Making money the new-fashioned wayLeading a new breed of cyber-brokers, E*Trade can make a stock market player out of anyone with a computer and a desire to learn. The Menlo Park, California-based brokerage firm offers extensive proprietary research and lets customers trade stock electronically via online services, the Internet, and touch-tone telephones (E*Trade recently introduced a voice-activated telephone option). The firm also provides cash and portfolio management services. E*Trade was founded by physicist William Porter in 1991 as a subsidiary of his company Trade Plus.
The firm took off the next year, when it debuted as CompuServe's first online securities trading service. A costly hardware failure in 1996 pushed the firm to add a backup computer facility near Sacramento. E*Trade went public the same year, and formed E*Trade Online Ventures, a subsidiary for exploring the company's growth potential. Hoping to edge out stealthy competitors in 1996, the firm cut its commissions by 25 percent, lowering transaction fees considerably. Though it suffered slight losses, revenues more than doubled to nearly $52 million. The following year, the company launched a Web-based trading service for America Online users. In 1998, it added mutual funds, insurance and a First USA-branded credit card to its roster of services.
Playing with the big boys of the Internet
Strategic partnerships with other Internet biggies have been critical to E*Trade's success over the years. It has allied with various companies for content, promotional programs, distribution, and technology. The company also has a variety of marketing agreements with Yahoo, Third Age Media (a web community for baby boomers), and securities broker CUSO Financial Services. It offers subscription-based proprietary research from Omega Research and Banc America Robertson Stephens; and recently became the exclusive provider of ZDNet's online investment tools. And unlike some of its competitors, it allows online customers to trade bonds as well as stocks.
Wireless services
E*Trade also recently announced that by late June 2000, it will be joining the stampede of online brokerages offering wireless access to customers wherever they need to make a trade. The company announced an agreement with Verizon Wireless, (formed by the merger of Bell Atlantic Wireless and Vodafone AirTouch), to offer customers "transaction capabilities, account services and real-time information" using browser-enabled digital phones.
Foreign operations
Launched in February 1997, the company's Canadian business has won 2 percent of the country's online investing market. E*Trade Australia was established in April 1998, and has been experiencing phenomenal growth, picking up 600 accounts in its first month. Interestingly, whereas the service is "the poor man's broker" in the U. S. and Canada, it is considered to be the "Rolls Royce" of brokerages Down Under. It has also set up a joint venture in Japan with Softbank Corp., now the company's largest stockholder. Next comes development of the first online-only brokerage in the UK. Also in the works are licensing agreements for the introduction of E*Trade businesses in France, Germany, Israel, Japan, and other parts of Asia. The company has created a cross-border trading network to which it hopes to link the 20 top international exchanges.
Buying spree
Besides partnerships and aggressive international expansion, E*Trade plans to beat out competitors by buying them out. In 1997, it purchased OptionsLink, which provides electronic stock purchase systems, and ShareData, a supplier of stock plan knowledge-based software. In June 2000, the company announced that it would buy its Canadian license holder, Versus Technologies Inc. for $174 million in stock, in a move to expand its brokerage services and gain access to Versus' stock trading system. The acquisition helps expand E*Trade's range by adding 37,000 Canadian online investors to E-Trade's 2 million-plus account base and giving the company access to Canadian financial institutions.
More than just trading
In 2000 E*Trade began an aggressive strategy to morph into a full-service online financial services firm. It bought Telebank Financial to add to the product offerings of the E*Trade Bank. In June, the company announced a joint venture with accounting giant Ernst & Young to offer online financial planning services. It also acquired Card Capture Services, an operator of more than 8,000 ATMs, and announced plans for a series of street-level retail branches. Also in 2000, E*Trade sold its investment bank to Wit Capital for more than $300 million in a deal analysts interpreted as a signal that, despite diversification, the company's focus remains retail brokerage services. And in an unprecedented move for online brokerages, the company announced in May 2000 that it would feature personal financial advisers who will make house calls to customers anywhere in the United States. The company hopes that diversification will shield itself against the ups and downs of the market.
