Most investors use the Internet for information and research,
but still rely on brokers to execute their trades.
3) Most users only use services that are free
of charge. Women appear to be more willing to pay for Internet
services compared to men.
4) Many people expressed interest in electronic
trading, but few actually do because of perceived security problems.
5) Digital stock exchanges may be ahead of
its time.
2. Current Uses of the Internet and World Wide Web
3. Advantages and Benefits of using the World Wide Web
5. Internet Survey of Individual Investors
6. Quantitative Survey Analysis
7. Qualitative Survey Analysis - Aggregate Response
8. Qualitative Survey Analysis - Gender Bias
9. Comments and Feedback from the Survey
11. Recent Changes that Affect Internet-based Trading
Appendix 1 - Copy of Internet Survey
Appendix 2 - Excerpts from Survey Comments
Only a decade ago, the primary method by which individual investors were able to get information and trade on the stock market was by going to the stock broker's office or calling the broker on the telephone. Investors had to compete for the broker's time, and often, they were the last to know of any breaking news. That has changed.
First, telephone automation allowed investors to dial into the broker's computer system and place their trading orders without having to go through a human operator. Then, as personal computers and telecommunications became more prevalent, investors started to use their computers to dial into their broker's systems and conduct their transactions electronically.
Today, more then ever, individual investors are using the latest technologies afforded by the Internet and World Wide Web to increase their effectivity, efficiency and profitability in the stock markets. They now have timely access to news, reports and information, sometimes even before their brokers do.
This report and market survey is to analyze and evaluate the impact of the Internet and World Wide Web on the trading activities of individual investors. The objective is to get a sampling of investor sentiment about the usefulness and utility of the Internet, identify some emerging trends in the types of activities and applications most commonly used by internet-savvy investors, and predict the potential popularity of this medium for the future of stock trading practices. The terms "Internet" and "World Wide Web" (WWW) are used interchangeably in this text.
The following report begins with a brief description of some of the more common applications used for investing purposes on the Internet and World Wide Web. Next, the report explores some reasons why these applications are popular when compared against other electronic mediums including the telephone and personal computers connected directly to the stock broker. In the following section, some problems and opportunities created by this medium are presented.
The results of the survey conducted over the Internet is presented
next, followed by a quantitative and a qualitative analysis of
the results. The analysis is separated by aggregate responses
and gender bias. Next, some marketing considerations are presented
with a section on customer analysis and industry analysis. Recent
developments on the Internet and decisions of the SEC affecting
internet stock trading are explored after that. Finally, some
predictions about the future of the Internet and electronic trading
are made.
2. Current Uses of the Internet and World Wide Web
Almost everything that an investor needs to make informed investment decisions can be found on the Internet today. One of the most common activity is to get quotes on stock prices and other statistics. Today, investors can real-time quotes through the internet through web sites such as InterQuote Stock Service, Lombard, PC Quote, Real Time Quotes and many others. Real time quotes typically requires a small monthly service fee, or an account with the stock broker providing the service. Free, delayed stock quotes are also available on the web at sites such as Nasdaq FullQuote, Closing Bell, USA Today, Security APL and Quote.com.
The WWW also has extensive resources for investors to get the latest financial and stock related news, press releases and company announcements. Some web sites include CNN Financial Network, Business Wire, Financial Times and the Wall Street Journal Interactive Edition. Not only that, many publicly traded corporations now maintain their own web sites that include sections for corporate news and investor relations. A few examples include Cisco Systems, SUN Microsystems, Aetna and Coca Cola.
Some investors are also using the WWW to track the performance of their portfolio. This is a convenient feature because they can easily calculate the value of their investment portfolio in real time. Most web sites maintained by stock brokerages allow their customers to do this, such as E*Trade, Lombard Institutional Brokerage, e.Schwab and Fidelity Investments Brokerage Services.
In the past 3 years, many investors have started using the WWW to conduct their daily stock trading activities. At first, there were only a handful of on-line brokers, but today over 130 on-line brokerages are listed just on the Yahoo site. These on-line brokerages allow investors to place buy and sell orders in the convenience of the investor's home or office, without having to wait until their broker becomes available. Also, the most attractive feature of using on-line brokerages is that they typically are the most cost effective means of trading. Thus, on-line trading becomes a very attractive alternative for the small investor who cannot afford the typical broker commissions.
The Internet and WWW also provides investors with access to many forums for stock and investment related discussions. On Usenet, there are newsgroups dedicated to investing such as misc.invest, misc.invest.funds, misc.invest.futures and misc.invest.stocks. There are also e-mail distribution lists dedicated to investment discussions, such as investment-talk@mission-a.com. On the Web, there are very active bulletin board style forums set up for stock market enthusiasts such as Silicon Investor's StockTalk and the now infamous Motely Fool Forum. All these tools and forums allow investors to share and receive insights into stock and market trends that they would otherwise not be able to have.
Last, but not least are the recent developments in Internet Initial
Public Offerings (IPOs) and the groundbreaking efforts in the
creation of digital stock markets. Pioneered by a Wall Street
lawyer turned brewmaster, Andrew Klein conducted the first successful
Internet IPO for his beer-making venture, Spring Street Brewing
Company. Inspired by his success, Klein then formed the Wit Capital
Corporation, the first investment bank and brokerage firm created
to offer initial and secondary securities trading through the
WWW (1).
3. Advantages and Benefits of using the World Wide Web
The WWW offers investors advantages and benefits that were previously unavailable. Foremost is the convenience of being able to access vast amounts of stock market data and information. Information is now available at any time around the clock, and anxious investors no longer have to wait until regular office hours to retrieve critical information from their stock broker. In addition, this information can be accessed from the convenience of home, office or anywhere else the investor can get access to the Internet (2).
WWW users are no longer limited to outdated news through periodic sources such as newspapers or even television and radio news broadcasts. As soon as news is released, or hits the wire, WWW users can access that information. Such rapid dissemination of information benefits the individual investor as the timely data allows them to make better informed decisions. As information and trading decisions are more rapidly propagated through the investment community, the adjustment in stock prices will lead to a more efficient capital market. This model supports the Semistrong-Form Efficient Market Hypothesis that contends that security prices adjust quickly to the release of all public information such that current prices fully reflect all public information (3).
Some investors who use on-line brokerages find that their trades are executed must more efficiently and rapidly compared to making a phone call to their stock broker. Now, investors can send trade orders to the trading floor at the speed of light, without having to wait until their stock broker is available on the phone.
The WWW also provides a wide variety of analysis tools to aid the serious investor. Such tools range from simple graphs and charts of historical data, to complex technical analysis that predicts the movement of stock prices. Investors also have the choice of using on-line portfolio tracking tools that can automatically place a buy or sell order when certain events are triggered such as an increase or decrease in stock price. All these tools serve the user by providing them with better information for making investment decisions.
Another positive feature of using the WWW is that many users enjoy
the novelty of using the WWW for the first time. As more tools
and services are offered on the Internet, some investors enjoy
the opportunity to explore new ways to invest their money. Besides
that, with the growing popularity of the Internet, many young
investors strive to become internet-literate simply to keep up
with the in-crowd.
4. Problems and Opportunities
Trading over the Internet is not without its problems. Foremost on the list is the issue of security. Although data encryption offers a method of controlling access to sensitive data, many investors still perceive this as a risk and may be afraid to conduct business over the Internet. Closely related to this issue is the electronic transfer of money. Again, until investor concerns are resolved, many brokerages still rely on conventional means to transfer money (4).
Although rare in occurrence, some investors are concerned about the lack of recourse should any problems cause a transaction to be lost or not executed. Brokerage companies may not be liable since they can claim they never received the order from the investor. Additionally, some on-line investors have expressed frustration with on-line brokers because of the inadequate computing and networking resources, which lead to unacceptable delays in sending and receiving information. This often happens when the growth of users exceed the pace at which equipment is added or upgraded.
Electronic trading also poses some problems for the brokers especially in higher risk transactions. Some on-line brokers such as Jack White and National Discount Brokers do not allow short selling and uncovered options completely, while others like E*Trade will process these orders manually (5). Ironically, stock brokerages are reluctant to allow the use of e-mail because they are undecided if they should monitor all e-mail as they do for all regular mail, or not monitor it, like a phone call to the broker (6).
The recent introduction of Internet IPOs also creates some new concerns. New and inexperienced investors, caught up in the novelty of trading through the WWW may not realize that IPOs conducted over the Internet may be more risky than trading through a regular stock exchange because a secondary market may not exist for investors to sell the shares in the future (7).
The U.S. Securities and Exchange Commission (SEC) also has some concerns about Internet IPOs. To date, all Internet IPOs have been completed under Regulation A, which has simplified and less stringent registration requirements than the requirements under Section 3(b) of the Securities Act of 1933 (8). Since the registration process is less rigorous and the companies filing do not have to disclose as much information, it is more difficult to control fraud and manipulative activities. In addition, it is often very difficult to control and authenticate the information being disseminated on the Internet. In one case, the price of Iomega Corp. from Roy, Utah dropped $7 after an inaccurate earnings estimate was posted anonymously on the Internet (9).
Regulation A also requires issuers to file for permission to issue securities in each state they wish to sell the securities in. Each state has its own securities regulation (known as "Blue Sky Laws"), which allow the security administration to approve or reject an issue based on their evaluation of the "desirability" or "undesirability" of the issue. For Internet IPO issuers who want to reach investors in other states, getting the approval of each state can become an expensive and long process (10).
Another problem that exists is the enforcement of "intrastate
offerings.", where certain securities can only be to residents
of a given state. Through the Internet, geographical boundaries
do not exist, so all transactions require the verification of
the investor's state of residence (11). This
is both costly and inefficient.
5. Internet Survey of Individual Investors
A mini-survey was conducted over the internet from July 26 through August 3, 1996 to get a sampling of what some users felt about using the Internet and WWW for stock trading activities. The survey was posted to the misc.invest and misc.invest.stocks Usenet newsgroups, the investment-talk@mission-a.com mailing list and the internal "investlist" alias at Cisco Systems, Inc. A copy of the survey can be found in the Appendix.
The objectives of the survey were as follows:
1) Determine any demographic patterns in the usage of Internet technology by individual investors.
2) Identify any trends and preferences in the types of services and tools used by Internet-savvy investors
3) Discover the benefits sought and main reasons why investors use the Internet.
4) Evaluate the general sentiments about the relative popularity and future of Internet based stock trading and digital exchanges.
There are a number of known limitations of this survey:
1) Due to the extremely short survey period to accommodate the dateline for this project, only a very small sample of responses was gathered. The sample size is too small to be statistically viable for population estimates. The sample size from women was especially small. As a result, any generalizations made may encompass a significant amount of error.
2) The respondents are all self-selected from a very narrowly targeted segment of internet users. Thus, their responses may be highly biased. No attempt was made to evaluate the inputs of people who do not currently use the Internet for investing purposes.
3) This survey was not professionally designed or executed. It was this student's first attempt at conducting a survey over the internet. Some flaws in the design, execution, collection and analysis of the survey can be expected.
4) Subjectiveness of responses. For example, the categories "Never",
"Sometimes" and "Often" used in this survey
are highly subjective depending on the individual.
6. Quantitative Survey Analysis
Each table is comprised of the category of the question, the responses,
the total number of responses for each subcategory and the corresponding
number in percent form. Next, the percentages are further broken
down by gender.
| Sex | Male | 64 | 86.5% | Percent | Percent | |
| Female | 10 | 13.5% | Male | Female | ||
| Age | Under 21 | 1 | 1.4% | 1.6% | 0.0% | |
| 21 - 30 | 18 | 24.3% | 25.0% | 20.0% | ||
| 31 - 45 | 44 | 59.5% | 57.8% | 70.0% | ||
| 46 - 55 | 9 | 12.2% | 12.5% | 10.0% | ||
| 56 and up | 2 | 2.7% | 3.1% | 0.0% | ||
| Years Trading | 0 - 1 | 9 | 12.2% | 12.5% | 10.0% | |
| 1 - 3 | 14 | 18.9% | 18.8% | 20.0% | ||
| 3 - 5 | 16 | 21.6% | 18.8% | 40.0% | ||
| 5 - 10 | 10 | 13.5% | 14.1% | 10.0% | ||
| More than 10 | 25 | 33.8% | 35.9% | 20.0% |
A total of 74 responses were received by the
August 3rd dateline. Sixty four were from men, and ten were from
women. Nearly 60% of the respondents were in the 31-45 age group,
with the second largest group belonging to the 21-30 years group
with 24.3%. About 34% of those surveyed had more than 10 years
of trading experience, 221.6% had 3 to 5 years experience, and
18.9% had only 1 to 3 years experience. The groups from 0 to 1
year and 5 to 10 years both has about 14% each. The breakdown
by gender shows that the majority of the respondents were in the
31 to 45 year age group. Most of the women (40%) had 3 to 5 years
trading experience, compared to 35.9% of men who had more than
10 years experience.
| Phone Trades | Yes | 24 | 32.4% | 34.4% | 20.0% | |
| No | 50 | 67.6% | 65.6% | 80.0% | ||
| Modem Trades | Yes | 17 | 23.0% | 26.6% | 0.0% | |
| No | 57 | 77.0% | 73.4% | 100.0% | ||
| WWW Investment Related | Yes | 65 | 87.8% | 90.6% | 70.0% | |
| Activities | No | 9 | 12.2% | 9.4% | 30.0% |
Most of the respondents have not used automated
phone trading or a direct modem connection to their brokers. Only
32.4% have used the phone, and 23% have used a direct modem connection.
However, nearly 90% of the same people have now used the Internet
for stock trading and other related investment activities. None
of the women surveyed have traded by connecting directly to their
broker's private network and 80% of the women have never used
the telephone to place automated trades. Only 70% of the women
have used the WWW for investment related purposes compared to
90.6% of men.
| Real Time Quotes | Never | 35 | 53.8% | 56.9% | 28.6% | |
| Sometimes | 11 | 16.9% | 19.0% | 0.0% | ||
| Often | 19 | 29.2% | 24.1% | 71.4% | ||
| Delayed Quotes | Never | 9 | 13.8% | 13.8% | 0.0% | |
| Sometimes | 9 | 13.8% | 8.6% | 57.1% | ||
| Often | 47 | 72.3% | 77.6% | 28.6% | ||
| Portfolio Tracking | Never | 24 | 36.9% | 34.5% | 42.9% | |
| Sometimes | 15 | 23.1% | 22.4% | 28.6% | ||
| Often | 26 | 40.0% | 43.1% | 14.3% | ||
| Graphs & Charts | Never | 7 | 10.8% | 10.3% | 14.3% | |
| Sometimes | 24 | 36.9% | 37.9% | 28.6% | ||
| Often | 34 | 52.3% | 51.7% | 57.1% | ||
| Research | Never | 8 | 12.3% | 12.1% | 14.3% | |
| Sometimes | 24 | 36.9% | 34.5% | 57.1% | ||
| Often | 33 | 50.8% | 53.4% | 28.6% | ||
| Forums/Discussions | Never | 21 | 32.3% | 29.3% | 42.9% | |
| Sometimes | 20 | 30.8% | 32.8% | 14.3% | ||
| Often | 24 | 36.9% | 37.9% | 28.6% | ||
| Electronic on-line trade | Never | 49 | 75.4% | 75.9% | 57.1% | |
| Sometimes | 7 | 10.8% | 10.3% | 14.3% | ||
| Often | 9 | 13.8% | 13.8% | 14.3% |
Of the most popular and common tools and resources
provided by the Internet, by far the most popular is the use of
Delayed Stock Quotes. 72.3% of those who use the WWW claim that
they use this "often", while only 13.8% claimed that
they "never" used it. The next most popular use of the
WWW is for doing graphing and charting, with 52.3% "often"
and 36.9% "sometimes". Doing research on a stock or
company is next, with 50.8% using it "often" and 36.9%
using it "sometimes" only. On the other side of the
spectrum, 75.4% have never done an on-line trade, and only 46.2%
use the WWW to get real time stock quotes. The popularity of free
delayed stock quotes, stock graphing and charting tools, and access
to research data is consistent among the men and women. However,
71.4% of women use the WWW for real time quotes, compared to only
24.1% of men.
| Why use the WWW? | Timely data | 53 | 81.5% | 81.0% | 85.7% | |
| Access News | 53 | 81.5% | 81.0% | 85.7% | ||
| Discussions | 22 | 33.8% | 36.2% | 14.3% | ||
| Convenient | 56 | 86.2% | 86.2% | 85.7% | ||
| Faster Execution | 16 | 24.6% | 19.0% | 71.4% | ||
| Fun | 36 | 55.4% | 55.2% | 57.1% |
Of the reasons cited most often for using
the WWW, convenience ranks the highest. 86.2% of those who responded
listed this as one of the reasons they used the WWW. The next
two most popular reasons for using the WWW are the ability to
get timely data and information, and the ability to access more
news, articles and data related to the stock and stock market,
tied at 81.5%. Slightly more than half the respondents regarded
the WWW as a more entertaining alternative compared to traditional
means. Only 24.6% use the WWW because of better response times
in executing trades. These patterns hold for both men and women
surveyed. However, 71.4% of women prefer using the WWW for faster
trade execution compared to only 19% of men, and women are less
likely (14.3%) to participate in on-line discussions or forums
then men (36.2%).
| Continue using WWW? | Yes | 62 | 95.4% | 96.6% | 85.7% | |
| No | 0 | 0.0% | 0.0% | 0.0% | ||
| Don't Know | 3 | 4.6% | 3.4% | 14.3% | ||
| Made more money using | Yes | 27 | 41.5% | 41.4% | 42.9% | |
| WWW? | No | 12 | 18.5% | 17.2% | 28.6% | |
| Don't Know | 26 | 40.0% | 41.4% | 28.6% |
Almost all those who are currently using the
WWW will continue to use it, although 4.6% are unsure about using
the WWW in the future. A significant number of users (41.5%) have
made more money through the use of the Internet, 18.5% have not,
and 40% are unsure if they made more money or not.
| Preferred Trading Method | Full Service | 23 | 24.7% | 31.3% | 30.0% | |
| Discount Broker. | 31 | 33.3% | 39.1% | 60.0% | ||
| Automated Phone | 8 | 8.6% | 9.4% | 20.0% | ||
| Modem to Broker | 11 | 11.8% | 14.1% | 20.0% | ||
| WWW | 20 | 21.5% | 26.6% | 30.0% | ||
| Preferred Source | Trad. Broker | 12 | 15.0% | 18.8% | 0.0% | |
| of Information | Automated Phone | 4 | 5.0% | 3.1% | 20.0% | |
| Electronic | 7 | 8.8% | 7.8% | 20.0% | ||
| WWW | 57 | 71.3% | 76.6% | 80.0% |
Most surveyees (33.3%) preferred to use discount
brokers for their daily trades, followed by full service brokers,
at 24.7%. Close behind are the 21.5% who prefer trading through
the WWW. However, 71.3% of those same people prefer to get their
news and stock related information through the Internet, with
only 15% preferring to go through their stock broker.
| Interested in electronic | Yes | 59 | 79.7% | 79.7% | 80.0% | |
| on-line trading? | No | 3 | 4.1% | 4.7% | 0.0% | |
| Don't Know | 12 | 16.2% | 15.6% | 20.0% | ||
| Will the electronic trading | Yes | 44 | 59.5% | 57.8% | 70.0% | |
| become more popular | No | 17 | 23.0% | 23.4% | 20.0% | |
| than traditional brokers? | Don't Know | 13 | 17.6% | 18.8% | 10.0% | |
| Will digital stock exchanges | Yes | 34 | 45.9% | 46.9% | 40.0% | |
| become more popular than | No | 20 | 27.0% | 31.3% | 0.0% | |
| traditional stock markets? | Don't Know | 20 | 27.0% | 21.9% | 60.0% |
Finally, while 79.7% expressed an interest
in trading stocks electronically over the Internet, and 59.5%
believe that electronic trading will become more popular than
going through stock brokers, only 45.9% believes that a digital
stock exchange will become more widely used than the current stock
exchanges.
7. Qualitative Survey Analysis - Aggregate Response
The gender mix of the survey confirms that the Internet is still primarily the domain of men. The percentage of women who responded to the survey (13.5%) is also not very far off from the number of women who have high internet and web use of 22% as reported by Hoffman and Novak (12). One possible reason why this number is lower is because there are more men than women who trade in the stock market.
Although the 31-45 group has the largest range, it still represents the largest group of investors who are also active on the internet. While most of the respondents have more than 10 years of trading experience, the smallest groups are from the 0 to 1 and 5 to 10 year ranges. This may suggest that stock market investors who also use the Internet are very experienced investors who like to keep up with the latest technologies, or they are from the group of people who have jumped on the Internet and WWW bandwagon that started about 3 years ago. Another reason to support this theory is that the majority of the people in this survey have used the WWW, but not used some of the older methods of automated trading such as through the use of a touch-tone phone or by dialing into a stock broker's computer system.
The popularity of Internet based tools has a strong link to the relative cost of the tool or service. This is clearly demonstrated by the fact that free services such as delayed stock quotes are highly popular, while the least popular are services that typically require fees or usage charges, such as real time quotes and on-line trading. Also, convenience, timeliness of information and access to data rank highest in importance to users of the WWW. This suggests that people who use the WWW for investing want to have quick, accurate access to data, whenever and wherever they want it, but they prefer not to pay for it.
Although most on-line investors are not making more money through the use of the Internet, almost all of them will continue to use the WWW to supplement their investment resources. This means that they believe they are receiving some benefit through the use of the WWW, even though it is not in monetary terms.
On the other hand, on-line trading is not as widely used, even though
most on-line brokers offer extremely low commission rates. Obviously, when it comes to trading, the cost of trades is not the primary concern. The speed at which the transaction gets executed also appears to not be a factor as it scored the lowest for reasons to use the WWW. It is clear that while investors like to use today's Internet technology to receive and analyze data without incurring any cost, they have other concerns that prevent them from taking advantage of the lower commission rates by trading on-line. Some of these reasons have been discussed in the previous section.
Discount brokers are the most popular way for the respondents to execute their trades, followed by full service brokers. However, the WWW is by far the most popular source for investors to get their information and news. What this means is that internet-savvy investors are depending less on their brokers for information. Instead, they prefer to get that information themselves from the Internet. This will impact full service brokers the most. As more people learn to use the internet to make investment decisions, their need and use for full service and full commission brokers will decrease. Stock brokers will have to find other ways to provide services that are of value to high-tech investors.
The internet investor's concerns about security is once again demonstrated by their willingness to participate in an Internet IPO, and their optimism that electronic trading over the Internet will replace traditional stock brokers as the preferred method of trading. However, given that only one fourth of those surveyed have actually used on-line trading, this optimism may be a strong bias. It appears that most people think that electronic trading will become popular, but they are waiting for others to make that happen.
Lastly, the idea of a digital stock exchange
may still be ahead of its time. Less than half the people surveyed
believe that this concept will become popular enough to replace
the traditional stock market.
8. Qualitative Survey Analysis - Gender Bias
In both sexes, the majority of the people who responded were from the 31 to 45 years age group. Although the sample size is small, 7 out of the 10 women who responded were from this category. On a larger sample size, results of this magnitude would suggest that women are taking longer to get involved in the stock market through electronic mediums. The distribution for men, on the other hand seems to indicate that men get involved with the stock market at an earlier age.
A comparison of the experience level between men and women shows that the median group of women have 3 to 5 years of trading experience, while the median group for men had more than 10 years experience. Again, this implies that the men surveyed have been involved with the stock market a lot longer than women.
The survey also shows that women are not very far behind the men in using the Internet for investment purposes, although they appear to have less experience with automated phone trading and the use of private stock broker networks.
The strongest gender bias in the usage of different tools and functions of the WWW is probably the higher use of real time quotes by women. Over 70% of women surveyed use this service, compared to only 43% of men. This may suggest that women are more willing to pay for premium services over the internet.
The most important feature provided by the Internet is convenience, speed and access to data. These preferences hold for both the men and women surveyed. However, women prefer using the WWW for faster trade execution compared to men, and women are less likely to participate in on-line discussions or forums.
There appears to be little or no gender bias
in the most preferred methods of trading (Discount broker) or
the preferred source of investment data (World Wide Web). Both
men and women had about the same interest levels in electronic
trading and opinions about the popularity of electronic trading
versus traditional methods. Both sexes were equally uncertain
about the popularity of digital stock exchanges.
9. Comments and Feedback from the Survey
The survey allowed participants to include comments and opinions about the reasons for using the Internet, and the popularity of electronic trading and on-line brokerages.
Besides the reasons listed in the survey, some people use the WWW to "keep an eye" on their broker, presumably to get a second opinion. Others use the services on the WWW to support the activities of their investment clubs. The importance of convenience was also reiterated by a few users.
Among the people who felt that trading stocks and securities over the internet would become more popular and prevalent than trading through traditional stock brokers, there seemed to be a general dissatisfaction with their stock brokers. Others felt that their stock brokers were not adding value and were not focused on the interest of the investors.
On the other hand, some people believe that human interaction is an integral part of investing because they need guidance and reassurance from their brokers. Another reason why stock brokers are still needed is because many people are not technologically inclined and do not know how to use the Internet.
Some people believe that digital stock exchanges will become more popular than current stock exchanges because the ability to trade directly over the internet allows investors to eliminate the middle-persons in the transactions, reducing trading costs in the process. Others believe that electronic brokerages will allow 24-hours trading, which will result in higher trading volumes.
Reasons against the popularity of digital exchanges include technophobia and resistance to change. The human factor is again cited as a reason why fully digital exchanges may not become popular.
Overall, there is a sense that the Internet
provides convenience, although security remains a major concern.
A summary of some of the comments received can be found in Appendix 2.
10. Marketing Considerations
This section discusses some of the marketing
considerations that have to be addressed by marketers developing
internet-based investment tools and services. The areas presented
are customer analysis and industry analysis.
Customer Analysis
1. Identify the Customer
The first step in developing any marketing plan is to identify and segment the customer and develop a Typical Consumer Profile. Segmentation analysis through demographic studies and consumer market history can all be used to identify the segments or market niches that has the most potential market. A detailed sociographic study may reveal the best profile for an investor who will do his/her investment through the Internet.
2. Understand Customer Needs and Wants
Determine the benefits from the types of services and products that the customer wants, including how customers perceive these products and services. Tools for doing this include conjoint analysis, perceptual maps, focus-groups and surveys. The mini-survey conducted for this report indicates that investors generally want tools and services that are convenient, fast, accurate and free of charge.
3. Satisfy Unmet Needs and Wants
Evaluate how well the service or product meets the needs of the customer. These products and services may need to be positioned in the right segment, which may not always be the targeted segment. For example, women appear to be more willing to pay for real time stock quotes compared to men. Understanding what need this satisfies may lead to the development of other marketable products and services.
4. Evaluate Market Potential of Targeted Segment
Before committing further resources to developing the products or services, the economic feasibility of the project needs to be calculated. Research and data is needed in this process. Some assumptions have to be made to address some of the unknown variables. The market potential for on-line services is especially difficult to estimate because it is difficult to even estimate the total market size, i.e. how many people there are on the Internet.
5. Determine the value of the product to the customer
The ideal price for the product or service
will depend on what value the customer perceives the product or
service to have. Understanding the relationship between the customer's
desire for the product and their sensitivity to the price will
help determine the price they are willing to pay. For electronic
trading, customers will typically seek the most value for their
money, i.e. the cheapest broker.
Industry Analysis
The electronic stock market and trading industry
can be evaluated using the Strengths, Weaknesses, Opportunities
and Threats (SWOT) model. Some of the factors in each category
include the following:
Strengths
Weaknesses
Opportunities
Threats
11. Recent Changes that Affect Internet-based Trading
The Internet has evolved at a tremendous rate since it was started, and there are no signs of slowing down. Many more changes are underway, some of which are directly related to the issues surrounding electronic stock markets and trading.
Recently, the SEC has showed its support for Internet-based stock exchanges. In one case, the SEC permitted an Internet-based bulletin board system to be used by a Ukiah, CA-based cataloguer called Real Goods, to conduct the sales and exchange of stock among investors without the need for brokers and registration with the federal government. This event has been hailed as the first step towards more internet based stock offerings (13).
The SEC has also made some revisions to the Regulation A Offering Process. These revisions:
a) Increase the dollar amount for the maximum offering amount from $1.5 million to $5 million in any 12-month period.
b) Provisions for issuers to "Test the Waters" by soliciting indications of interest from potential investors before issuers incur the expense of preparing the offering circulars and financial statements.
c) Allow firms that demonstrate "Substantial Compliance" to proceed with the offering if no significant deviations from Regulation A are found.
d) Streamline disclosure requirements by the
SEC for new issuers (14).
In July, 1996, another change by the SEC now allows brokers and investment advisors to deliver electronic documents, including trade confirmations, to investors through the Internet, without having to send a duplicate paper copy (15).
On the commercial side, a few brave firms have started up new companies to allow investors to trade electronically without going through brokers. The first to do so is Wit Capital Corporation (http://www.witcap.com/), which claims the title as the "World's First Digital Investment Bank and Stock Exchange" (16). Other similar companies now include WebIPO (http://www.webipo.com/) and IPONet (http://www.zanax.com/iponet/)
To facilitate the creation of policies that
develop direct public offerings over the Internet, the Direct
Public Offering (DPO) Council was set up. The council is also
committed to ensuring that small businesses have access to capital-formation
through direct public offerings while ensuring that investors
are "treated fairly and receive complete disclosure regarding
the companies and their transactions." (17)
12. Trends for the future
The following are predictions for some possible
future developments affecting Internet-based stock markets and
electronic trading:
13. Conclusion
The WWW is just a new, novel toy that improves the retrieval of information for investors. The most popular uses of the WWW are for Delayed Stock Quotes, Graphing and Charting stock data, and doing research on stocks. What users want the most from the WWW today is convenience and free access to timely news and data. Most users appear to prefer using services and products that are free. Although the men surveyed had more trading and on-line experience, women are more willing than men to pay for certain services. The use of full service and discount brokers are most popular among most investors, but the World Wide Web has become the most preferred source for investment information.
While most investors who use the Internet
expressed interest in electronic trading, few of them actually
do because of some serious problems and concerns. Foremost are
the issues of security, privacy, data integrity and reliability,
and electronic transfer of funds. Until these concerns are satisfactorily
addressed, on-line trading will never become as popular as dealing
directly with a personal stock broker. Furthermore, the use of
digital stock exchanges may be an idea ahead of its time and traditional
stock markets are in no jeopardy of becoming extinct.
1.
Wit Beer Founder to Build World's First Digital Investment Bank
and Stock Exchange, http://plaza.interport.net/witbeer/wit_pr.html,
April2, 1996.
2.
Grand, James E. and Gary Lloyd, Internet IPOs: A Potential Oasis
for Small Companies, Upside Publishing, http://upside.master.com/print/july96/ipo.html,
July, 1996.
3.
Reilly, Frank K. and Edgar A. Norton. Investments. 4th
ed.Fort Worth: The Dryden Press, 1995.
4.
Internet Stock Offerings, http://www.law.miami.edu/~froomkin/seminar/papers/desmond/htm
5.
Foust, Dean. "How to Make Money the Newfangled Way."
Business Week, April 8, 1996.
6.
Spiro, Leah Nathans. "With the World Wide Web, Who Needs
Wall Street?" Business Week, April 29, 1996.
7.
Internet Stock Offerings, http://www.law.miami.edu/~froomkin/seminar/papers/desmond/htm
8.
Ibid.
9.
Grand, James E. and Gary Lloyd, Internet IPOs: A Potential Oasis
for Small Companies, Upside Publishing, http://upside.master.com/print/july96/ipo.html,
July, 1996.
10.
Internet Stock Offerings, http://www.law.miami.edu/~froomkin/seminar/papers/desmond/htm
11.
Ibid.
12.
http://www2000.ogsm.vanderbilt.edu/baseline/internet.demos.july9.1996.html
13.
Wasserman, Elizabeth, SEC Approves stock trades on Net, San
Jose Mercury News, http://www1.sjmercury.com/news/nation/netipo625.htm,
June 26, 1996.
14.
Revision of the Regulation A Offering Process, http://www.garnett.com/interpre.html,
1996.
15.
SEC says no paper needed, Web Review, http://webreview.vom/96/05/14/news/biz2.html,
May 14, 1996.
16.
Wit Capital News and Development, Wit Capital Corporation,
http://www.witcap.com/pr_1.htm
17.
McMasters, Gretchen, Formation of Direct Public Offering (DPO)
Council Announced, The Direct Stock Market, Inc., http://www.scor-net.com/dponet/pr41196.htm
==================================================================
Please check the appropriate
box
1. What is your sex? ___
Male ___ Female
2. What is your age range?
___ Under 21
___ 21-30
___ 31-45
___ 46-55
___ 56 and up
3. How long have you been an investor in the stock market?
___ 0 - 1 year
___ 1 - 3 years
___ 3 - 5 years
___ 5 - 10 years
___ More than 10 years
4. Have you ever used automated phone trading systems through a stock
broker (i.e. you call a number and use the touchtone pad to place an order)?
___ Yes ___ No
5. Have you ever used a computer and modem to place orders by dialing
in to your broker? (Not going through the internet)
___ Yes ___ No
6. Have you used the World Wide Web for any stock and investment
related activities?
___ Yes ___ No (Please
skip to question 11)
7. Which of these following Web and Internet applications have you
used for investment related
purposes? Please check all that apply:
Never Sometimes Often
Real Time Quotes ____ ____ ____
Delayed Quotes ____ ____ ____
Portfolio Tracking ____ ____ ____
Graphing & Charting ____ ____ ____
Research on stocks ____ ____ ____
Forums/E-mail discussion ____ ____ ____
Electronic Trading ____ ____ ____
Others, please list:
i) ________________________________ ____ ____ ____
ii) _______________________________ ____ ____ ____
8. Why do you use the WWW for the reasons you checked in item 6
above? Please check all that apply:
___ More timely access to data
___ Access to more news and information
___ Discussions with other investors
___ More convenient
___ Better response time (faster trades)
___ More fun and interesting
Others, please list:
__________________________________________________________________________
__________________________________________________________________________
9. Do you plan to continue using the World Wide Web for investment
related purposes?
___ Yes ___ No ___ Not
Sure/Don't Know
(Optional) If "No", why not?
__________________________________________________________________________
__________________________________________________________________________
10. Has using the Internet/World Wide Web helped you make more money?
___ Yes ___ No ___ Not
Sure/Don't Know
11. Which method do you prefer most to do your trading?
___ Full service broker
___ Discount broker
___ Automated trading over the phone (no operator)
___ Electronic trading through direct connection to broker
___ Through the Internet
& World Wide Web
12. Which method do you prefer most for getting your information?
___ Traditional full service broker
___ Automated trading over the phone (no operator)
___ Electronic trading through direct connection to broker
___ Through the Internet
& World Wide Web
13. Would you be interested in buying and selling stocks on the internet
through a digital stock exchange, without having to deal with brokers or
pay any commissions?
___ Yes ___ No ___ Not
Sure/Don't Know
14. Do you think that trading stocks and securities over the internet
will ever become more popular and prevalent than trading through
traditional stock brokers?
___ Yes ___ No ___ Not
Sure/Don't Know
(Optional) Why?
__________________________________________________________________________
__________________________________________________________________________
15. Do you think digital stock exchanges will become more popular than
the current stock exchanges?
___ Yes ___ No ___ Not
Sure/Don't Know
(Optional) Why?
__________________________________________________________________________
__________________________________________________________________________
Any additional comments:
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
__________________________________________________________________________
End of Survey
A) Other reasons to use the WWW:
B) Will trading stocks and securities over the internet become more popular and prevalent than trading through traditional stock brokers?
Positive:
Negative:
C) Will digital stock exchanges become more popular than the current
stock exchanges?
Positive:
Negative: