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2HRS2GO: OLB leaders keep getting bigger

It's a big guy's world on the Internet.

Wall Street's herd has long held that leaders will get bigger on the Internet while also-rans fade. And for all that pundits lambast conventional wisdom, remember it's conventional wisdom for a reason.

Take the online broker industry as an example.

Yesterday DLJdirect (NYSE: DIR) reported disappointing second quarter estimates and blamed the market. Today E*Trade Group (Nasdaq: EGRP) posted better-than-expected quarterly results despite the market. Guess which company is an industry leader.

"We weren't immune to those extreme market conditions, as daily average volume in the qtr dropped 26 percent sequentially," E*Trade CEO Christos Cotsakos said during the (long) formal portion of this morning's conference call. "If you take the long term view, however, our volumes, our metrics are still outperforming the marketplace."

Some folks (like me) may scorn E*Trade occasionally -- every company earns its share of ridicule at times -- but I can't complain about the company's performance relative to its peers.

"We are continuing to decouple from our competition," Cotsakos declared.

The idea of E*Trade executives coupling with those from another company creates a very unpleasant image, but his point is taken. I suppose he has the right to brag when his company sees total customer assets rise 30 percent since the start of the year, even as the overall Nasdaq has declined. People might be trading less, but they're still putting more through E*Trade than other online brokerages.

You can also see the advantages of scale at other big names. Charles Schwab (NYSE: SCH) posted profit gains despite the downturn. Leading Nasdaq market maker Knight Trading Group (Nasdaq: NITE) also increased its earnings from trades during the same period.

Schwab and E*Trade happen to occupy the top two spots in GomezAdvisors' overall rankings of OLBs, but there really isn't much separating online brokers from each other, especially for the average investor. There might be a few dollars separating commissions and minor differences in the data and information being offered, but overall, trading is trading. The most important thing is execution to get the best price for you, and there's no way to measure that except through experience.

In some important areas, Gomez rates some smaller brokers ahead of the big names. DLJdirect, for example, gets praise for its rapid customer service, while E*Trade is criticized.

Yet E*Trade and Schwab pull away from the DLJdirects when it comes to attracting customers. Give Costakos and his peers credit for boosting and expanding their businesses; but it's also awfully hard to dislodge someone once they're at the top.

Other thoughts:

  • IBM
  • (NYSE: IBM) Investors in the recently-savaged Computer Associates (NYSE: CA), BMC Software (Nasdaq: BMCS) and Compuware (Nasdaq: CPWR) ought to tune into this afternoon's IBM conference call to find out how Big Blue sees mainframe shipments playing out. Don't look for too much, though: IBM generally says little about its near term outlook for specific product lines.

    • 2HRS2GO: Market slide won't stop growth of online trading
    • 2HRS2GO: E*Offering boosts Wit -- a bit 22GO>