CHATTY-CHATTY BOOM-BOOM: INVESTORS, BROKERS GET TOGETHER IN CYBERSPACE

On the evening of Oct. 28, 1997, just after the jolting 554-point plunge in the stock market, Merrill Lynch & Co. enlisted vice chairman John L. Steffens to help soothe anxious clients. For an hour, Mr. Steffens fielded questions from an audience of 500 small investors.

It was a stroke of marketing genius, for this was no ordinary talk with clients, but a chat in cyberspace.

“We’re trying to bring the financial consultant and the client together in cyberspace, and discover a new business model for our industry,” says Frank Zammataro, director of Merrill Lynch OnLine, which, since last summer, has been holding an average of three such events a month.

Companies are using Internet chat rooms to court clients, improve productivity and build new revenue. With 40% of households owning personal computers, chat rooms may soon become as standard as e-mail and toll-free phone numbers.

“Right now, about 75% of chat is for the traditional social use, and 25% is for business,” says Paul Hagen, an analyst at Forrester Research in Cambridge, Mass. “In the next two years, that’s going to reverse.”

Already, makers of chat software are seeing dramatic increases in sales. Revenues at eShare Technologies Inc. in Commack, N.Y., have doubled and its staff has grown by more than a third since it started courting the business market last year.

“It’s going to wind up being 70% of our business,” says eShare chief executive James Tito. “Six months ago, it wasn’t any percent of our business.”

Not perverts.com

Companies that use chat have some hurdles to overcome. Chat is often seen as a meeting ground for people who want to use the Web’s anonymity for their own frivolous, even unsavory, agendas. That reputation could doom corporate chat ventures before they even get off the ground.

Merrill Lynch is using the immediacy of chat, which allows participants to exchange typed messages in real time, to differentiate its services. The New York investment house started by hosting chats with experts and high-level executives who would be otherwise inaccessible to small investors. It soon will expand the service to offer sessions between stockbrokers and groups of their clients.

Other firms are using chat rooms to improve customer service and keep a lid on skyrocketing telecommunications costs. Internet research firm Jupiter Communications estimates that chat-based customer service could cost 25 cents a transaction compared with $1.25 for a phone transaction.

“One customer representative can handle four or five customers at the same time, like a chess master with multiple opponents,” says Mark Hanson, founder and chief executive of Kinderhook Systems Inc., a New York software company that develops chat applications for corporate clients.

Chat can also be its own revenue generator. Last summer, financial advisory firm Pristine Capital Management Inc. in White Plains, N.Y., opened a chat room for clients. The service now has more than 400 subscribers, each paying $525 a month to be logged on to the firm’s own trading room and exchange ideas with Pristine’s 20 traders.

Crain News Service