Net sites need more focus to survive in brave new world

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The Independent Online

I am quite sad to see the end of TheStreet.co.uk, the personal finance website that closed abruptly last week. It follows in the wake of the sale of moneyeXtra.com, another site aimed at a broadly similar market, a relentless slide in the share price of Interactive Investor International (iii.co.uk), one of the other market leaders, and figures showing that online broking seems to have reached the limits of growth in this country much more quickly than elsewhere in Europe.

I am quite sad to see the end of TheStreet.co.uk, the personal finance website that closed abruptly last week. It follows in the wake of the sale of moneyeXtra.com, another site aimed at a broadly similar market, a relentless slide in the share price of Interactive Investor International (iii.co.uk), one of the other market leaders, and figures showing that online broking seems to have reached the limits of growth in this country much more quickly than elsewhere in Europe.

The irony for TheStreet.co.uk is that, according to its local management, the business had met all its financial targets and, while being far from profitable, had at least been winning support from advertisers. It has simply become a victim of the problems at its parent company, TheStreet.com, whose share price in the States has also been plummeting like a lead balloon, prompting an inevitable review of its priorities.

Whatever the truth in this, TheStreet.co.uk's demise is a pointed reminder of how far the internet has still to go before it can become the enduring investment tool that many hope and believe it can be.

There was nothing wrong with the content of TheStreet.co.uk. Unlike many other personal finance portals, it was firmly rooted in high-quality financial journalism. Just as impressive was the clear way in which content was laid out, and the smoothness with which one could navigate around the site, something that remains a problem with many other sites, including some (such as FT.com) where one would frankly expect rather better technical quality.

Only last week, I discovered that TheStreet.co.uk had introduced a new method for presenting fund performance figures, which allowed the visitor to see some of what you really need to know, which is how a fund has performed year by year in both absolute and relative terms. Most other sites still confine themselves to giving only one-, three- and five-year return figures, all of which basically tell you the same story in three different ways, and have little value taken in isolation.

Alas, my plans to pass on this valuable nugget of information to you have proved in vain, as the site has not only closed, but been yanked from the ether altogether. (I can, however, pass on to you another useful fact, which is that you can now for the first time access Fitzrovia's figures for fund total expense ratios by visiting iii.co.uk - a site which, I hope, has more robust prospects as an independent operator than its current share price seems to be indicating).

There are two big problems with the whole issue of online personal finance sites. One, which is well-documented, is a fundamental flaw in the business model which most of these sites are pursuing. This relies mainly on advertising and other sources of income, such as licensing, rather than on users paying for what they are getting. The theory is that only by attracting large numbers of "eyeballs" - as you and I are known in the trade - can a business hope to build up sufficient loyalty and brand recognition to have any hope of getting paid eventually for the information they are providing.

Several things have turned out to be wrong with this model. For one, it encourages users to believe that online means "will cost you nothing", which is always a bad start for any business, and one that tends to attract the "wrong kind of customer" (aka cheapskates). It is no surprise to me that The Wall Street Journal has done much better with its subscription-only online service, since most people naturally tend to assume that something of real value is probably worth paying for. A fee-based service also has the advantage of discouraging the deeply unedifying illiterates who seem to make up the bulk of "chat room" or "forum" contributors.

In any event, although the barriers to entry were so low last year, when buckets of cheap capital were knocking around, it inevitably means that competition has been fierce. If there is a game worth winning at all in the online personal finance business, it is one that those with the deepest pockets and the best existing brand names must be favourites to win. Since the initial excitement about all things Net-based last year, nearly all the main sites have experienced a sharp drop in visitor numbers since the spring. Users have become more selective and discriminating about where they visit, which now in turn threatens to undermine the already fragile advertising revenue potential of this new medium.

The second problem with personal finance sites is that none of them, it seems to me, have yet got their product entirely right. Many seem confused about whether their target audience is the active trader type (who makes up a large part of US usage, and is generally interested in share price information), or the general user, who can see the potential for becoming a bit better informed about mortgages, insurance and the rest of those dull but worthy subjects. Too many sites, as I noted here last year, have been so desperate to acquire "content" that they have taken information from all sorts of places without really stopping to think through whether what they are offering is actually worth having, or appropriate for the users.

Lack of focus was certainly visible at TheStreet.co.uk, which combined a range of personal finance material with articles on technical analysis and regular columns on trading tactics. While the quality of its reporting and analysis of company results was in the main part up to the quality of the national newspapers (not surprisingly, since most of the staff came from them), it seemed to me to suffer from not being sure whether that was what it was trying to be. If it was just an online version of a newspaper or a personal finance magazine, what was its rationale and competitive edge? All it had was immediacy and the fact that it cost nothing. But the first is now effectively a commodity: there are so many different ways to access financial news that you cannot build a new business on that alone. And, of course, the fact that an internet service may be free has to be set against the fact that it is time-consuming to access and cannot be read in the bath or on the Tube, which remains the great selling point of traditional print media.

The truth is that there are some fabulous things you can do to turn the internet to your advantage as an investor. As long as it remains free, it is a wonderfully convenient research tool for those who know what they are looking for. For example, if you are interested in what Alan Greenspan or Warren Buffett have been saying, you can now read it for yourself.

I can see some arguments for thinking that quite a few people will eventually also use the internet to monitor and even carry out transactions for their portfolios. But this is something that most providers, from banks to fund management companies, will soon be providingfor you in a personally customised (though not necessarily efficient) way. Do the personal finance sites that attempt to intermediate this process and give it all to you forfree have a future in the brave new world? If they do, it certainly isn't clear to me.

davisbiz@aol.com

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