Few businesses gained as many new customers during the dot-com peak as online brokerages. Commercials showed stay-at-home moms checking their portfolios for midday gains and gangly underachievers becoming rich by trading online.
But as the stock-market bull remains in a lengthy hibernation, the number of people who qualify as active traders has tumbled. So has the number of trades conducted at the largest online brokerages, which have stepped up diversification efforts to replace lost revenue.
Although the current environment appears grim, analysts say that online trading has kept its footing, thanks largely to established brokerages that are offering multichannel options to customers -- particularly active and wealthy investors.
"A lot of the houses have gone straight for the affluent investor, and they've locked
them in by saying they could trade any way they want," Kathleen Sindell, a professor at
Johns Hopkins University, told the E-Commerce Times.
"You can trade online, you can call, you can use your
PDA 
, and, if you're wealthy enough,
you can get in touch with your personal broker."
Target Spotted
While brokerages have not forgotten about average investors, their reasons for targeting wealthy customers are manifold.
According to Forrester Research analyst Betsey Stevenson, 80 percent of affluent U.S. households -- those that have US$1 million to invest -- are online, well above the national average. And affluent households are more likely than others to seek information about financial opportunities online.
"They're attracted by information much more than by entertainment," Stevenson told the E-Commerce Times. "They are a ready-made target audience."
Altered Landscape
That is not to say the online trading landscape is rosy; it has been changed irrevocably by the recent boom-and-bust cycle, which has highlighted both the benefits and drawbacks of the online medium.
For example, E*Trade (NYSE: ET) is defending itself
against a number of lawsuits related to a series of outages dating back to 1999. And many
investors have expressed frustration over the pace of trades made during the heaviest
selling times after the markets peaked in the spring of 2000.
But in the wake of dot-com mania, investors are more realistic, according to Sindell. While a coworker's recommendation might have been enough to prompt a stock purchase at one time, investors now are cooling their heels, making fewer trades and spending more time researching each one, she said.
Education Efforts
The National Association of Online Investors (NAOI), formed last year, is based on that premise. The site is about to launch a new Web platform for investor education, including a lengthy online study course on the intricacies of the public market.
"Individuals who have taken the initiative to learn how to invest have more confidence in the market and in themselves," NAOI president Leland Hevner told the E-Commerce Times. "They feel they have the knowledge and tools to steer clear of potential disasters."
Changes Ahead
Sindell, who also wrote the book Online Investing for Dummies, said the stock market fallout likely means that fewer people will actively trade stocks.
Those who are closer to retirement will stop altogether, she noted, while younger investors will be more likely to base future stock purchases on solid information. Brokerages can address those concerns by offering several products to customers, rather than by focusing all of their attention on stock trading.
Given recent concerns about corporate ethics, investors also will want to trust their
brokerage more than ever before, Sindell added. This desire will give a further
advantage to well-established, real-world houses like Fidelity and
Charles Schwab (Nasdaq: SCHW) , which
have made massive investments to beef up their Web offerings.
"Online trading will come back along with the market -- but it will look a lot different
than last time around," Sindell said.
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