presentation by: jeff antenucci jennifer breslin neil crescenti ryan mccue peter zimmerman nice...
TRANSCRIPT
Presentation by:
Jeff Antenucci Jennifer Breslin Neil Crescenti
Ryan McCue Peter
Zimmerman
“NICE MANSION, TOO BAD IT BELONGS TO YOUR BROKER”
History of E*Trade• 1982: Max Ule initiates Tickerscreen, the first online investment service
• 1983:William Porter forms TradePlus-computerized order entry system
• 1990: William Porter establishes E*Trade Securities Inc.
• 1993: TradePlus and E*Trade combine revenues exceed $2million and E*Trade posted earnings of $100,000
• 1996: E*Trade makes first appearance on World Wide Web courtesy of its alliances with AOL and CompuServe
• 1996: Porter turns the company over to Christos Cotsakos and E*trade makes its IPO
What E*Trade DoesProvider of personalized financial products & services:
Automated stock & option transactions portfolio tracking - (these account for 68% of revenue)
Charting & quote applications Market commentary, analysis, & news Profession research reports Over 3000 mutual funds Bond trading Access to IPO’s
For Whom?Individual Investors
• The 10 to 15 million people who track investment information online but still trade offline, as well as those already involved in online trading.
• E*Trade is seeking to carve a niche among trigger-happy traders who may flip a single stock several times during the day.
Mission StatementTo be the branded global leader and recognized authority in electronic personal financial services by radically transforming how these services are designed, delivered, purchased, and managed.
Vision Statement E*Trade is already the place to go for personal financial
services on the internet, someday it may be the place to go for personal financial services period.
Problem Statement:
How can E*Trade continue to grow in the online brokerage industry segment as it becomes increasingly more competitive?
Industry AnalysisOverview
The securities brokerage and investment services industry is dominated by major institutional traders (Goldman-Sachs, Merrill Lynch, etc.), controlling most of the revenues and market.
Discount traders, such as Charles Schwab and Fidelity, offer services to the retail segment that consists of individual investors.
The proliferation of the Internet has given rise to a new segment within this industry, allowing players such as E*Trade, Datek, and Ameritrade to carve out distinct niches and serve a whole new segment of retail investors. This is the most rapidly growing segment in the industry, forcing institutional and discount traders to offer similar services to this market.
Brokerage Service Industry
On-Line E*Trade,
Brokers Ameritrade
Datek
Fidelity
CHANNELS TD Waterhouse,
Hybrid Charles Schw ab
Goldman Sachs,
Merrill Lynch,
Morgan Stanley &
Traditional Dean Witter
Limited Mix Full
SERVICES
Competitive EnvironmentIndustry Analysis
Economic StructureSecurities Brokerage and Investment Services
• The industry is highly concentrated with the top 10 firms accounting for 50.4% of total revenues in 1997 - TIGHT OLIGOPOLY
• The two largest brokerage firms are Morgan Stanley, Dean Witter & Co. (equity capital of $14.5 billion at February 28, 1998) and Merrill Lynch ($ 9.0 billion at March 31, 1998).
Life Cycle StageIndustry
• The security brokerage and investment services industry is in shakeout
– “M&A in the industry have been fueled by more cross-border transactions and by management’s desire to use acquisitions as a growth strategy in the face of maturing markets”
S&P’s Industry Surveys
Industry Attractiveness
• Industry is attractive for incumbents based on continuation of growth.
• Industry is NOT attractive for new entrants based on the following:- economic structure
- life cycle stage
- large capital requirements
External Assessment General Environment:
Economic Demographic Social-Cultural Technology Regulatory/Political Global
Economic Environment
Opportunities• Continuation of healthy economy:
In 1997 GDP rose nearly 4% with inflation held below 2%
• Unemployment reached a new low of 4 1/2% in 1998 which increased consumer spending
• Continuation of investing of disposable income, as reported share volume increase from 104,636.2 in 1996 to 169,744.6 in 1998
Threats• “Irrational Exuberance”
– Tech stocks have been rising steadily despite their ability to make a profit.
• A slow in the economy– If the economy slows so will
corporate earnings
Demographic Environment
Opportunities More women in the work force, -
Women’s Median Income: $9,595 (1980) to $13,703 (1997)
Minorities are also making advancements in the work force leading to new consumer groups.
- Average Income: Blacks $11,566 (1995) to $12,351 (1997); Hispanics $9,794 (1995) to $10,773 (1997) Millions of Baby Boomers are
preparing financially for retirement-create approximately 26% of total Internet users.
Threats Income inequality is increasing,
which decreases consumer base
- In 1970 the bottom 20% of Americans made $19,820; whereas, the top 5% made $94,240. This number has since increased to $20,586 and $142,400, respectively, in 1997.
Social-Cultural Environment
Opportunities• Number of households
connecting to the internet increasing:
1996: 9.4% 1998: 22.4%
• Investing is becoming a larger part of our culture:
CNBC – “The Street” / “Bull”
Threats Income inequality is
increasing, which decreases consumer base
- In 1970 the bottom 20% of Americans made $19,820; whereas, the top 5% made $94,240. This number has since increased to $20,586 and $142,400, respectively, in 1997.
Technological EnvironmentOpportunities
Number of people connected to the internet globally is increasing
The continuance of online trading, which has increased from 1.5 million accounts in 1996 to 6.4 million accounts in 1998
Decrease in average price of home computers allows more people to use the internet
New technologies capable of reaching the Internet, such as pagers and cell phones
Threats Failure of computer systems due
to volume of trades, problems with servers or general software
Security risks due to the lack of adequate encryption technology and vulnerability of account information
Problems attributable to failure in complying with Year 2000 computer system updates
The Internet is making inroads into the brokerage business.
Political/Legal Environment
Opportunities
Increased information protection and regulation by the government and organizations such as the NASD
Threats
Issues related to Online Trade and the regulation of those transactions
- 30,000 potential taxing jurisdictions
Unexpected changes in foreign regulatory requirements-tariffs and other trade barriers
Global Environment
Opportunities Penetration of foreign markets
Lack of discount brokers in foreign markets
Interest of foreign investments under unified Euro currency reduces exchange rate risk
Threats Less developed technological
infrastructures, resulting in lower customer acceptance of, or access to electronic channels
Fluctuations in currency exchange rates
Reduced protection for intellectual property rights
Competitive EnvironmentStrategic Group Analysis
PRICE
NUMBER OF SERVICES
1998 Market Share
35%
13%13%
39%Schwab
E*Trade
Fidelity
Other
Economic StructureSegment – Online Brokerage
• The on-line discount brokerage industry is a tight oligopoly with the top 3 players controlling 51%
Life Cycle StageSegment – Online Brokerage
• The on-line brokerage industry is in early growth– E*Trade was the first company to stake a claim
in online trading (1992)– 1994: 19,000 accounts -1998: 544,000 accounts
Porter Five ForcesThreat of New Entrant
• The online brokerage services industry is so new that the threat of new entry is high requiring only some capital and the technology
Porter Five ForcesPower of Buyers
• Who they are?
• Level of power – High– Low switching costs
– Price Wars
Porter Five ForcesPower of Suppliers
• Who are they?– Market Makers– ISP’s– Analysts
• Level of Power - High
Porter Five ForcesPower of Substitutes
• Who are they? – Mutual fund companies– Commercial banks– Insurance companies– ISP’s & Portals
• Power - High
Porter Five ForcesRivalry – HIGH
• Due to the early growth stage of the industry and low barriers to entry the rivalry within the online brokerage industry is high
Key Success Factors
Brand Innovation Operational
Excellence
3 2 2.5
2.5 3 3
2 1.5 1.5
Competitor AnalysisCharles Schwab
• Goals – Long-term revenue growth / ROE objectives are 20% and to compete in the global market place in the years ahead. On going pursuit of technological advancement
• Assumptions – Industry barriers across seas are breaking down and the internet will fuel investing by individuals around the world
• Capabilities – Serving customers with a wide variety of needs for large investors to active traders through face-to-face, telephone and internet services
• Strategies – To move into foreign markets and increase their technological capabilities
Competitor AnalysisCharles Schwab
• Are they satisfied? NO
• Are they vulnerable? NO
• Next likely move – further global expansion
• What would provoke retaliation? – Full-service brokers lowering commission costs
to compete with discounters– Online brokers establishing physical locations
Competitor AnalysisDatek
• Goals – to increase customer base, market share while remaining a low cost provider
• Assumptions – Transactions will continue to increase
• Capabilities – Offers fast transactions, free real-time quotes for lowest costs
• Strategies – To attract and retain active traders through a low cost strategy
Competitor AnalysisDatek
• Are they satisfied? NO
• Are they vulnerable? YES
• Next likely move – Target new markets
• What would provoke retaliation? – Other online brokers lowering costs
E*Trade’s Response
• E*trades ability survive the early growth stage will depend on:
• Continuous innovation using technology
• Continue to improve upon brand awareness to create brand equity
• Maintain the ability to create long-term profitable
growth
Internal Assessment
Leadership
Christos M. Cotsakos,President & CEO
•Former Fed Express Executive
•Named E*Trade CEO 1996
•Active accounts increase 500% in Christos’ first 2 years
Leadership•Named CIO July 1997
•Named “Chief of the Year” by Informationweek
•Developed E*Trades “Stateless Architecture”
•Her management style helped reduce system errors 75% in her first quarter
Debra Chrapaty,Chief Information Officer
The Internet is shifting from claiming virtual
space to defending and capturing it.
Organizational Structure:Functional Structure
Differentiation Strategy
Christos M. Cotsakos,President & CEO
Debra Chrapaty,CIO
Jerry Gramaglia
CMO
Leonard Purkis
CFO
Jerry Dark
HR
Kathy Levinson
COO
Brigitte VanBaelen
VP CMO
Steve Richards
VP R&D
Revenue Growth
0%
20%
40%
60%
80%
100%
120%
140%
160%
95 96 97 98
E*Trade
Schwab
Ameritrade
Financial Analysis
95 96 97 98E*Trade 87% 117% 150% 56.80%Schwab 33% 30% 24% 19%Ameritrade 17% 52% 42% 65%
Revenue Growth
Financial Analysis
95 96 97 98E*Trade 68% 184% 147% 142%Schwab 13% 17% 20% 16%Ameritrade 111% 62% 88% 212%
New Account Growth New Account Growth
0%50%
100%150%200%250%
95 96 97 98
E*Trade
Schwab
Ameritrade
Stock Risk % of monthly returns
-60%-40%-20%
0%20%40%60%80%
Date
Etrade
Nasdaq
E*Trade BETA = 2.7
Value Chain Analysis
Strengths:S1-Stateless ArchitectureS2-Destination E*TradeS3-E*Trade GameS4-Celebrity ChallengeS5-High Customer RetentionS6-S.A. w/ Yahoo!S7-S.A. w/ AOLS8-Successful Campaign AddsS9-Innovative products/services
WeaknessesW1-Majority of rev from transactions
W2-Computer failures
W3-Capacity
W4-Employee retention
Infrastructure
S9 W1 S9 S3, S4 S5
HR
W4
Technology
S2 S1 W2, W3
S1 S3, S4 S5 W2, W3
Procurement
S7 S6 S8
InboundLogistics
Operations Outbound Logistics
Sales &Marketing
Services
Competitive Advantage
• Uniqueness– E*Trade continually sets the standards for
online brokers
• Has this created Above-Average Returns for E*Trade?
Strategic Competitiveness
Solve customer’s problems with goods or services
Continuously innovate
Use your core competencies in ways competitors cannot
design strategies to satisfy customer’s needs
S.W.O.T
E*Trade’s Strengths• Technology - Patent-pending stateless architecture
• Leadership - Debra Chrapaty CIO of the year
• Customer Service - 95% customer retention rate
• Marketing - E*Trade The Game,
Celebrity Challenge, Creative Campaign
Adds
E*Trade’s Strengths
• Global Expansion - Few firms are pursing the international marketplace as aggressively or successfully as E*Trade
• Innovation - First to offer mutual funds over the internet
• Key Alliances: AOL, MSN, Yahoo!, SinaNet, MSNBC, Morningstar
E*Trade’s Weaknesses
• Revenue dependency - 68% stems from transaction revenue
• Technology - Failed computer systems
• Capacity - Unable to handle new business
• Employee Retention - Difficult to hold onto upper-management and Tech personnel
E*Trade’s Opportunities
• Online Trading - By 2002 online accounts are
expected to reach between 10 - 24 Million!
• Price of Technology - Price of personal computers is continually falling
• New Technology - Hand-held devices with wireless internet access
• Institutional Investing- Corporate services
E*Trade’s Opportunities
• Global Expansion - Global spread of the internet and
personal investment service
• Day Trading - The new technology [Internet] has spawned a new breed of investors who trade at high volume for quick profits.
• Economy - low inflation, low unemployment, high consumer confidence
E*Trade’s Threats
• Technology - Hackers!
• ISP’s - busy signals
• Tight Labor Market - High competition for tech personnel and senior managers
• Economy - Cyclicality
• Competition within the Industry - Full-service brokers, discount brokers, “Zero-cost” brokers
The self-directed consumers investing online within the US market is expected to increase dramatically, while also developing and growing over seas.
Concentrated Growth - Target MarketsVertical Integration - Software DevelopersRelated Diversification - Other financial products/services
E*Trade can leverage their business model and industry leading technology to attract new customers within their target markets
E*Trade can replicate the success they have already achieved in global expansion through further, joint ventures and strategic alliances
E*Trade International
Leveraging the reputation as a leader and
innovator in the US to become a recognized
and trusted name throughout the world
• 2 E*Trade affiliates in Australia/New Zealand and Canada
• A major Joint Venture with Japanese firm SOFTBANK to serve the UK and Japan
• E*Trade was rated 1 online broker worldwide
Generic StrategyCompetitive Advantage
Low Cost Uniqueness
Broad
MarketScope
Narrow
Strategic RecommendationsCorporate level
Foreign Investors represent an opportunity for expanding E*Trade’s customer base, and should be pursued further.
E*Trade’s business model can easily be adapted to foreign markets, due to their lack of physical location.
E*Trade’s flexibility and superior customer service allows them to meet the needs and desires of foreign investors.
Strategic RecommendationsBusiness level
E*Trade should continue to diversify its product line into other areas of financial services such as banking, checking and other investment alternatives.
Managerial ImplicationsManagement needs to keep in mind the ramifications of alliances and joint ventures with other firms. The less E*Trade invests the less control they have of the new venture.
Selectively choose companies that closely match goals while possessing the capabilities to deliver E*Trade’s business model.
E*Trade also needs to find out from their customers what financial services they would like to see included in E*Trade’s portfolio of services & products.
Epilogue
January 25, 1999: E*Trade set a single-day record in new customer deposits, with $108.6 million.
February 1999: Launch of the first mutual fund designed for online investors. SEC granted approval for the expansion into the asset management business.
July 1999: Agreement with Owners.com announcement, allowing E*Trade customers access to marketing and sales of real estate through Owners.com
April 2000: Launch of E*Trade Bank, the first all-electronic banking/brokerage portal.
EpilogueMay 2001: E*Trade center opened in Menlo Park, California. Contains a bookstore, gift shop, café, radio studio, as well as facilities for educational seminars and computer banks at which customers can make transactions.
Marketing: Sponsored 1999, 2000 and 2001 Super Bowls, and has partnered with Delta and Northwest Air to award miles to customers.
Technology: E*Trade has partnered with Sprint and Nextel to expand wireless capabilities.
Global Expansion: E*Trade Norway, France, UK, Africa, Denmark, Japan, Korea, South Africa, Germany and Hong Kong. Through a partnership with Reuters, E*Trade’s financial information is now available globally.
Active Accounts: Increase of 99% from 1999 to 2000. (1,664,795 in 1999 to 3,315,435 in 2000)