Financial Services in the Virtual World

This paper examines the recent furore surrounding ` ̀ digital distribution' ' and the ` ̀ new economy' ' as they affect ®nancial services. It is abundantly clear that the initial commercia-lization of the Internet in 1998 and 1999 was overtaken by a mass of hype and ` ̀ irrational exuberance'', with a total of some $150 billion invested in Internet-related companies over the last ®ve years. This is perhaps best illustrated by the rise and fall of Nasdaq in the U.S., the Techmark index in the U.K., and the Neue Markt in Germany during this period, accompanied by the raft of failures of dot.com companies in recent months across both Europe and the U.S. Unfortunately this sequence of events is obscuring the realities behind the hype of the new digital distribution technologies. Previous ` ̀ new technology' ' booms resulting in stock market bubbles can be traced back to the ` ̀ canal mania' ' in the U.K. in the early 1800s, followed by the notorious ` ̀ railway manias' ' of the mid-nineteenth century. The ` ̀ roaring twenties' ' bull market was predicated on radio and automobiles and the ` ̀ nifty ®fty' ' of the 1960s bull market on the new computer hardware companies such as IBM. Plus cËa change.... However, the counter-reaction we have seen in recent months makes no allowance in our view for the fact that both the digital distribution technologies, and the change in socia