Market Analysis Summary
Staryoo.com will be focusing on the individual investor as the target market for its trading platform. Of the 45 million investors in China, almost 90% are individuals. As the availability of computer technology and Internet access increases, it is anticipated that this segment of investors will grow by 20% per year. Additionally, research indicates that online trading accounts have increased over 500% from the end of 1996 to present, and are expected to grow by an additional 60% by the end of 2002. Retail commissions generated by online trading are expected to grow to $2.2 billion by 2001. The market for online services is new and rapidly evolving and will promote intense competition. Currently, the competition for online financial services in China is very limited and lacks the sophistication which, we feel, will be required as individual investors take increased control over their financial future. Staryoo.com is positioning itself as China’s premier investor website and will capitalize on the explosive growth anticipated in this industry.
4.1 Market Segmentation
The segmentation allows some room for estimates, due to the rapid growth of the Internet in China. Additionally, it can only be estimated what the effect on investing will be when foreign markets are available, once China becomes a member in the World Trade Organization. The most recent estimate of the number of Chinese investors indicates that there are 40 million individual and five million institutional investors as of 1999. As individuals take more control of their financial planning, we anticipate that this segment will see explosive growth. According to Mr. Ren Peng, Vice President for Haitong Securities Co., LTD., the second largest brokerage in China, it is estimated that the number of individual investors in China will increase to 250 million by 2005. This equates to an annual increase of 38% per year. The institutional segment is estimated to grow by approximately 20% per annum.
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4.2 Target Market Segment Strategy
Staryoo.com will be targeting the individual investor. Our strategy will be to position our website and services as a better way of handling securities transactions, accessing financial and market data, and strategizing on investments. According to International Data Corporation, a market research firm, 30% of individual investors will trade online by 2002. Given that by 2002 there will be an estimated 105 million individual investors, this equates to over 30 million online traders in China. Staryoo.com’s trading platform, with its unique functionality and features, will be ideally suited for this group.
4.2.1 Market Trends
In the past, individual investors could access the financial markets only through a full-commission broker, who would offer investment advice and place trades. These expensive full-service brokers prevented individual investors from trading the markets in a more rapid fashion as commissions and fees quickly eroded profits. Additionally, by requiring personnel to handle each transaction, most traditional brokerage firms restrict their clients’ access to trading and information to the availability of the person processing the transaction. With the emergence of electronic brokerage services, investors are being given the ability to unbundle the costs associated with the human interaction required by full-commission brokers.
We believe that the increased presence of automated teller machines, the growth of discount brokers and a variety of other indicators evidence a shift in demographics that is fundamentally altering the way consumers manage their personal financial assets. Access to information over the Internet, and the growing availability of more powerful, less expensive personal computers has helped create a new type of investor. This investor is more self-reliant, comfortable with technology, value-oriented, and accepts the Internet as a convenient, secure, and reliable means of commerce. Based upon these developments, we believe that this trend has created a growing opportunity to provide online trading services, such as Staryoo.com, that are easy to access, easy to use, cost effective, and secure.
4.2.2 Market Growth
Staryoo.com believes that the increased availability of information to individual investors on a real-time basis, together with government-sponsored advances in Internet access, networking and communications technologies, and China’s membership into the WTO will create tremendous investing opportunities for Web-based investors and market opportunities for Internet trading platforms. In the United States, online trading is the fastest growing segment of the brokerage industry. Forrester Research, Inc. projects that the online trading industry grew from 1.5 million accounts at the end of 1996 to approximately 5 million accounts at the end of 1998, and the market will grow to 8.4 million accounts at the end of 1999, and 14.4 million accounts in 2002. Another industry report indicates that the number of online trades in the United States accounts for 25% to 30% of all individual investor stock transactions, and the volume of trades placed over the Internet increased by 34% from Q3 1998 to Q4 1998. Retail commissions generated by online trading are expected to grow from approximately $268 million in 1996 to as much as $2.2 billion by 2001!
4.2.3 Market Needs
Currently, there are a number of Web-based trading platforms in China but their interfaces and functionality are very inadequate for more sophisticated investors. We believe that as more investors utilize Web-based trading platforms to manage their investment portfolios, they will expect their online platform providers to have broader capabilities. We believe these investors will differentiate among providers based on their capabilities. These capabilities must include:
- Websites that are customer-friendly and easy to navigate and use.
- Multiple points of access to services that are fast, secure, and reliable.
- High levels of online and offline customer service.
- Efficient and quick order entry and processing.
- A wide range of investment tools.
- Educational services for customers.
- An ability to execute trades outside of current markets and market hours.
4.3 Service Business Analysis
The market for online investing services, particularly over the Internet, is new, rapidly evolving and, we feel, soon to be intensely competitive. We expect competition to continue to intensify in the future. Staryoo.com will encounter direct competition from other Internet-based trading platforms and full-service brokerages providing either touch-tone telephone, online investing services, or both. Additionally, we will also compete with financial institutions, mutual fund sponsors and other organizations, some of which may provide online investing services. As China’s equity markets are opened to foreign investors and foreign investment in China increases, foreign Web-based investing services will compete with Staryoo.com.
We believe that the principle competitive factors affecting the market for our services will be customer service, quality, delivery platform, ease of use, presentation layer look and feel, depth and breadth of services and content, innovation, and cost. We believe that we will compete favorably with respect to each of these factors. Our ability to continue to compete will also be affected by our ability to introduce new services and enhancements to existing services into the market on a timely basis.
4.3.1 Business Participants
There are several Internet trading Websites in China, but their functionality is less than that planned for Staryoo.com and they offer little in the way of user functions. The most noted financial Website is by Information Technology Co., Ltd. whose target is “to become China’s top financial Website.” Established in 1995, Homeway is currently the only online investment advisor to be certified by the China Securities Regulatory Commission, though they do not currently offer Web-based securities trading. Currently there are only four websites offering some type of Web-based trading platform, and each sites’ total features are much less than those proposed by the Staryoo.com site.