Friday, April 23, 1999 Published at 14:44 GMT 15:44 UK
Business: The Company File
E*Trade challenges offline brokerages
ETrade has used a portal model to build a financial services site
By BBC News Online's Kevin Anderson in Washington
Investors have pushed the Dow Jones Industrial Average over the 10,000 points level, and in the first quarter of 1999 they made even more of those trades on the Internet.
Online trading volume rose 30 to 35% to about 450,000 trades a day, according to Bill Burnham of Credit Suisse First Boston.
During the same time, overall market volume rose only 5%, which means that online brokerages continue to win market share away from traditional brokerages.
The rise in online trading has sent the shares of online brokerages such as E*Trade to record highs.
They are actually so high that the company announced now has announced yet another two-for-one stock split.
In its advertising campaign, E*Trade says, "Someday we'll all trade this way," and according to the Wall Street Journal, 25% of all retail stock trades are already taking place on the Internet.
E*Trade was one of the first online financial services companies. William Porter founded the company that would become E*Trade, Trade Plus, in 1982.
At the time, Trade Plus offered online quote and trading services to Fidelity, Charles Schwab and Quick & Reilly.
In 1992, Mr Porter founded E*Trade Securities, offering online investing services through American Online and CompuServe, and four years later, the company launched www.etrade.com.
Mr Porter had the vision of online trading more than a decade before the World Wide Web would offer the technological opportunity for him to realise his vision, and the early start gave E*Trade a strong position amongst competitors.
By the end September 1998 E*Trade was the second largest online brokerage firm, trailing only Charles Schwab. During the last three months of the year the site added 132,000 new accounts.
The growth has come at a cost. During an system upgrade to deal with the increased traffic, the site suffered outages for three days in February, causing some frustrated users to dub the site "E*try-to-trade."
Due to the outages, the Securities and Exchange Commission has increased its scrutiny of online share trading.
Despite the technical difficulties, the company added 233,000 accounts during the first three months of 1999. That was an increase of 77% from the previous quarter.
The company said they processed on average 70,000 transactions per day, a 63% increase from the previous quarter.
The wild success of online brokerages has caused a proliferation of sites.
When E*Trade spokeswoman Sherri Arapov first joined the company two and a half years ago, E*Trade had only five competitors, she said. Now, she said there are more than 80 online brokerages.
E*Trade has been one of the few profitable Internet sites, posting a first quarter 1998 profit of almost $1m. However, the company has now chosen to add some red ink to its books, to pay for acquisitions and building its brand name.
As competition increases, E*Trade is trying to distinguish itself from all its competitors.
The company investigated the market extensively before launching a suite of services last fall. Price was not as great a factor as access to information.
Higher volume investors are given access to services such as premium news, analysis and stock data for free.
Using the Internet portal model, E*Trade wants to position itself as a "digital financial media company," said Lisa Nash, vice president of customer management.
E*Trade will be one of the services available to Palm VII users as soon as the wireless Palm Pilot becomes available.
At first, users will only be able to access quotes and news, but Ms Nash said that they want to allow users to trade using their Palm Pilots.
"We want to make the relationship as broad, as deep and as sticky as possible," Ms Nash said.
E*Trade also has international ambitions.
E*Trade has adopted a franchise model with web sites in other countries to help serve customers in 119 countries.
The company already has franchises in Canada, Australia and France, and plans to launch sites in Korea, Japan and Central Europe.
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