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Merrill announced in June that it would put up its dukes, but the move has caused some of the company's brokers and stockholders to run for cover. Merrill intends to offer two kinds of online trading accounts. One, already launched, plays to its traditional strength as a full-service brokerage, promising advice and unlimited transactions for a fee of $1,500 a year. The other is a la carte at $29.95 a trade; it won't include personal advice. Merrill's stockholders may end up better off than its brokers: the huge company's revenue stream is diversified enough to handle lost commissions, but brokers may not be so well insulated.
Executives at Charles Schwab faced a similar painful trade-off in 1997. In 1996 the discount brokerage developed a separate online unit called e.Schwab. "But customers were understandably confused," says Martha Deevy, senior vice president of Schwab's electronic brokerage business. "The online customers wanted to go into a branch office to talk to someone in person, and the branch customers wanted the convenience of trading online." So Schwab gave the customers what they wanted, uniting the businesses and dropping the cost of all trades to the online price--$29.95. Schwab took a hit in the short run, the price cut shaving about $125 million off its revenues in 1998. But the move has since paid off: Schwab's total number of accounts rose from 3 million to 6.3 million, and it's now the No. 1 online brokerage.
Close behind is a company that never had to worry about eroding its core business or undercutting its work force. ETrade began in 1982 as an online trade service for professionals. In 1996, after current CEO Christos Cotsakos came aboard, the first incarnation of a website that today serves nearly 1.5 million investors was launched. This year, by acquiring several companies, including the largest online bank and a financial-news site, Cotsakos began transforming ETrade from an e-brokerage to an online financial-services supermarket.
"Etrade is very aggressive," says Burke. "They're more concerned with accounts and assets than with profits." ETrade was not profitable in 1998, or in two of three quarters in 1999. But because it can keep its own forgiving investors happy despite those numbers, and because it's not encumbered by expensive branch offices, the company is more nimble than its brick-and-mortar competitors, Burke says. But that may change soon: Cotsakos, who's thrived on the bold moves only Net moguls seem to get away with, said in September that he plans to form an alliance with a traditional financial company. The reason? To give investors personal attention.
BYTE-SIZE BUSINESS Grocers get a taste of the Web
It was fear that caused Tom Furber to found HomeRuns.com an online grocery-delivery business, in 1996. "I was very concerned that somebody else not in the grocery-retailing space was going to beat us to it," says Furber, vice president for Hannaford Bros., the Scarborough, Maine, supermarket chain that saw $3.3 billion in revenues in 1998, and has since been acquired by Food Lion. "In hindsight, we could have gotten into this later."