Presentation on theme: "Presentation by: Jeff Antenucci Jennifer Breslin Neil Crescenti Ryan McCue Peter Zimmerman NICE MANSION, TOO BAD IT BELONGS TO YOUR BROKER."— Presentation 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, : 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 Does Provider 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 IPOs
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 Statement To 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 Analysis Overview 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.
Competitive Environment Industry Analysis
Economic Structure Securities Brokerage and Investment Services The industry is highly concentrated with the top 10 firms accounting for 50.4% of total revenues in 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 Stage Industry 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 managements desire to use acquisitions as a growth strategy in the face of maturing markets S&Ps 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, - Womens 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 Environment Opportunities 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 Environment Strategic Group Analysis PRICE NUMBER OF SERVICES
Economic Structure Segment – Online Brokerage The on-line discount brokerage industry is a tight oligopoly with the top 3 players controlling 51%
Life Cycle Stage Segment – 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 Forces Threat 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 Forces Power of Buyers Who they are? Level of power – High –Low switching costs –Price Wars
Porter Five Forces Power of Suppliers Who are they? –Market Makers –ISPs –Analysts Level of Power - High
Porter Five Forces Power of Substitutes Who are they? –Mutual fund companies –Commercial banks –Insurance companies –ISPs & Portals Power - High
Porter Five Forces Rivalry – HIGH Due to the early growth stage of the industry and low barriers to entry the rivalry within the online brokerage industry is high
Competitor Analysis Charles 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 Analysis Charles 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 Analysis Datek 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 Analysis Datek Are they satisfied? NO Are they vulnerable? YES Next likely move – Target new markets What would provoke retaliation? –Other online brokers lowering costs
E*Trades 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
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
Competitive Advantage Uniqueness –E*Trade continually sets the standards for online brokers Has this created Above-Average Returns for E*Trade?
Strategic Competitiveness Solve customers problems with goods or services Continuously innovate Use your core competencies in ways competitors cannot design strategies to satisfy customers needs
E*Trades 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*Trades 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*Trades 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*Trades Opportunities Online Trading - By 2002 online accounts are expected to reach between 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*Trades 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*Trades Threats Technology - Hackers! ISPs - 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 Markets Vertical Integration - Software Developers Related 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
Strategic Recommendations Corporate level Foreign Investors represent an opportunity for expanding E*Trades customer base, and should be pursued further. E*Trades business model can easily be adapted to foreign markets, due to their lack of physical location. E*Trades flexibility and superior customer service allows them to meet the needs and desires of foreign investors.
Strategic Recommendations Business 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 Implications Management 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*Trades business model. E*Trade also needs to find out from their customers what financial services they would like to see included in E*Trades 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.
Epilogue May 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*Trades financial information is now available globally. Active Accounts: Increase of 99% from 1999 to (1,664,795 in 1999 to 3,315,435 in 2000)