Selling Electricity Online? What the Internet Could Mean for Deregulation

Fortnightly Magazine - April 15 1998
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IS IT A FAD OR BUSINESS? According to a recent SmartMoney %n1%n article, about 3 million customers traded $120 million in securities on the Internet last year, generating $700 million in commissions for online trading firms.

While this sum marks just 5 percent of total commissions for securities trading, it accounts for a healthy 30 percent of commissions for discount brokerage. Online trading firms, nonexistent several years ago, now total more than 50. Evidence for this explosion can be seen in the recent advertising campaign for DLJ Direct and in the growth of Discover Brokerage Direct, both offshoots of full-service brokerage houses. All the same, in some businesses it can appear difficult to figure out how the new online ventures are planning to make money.

Consider telecommunications, for example, which has seen a certain degree of deregulation. Why have local and long-distance telephone carriers acted so slowly in utilizing the Internet? Given the nature of the customer base, technology and in-house capability common to a telecommunications carrier, one would have expected that sector to lead the way in capitalizing the power of the "information super highway."

This reluctance shows that until we see meaningful levels of customer acceptance, large companies will feel hard-pressed to commit much capital or resources to the Internet. Perhaps this reason also explains why, in the energy business, early forays in Internet commerce have come from smaller companies and entrepreneurs.

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