Q: Why did you start Profits Over Time?

Mermelstein: We started Profits to fill two specific market niches. These are (1) long term investors looking to use the Internet, but lacking the investment expertise to use the many research sites on the net; and (2) day traders and swing traders who are also long-term investors (usually in mutual funds).Our objective was to be a place on the net where the long term investor would be welcome and where long term investors would be provided with continuing, weekly information on investments we suggested.

Q: How do you measure success?

Mermelstein: We are about to begin charging for subscriptions in about three weeks. To the present, we have had measured success in three ways: growth in subscriptions, retention of subscribers, and market returns on behalf of subscribers. We have doubled our mailing list this year. Our retention rate has always been high and has increased in the last few months, even in a poorly-performing stock market. Our subscribers have been able to stay in the market with positive returns over the last twelve months, considering market conditions.

Q: How is Profits Over Time developing differently from other online financial newsletters and sites?

Mermelstein: There is continuing growth in the number of research sites, i.e., sites where investors are offered a variety of sophisticated tools for evaluating and picking stocks and mutual funds.

We're puzzled by this, because we think most investors either lack the skills to use these sites effectively or have the skills but lack the time. In effect, these sites seem to be offering more and more data and tools to a shrinking market.

We are developing a site for a much larger market, including investors with only basic to moderate investment skills, or more sophisticated investment skills but very limited time to devote to their investments. In that vein, we place mutual funds at the top of the list of financial tools for investors because we think mutual funds remain the favored vehicle of individual investors, particularly in a difficult market. Many other newer sites seem to place their focus on picking individual stocks.

Q: What strategies are you using to get the Profits Over Time name out to potential subscribers?

Mermelstein: We have not used any paid advertising or public relations. Subscription growth during the last year has come mostly from the use of search engines. To be effective, paid advertising requires a larger budget most Web sites (including us) can afford. Banner advertising is extremely ineffective. We are currently working on strategic partnerships with other Web-based businesses that have subscribers who would be likely users of Profits Over Time's services. Finally, we try to interest print media in our site.

Q: How do financial institutions, being transaction players, leverage news and information to convert readers to customers? Does this always work and, if so, how effectively?

Mermelstein: Free content is, in my opinion, a hard way for many financial institutions to really sell their transactional services.

This is not a simple issue, but let's just take large brokerages as one example. One problem here is that investors on the Web don't have a high level of trust for these institutions, so the content is often viewed as advertising rather than real "information." Here I'm talking more about information (advice, how-to's, etc.) rather than news, per se. (As far as news is concerned, it’s hard for a transactional site to compete with free sites like MoneyCentral or relatively cheap ones like WSJ.com that are already doing a very good job in that area.)

A second problem is that the content is often very shallow and intended more as a come-on. Lehman Brothers "10 Uncommon Values" is a good example. The name is catchy, but the reader soon finds that Lehman is really trying to make him a customer as a condition of getting the information and brokerages are very prone to doing this sort of thing.

Third, you can't overcome a consumer's preexisting resistance to your product by giving him free information. And financial consumers on the Web are resistant to using large brokerages because they think their fees are too high. To use a rough analogy, you may be able to get a smoker to try your brand of cigarettes by giving him free cigarettes, but you can't get former smokers to try your cigarettes that way. An example of a transactional site that has some success in this regard, on the other hand, is Fidelity.com. The research and information tools that they offer enhance their competitively priced transactional services.

There is also a more fundamental issue involved here, and that is the unbundling of financial services on the Web. For many consumers today, the use of news and information to sell transactional services is just a non-starter: they have an affirmative desire to purchase news and information in different places.

Q: What are the challenges for the online financial news space going forward?

Mermelstein: That's a question for a seminar, I think, but here are just a few thoughts. First, for those of us who want to provide financial news online, one question is how we can be profitable. Advertising is turning out not to be the holy grail a lot of people thought it would be—-we never wanted to rely on it at Profits Over Time. Major portals can provide the answer for some sites; we think it works pretty well for Raging Bull, for example. It’s a better solution, in my opinion, than captive sites for transactional businesses where the consumer has a somewhat negative attitude toward the site owner (large brokerages, as discussed above, and perhaps banks). In contrast, financial news (as free content) could be a successful draw for non-traditional, Web-based transactional businesses, like Manhattan Beach Trading.

A second issue is making financial news on the Web more user-friendly. TheStreet.com, for example, tries to do this with its educational pieces, and sites like individualInvestor do it as well with a great deal of educational content. But the real issue, I think, is not providing lots of content that is aimed at helping consumers to use a site that is maybe overwhelming to most investors (especially the demographic segments that represent the most growth in use of financial information sites), but actually improving the usability of these sites, themselves, as dynamic tools for investment advice. Motley Fool comes to mind, in this vein and our own site as well. The bottom line is that a site that is not useful to an investor (taking into account the fact that most investors are not investment experts) is not one that an investor is going to keep visiting.

Contact Irv Mermelstein at nrglaw@mediaone.net.