Personal Finance: The Jonathan Davis Column - Net prophets await profits

Cyberspace is a world of rapidly changing fortunes and shifting alliances where few make money

The markets may have fallen into a state of high autumnal anxiety, but at least one upward trend in the UK investment scene shows, as yet, no sign of letting up. This is the rapid and exciting growth of users of the Internet as an investment medium.

The hype says that cyberspace will soon become a leading channel in the distribution of financial information and products. I believe that it is now beginning to happen, and a lot of the hype has proved to be justified.

Nobody has ever doubted the potential of the Internet to make an impact in the sphere of investments. It is relatively easy to see how it has the capacity to create an effective marketplace, which links investors and providers of financial services in a uniquely convenient way.

But with its distinctive counter-cultural flavour, and the inevitably unstructured nature of its development, it seemed natural to express caution about how quickly it would be embraced by the ranks of mainstream investors and financial service companies. Which other medium would a company such as Scottish Widows willingly share space with Amsterdam sex shows and Matt Drudge, the man who regularly recycles the latest scabrous rumours on the peccadilloes of Washington politicians?

However, now that the Internet has started to become a respectable plaything of the middle class, all that is changing fast. For investors, in particular, the Internet opens up such a wealth of valuable possibilities that its growth was always assured once word of its capabilities began to spread. It is no surprise that, in the US, the sophistication and breadth of Internet usage in this field is still way ahead of ours. But the gap is now starting to narrow here too.

This week, I talked to the man who now runs what is currently the largest independent UK investment site on the Internet. The site is called Interactive Investor (http://www.iii.com). The aim of the site is to bring together a wide range of information and transaction tools across the spectrum of the financial markets - everything from car and life insurance to pensions and the stock market.

Most of the leading Internet service providers - the AOLs and Compuserves of this world - are attempting to do the same thing with their dedicated "gateway" sites, as are big information companies such as the Financial Times, Reuters and Bloomberg. Just to confuse things, many of these companies also are hedging their bets by supplying packaged products to other providers.

All the big unit-trust firms and banks have their own sites and are looking for the best way to access the growing band of Internet consumers.

It is a complex and fluid market, but Interactive Investor is proving one of the most durable and successful competitors. The man who runs it is an engaging Englishman with an MBA from Harvard Business School called Alex Heath. He took on the job last year, with the task of turning what was a powerful concept - first started in 1995 by a Canadian entrepreneur - into a successful commercial business.

As the chart shows, the growth in popularity of the site has accelerated rapidly since its launch in 1995. Since the start of last year, in fact, the number of registered users has grown from about 10,000 to just less than 96,000.

The number of "hits" - a measure of how intensively used the site has been - has grown from a million a month, a year ago, to more than 15 million a month today. Given that this is only one site, albeit one of the most popular, these are remarkable figures.

They underline how enthusiastically - after the slow start - that both users and financial companies are now embracing the new medium. What Interactive Investor and others are tapping into now is something more than just business dabbling in a faddy new field. Intriguingly, the Internet is starting to prove its real worth not just as a channel of communication and information, but increasingly as a medium for sales. As Alex Heath points out, whereas initially investors used the Internet to research investment decisions, more and more are now moving on to carry out transactions as well.

In addition, about a third of the site's 100,000 registered users, according to Heath, actively monitor the value of their holdings, using Interactive Investor's portfolio management service. This is a powerful tool which automatically updates the values of each share you own from its market data feeds. To keep this in perspective, some of these portfolios appear to consist of shadow transactions, rather than real life buy and sell decisions, but the trend is clear enough.

Given that this can be done for no more than the cost of a subscription to an Internet service provider, and the related local-rate phone calls, the success of sites such as Interactive Investor is perhaps not that surprising.

What is still remarkable is how far and how rapidly usage is growing. If current market research projections are correct, then Internet access in the UK is set to double from 10 million to 20 million households by the early part of the next century. Financial services will be one of the major beneficiaries of this growth.

It is true that the Internet is still largely a field of dreams for wannabe entrepreneurs. Cyberspace is a strange place to do business - it is a world of rapidly changing fortunes and shifting competitive alliances - and very few, if any, participants have yet made money out of it. Interactive Investor is no exception, but its business is moving forward.

Advertisers like it as a medium, not only because it has a high conversion rate - those who see an advertisement are more likely to make a transaction than in many other mediums - but also because the feedback from users is easy to log and analyse.

Interactive Investor has the advantage of being a small firm with the Internet as its only business, which is competing against larger competitors who cannot decide if the Internet is a threat or an entirely new market.

Of course, any sustained slowdown in world stock markets may slow down the rate of growth in investor interest in this new medium. As the second chart shows, shares in American companies with Internet interests have already taken a pasting since the market started to wobble badly in July. But as a regular user of Interactive Investor and many other online services, my guess is that the momentum behind the growth in current demand is largely unstoppable. Once tried, it is hard to conceive of life without it.

Arts and Entertainment
Gregg Wallace in Summer's Supermarket Secrets
tv All of this year's 15 contestants have now been named
Sport
The giant banner displayed by Legia Warsaw supporters last night
football Polish side was ejected from Champions League
Arts and Entertainment
Could we see Iain back in the Bake Off tent next week?
tv Contestant teased Newsnight viewers on potential reappearance
News
i100(and it's got nothing to do with the Great British Bake Off)
PROMOTED VIDEO
Have you tried new the Independent Digital Edition apps?
Life and Style
ebooksA superb mix of recipes serving up the freshest of local produce in a delicious range of styles
Life and Style
ebooksFrom the lifespan of a slug to the distance to the Sun: answers to 500 questions from readers
Voices
The Ukip leader has consistently refused to be drawn on where he would mount an attempt to secure a parliamentary seat
voicesNigel Farage: Those who predicted we would lose momentum heading into the 2015 election are going to have to think again
Arts and Entertainment
Cara Delevingne made her acting debut in Anna Karenina in 2012
film Cara Delevingne 'in talks' to star in Zoolander sequel
News
i100
Sport
Mario Balotelli pictured in his Liverpool shirt for the first time
football
Life and Style
tech
Independent
Travel Shop
the manor
Up to 70% off luxury travel
on city breaks Find out more
santorini
Up to 70% off luxury travel
on chic beach resorts Find out more
sardina foodie
Up to 70% off luxury travel
on country retreats Find out more
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs General

    Java Developer - 1 year contract

    £350 - £400 Per Day: Clearwater People Solutions Ltd: Our client based in Cent...

    Junior Analyst - Graduate - 6 Month fixed term contract

    £17000 - £20000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    SAS Business Analyst - Credit Risk - Retail Banking

    £450 - £500 per day: Orgtel: SAS Business Analyst, London, Banking, Credit Ris...

    Project Manager - Pensions

    £32000 - £38000 Per Annum Bonus, Life Insurance + Other Benefits: Clearwater P...

    Day In a Page

    Ukraine crisis: The phoney war is over as Russian troops and armour pour across the border

    The phoney war is over

    Russian troops and armour pour into Ukraine
    Potatoes could be off the menu as crop pests threaten UK

    Potatoes could be off the menu as crop pests threaten UK

    The world’s entire food system is under attack - and Britain is most at risk, according to a new study
    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Gangnam smile: why the Chinese are flocking to South Korea to buy a new face

    Seoul's plastic surgery industry is booming thanks to the popularity of the K-Pop look
    From Mozart to Orson Welles: Creative geniuses who peaked too soon

    Creative geniuses who peaked too soon

    After the death of Sandy Wilson, 90, who wrote his only hit musical in his twenties, John Walsh wonders what it's like to peak too soon and go on to live a life more ordinary
    Caught in the crossfire of a cyber Cold War

    Caught in the crossfire of a cyber Cold War

    Fears are mounting that Vladimir Putin has instructed hackers to target banks like JP Morgan
    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years

    Salomé: A head for seduction

    Salomé's feminine wiles have inspired writers, painters and musicians for 2,000 years. Now audiences can meet the Biblical femme fatale in two new stage and screen projects
    From Bram Stoker to Stanley Kubrick, the British Library's latest exhibition celebrates all things Gothic

    British Library celebrates all things Gothic

    Forthcoming exhibition Terror and Wonder: The Gothic Imagination will be the UK's largest ever celebration of Gothic literature
    The Hard Rock Café's owners are embroiled in a bitter legal dispute - but is the restaurant chain worth fighting for?

    Is the Hard Rock Café worth fighting for?

    The restaurant chain's owners are currently embroiled in a bitter legal dispute
    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival

    In search of Caribbean soul food

    Caribbean cuisine is becoming increasingly popular in the UK ... and there's more to it than jerk chicken at carnival
    11 best face powders

    11 best face powders

    Sweep away shiny skin with our pick of the best pressed and loose powder bases
    England vs Norway: Roy Hodgson's hands tied by exploding top flight

    Roy Hodgson's hands tied by exploding top flight

    Lack of Englishmen at leading Premier League clubs leaves manager hamstrung
    Angel Di Maria and Cristiano Ronaldo: A tale of two Manchester United No 7s

    Di Maria and Ronaldo: A tale of two Manchester United No 7s

    They both inherited the iconic shirt at Old Trafford, but the £59.7m new boy is joining a club in a very different state
    Israel-Gaza conflict: No victory for Israel despite weeks of death and devastation

    Robert Fisk: No victory for Israel despite weeks of devastation

    Palestinians have won: they are still in Gaza, and Hamas is still there
    Mary Beard writes character reference for Twitter troll who called her a 'slut'

    Unlikely friends: Mary Beard and the troll who called her a ‘filthy old slut’

    The Cambridge University classicist even wrote the student a character reference
    America’s new apartheid: Prosperous white districts are choosing to break away from black cities and go it alone

    America’s new apartheid

    Prosperous white districts are choosing to break away from black cities and go it alone