Over $1 trillion of new US household assets will move online over the next four years triggering competition between online firms that will be as intense (and as expensive) as the competition for new accounts in 1998 and 1999. The forecast, published by research house IDC, says total online assets will approach $2.6 trillion in 2004.
High-income households (earning over $100,000) will continue to represent a significant growth opportunity for online brokers, as this segment contributes the majority of all online assets. By 2004, almost all high-income households will access the Internet, and more than half will utilise online brokerage services, says IDC. By 2004, high-income households will comprise 40% of all online accounts, but will represent two-thirds of online assets. Meanwhile, moderate to lower income households (below $50,000) will hold 5 million online accounts, and make up 24% of the market.
"This will introduce the opportunity for segmentation strategies in marketing, pricing, servicing, and even in site design and business models," says Shaw Lively, research manager with IDC's online financial services research group.
As the online investor population becomes more diverse, firms must find competitive differentiation by taking advantage of their strengths, beliefs, and view of online opportunities, says Lively.
IDC expects the online brokerage business model will evolve from a one-size-fits-all product to encompass at least four distinct business models: the "Supermarket" (including E*Trade and TD Waterhouse), the "Best of Breed" (Schwab, Ameritrade), "Traditional Brokers with Integrated Online Channels" (MSDW, Merrill Lynch), and the "Niche Players" (such as JP Morgan, which targets the affluent segment).