An outpouring of news today shows how rapidly the sector is evolving to profit from new consumers coming onto the Net to trade.
Today, Hambrecht & Quist, a leading technology investment bank, said that online brokerage house Ameritrade Holding will sell H&Q lead-managed initial public offerings and other H&Q equity offerings as the investment bank tries to regain its lead in the IPO market. Meanwhile, E*Trade this morning said it is creating a new joint venture in Germany by expanding its current licensing agreement, hoping to capitalize on that market's strong growth opportunities in electronic personal financial services. And brick-and-mortar brokerage Morgan Stanley Dean Witter is reportedly moving to overhaul its Net trading services to allow its brokers to offer online trading.
"The reason there is such fast movement in this sector is that each firm is realizing that they have to provide new, deeper, and better offerings to continue attracting customers," said Dan Burke, senior brokerage analyst of Gomez Advisors. "They can't stand still for a second."
Both brick-and-mortar and Net companies--lauded for their swift strategic moves and nimbleness--can barely keep up with ceaseless change and ruthless competition transforming the online trading landscape. Since last month, online brokerage houses have been rushing to let customers trade stocks over wireless phones. Earlier this summer, the industry lunged to offer after-hour trading.
Trading firms, already rocked by bargain-per-trade prices, may even head toward commission-free services. Earlier this month, American Express said it will enter the online brokerage business and offer commission-free trades to clients who maintain a certain balance in their accounts.
At this time in the evolution of online trading, brokerage houses are racing to acquire customers and to build their asset bases with a greater number of accounts. Burke estimates that the online sector has spent at least $600 million this calendar year in advertising.
"The stakes are very high and the money being spent from an advertising standpoint necessitates that these firms continue to add [ways] to attract people," Burke said. "If you are spending $100 million on an advertising campaign, you better also spend something on your product and services."
Partnering for success
H&Q, which already has an alliance with Charles Schwab, moved today to form a partnership with Ameritrade. H&Q added that it will expand the number of online brokerage firms selling its offerings in the near future.
"Ameritrade customers will now have outstanding opportunities to invest in companies as they go public and participate in a vibrant area of the capital markets that has gained increasing interest as independent-minded investors have turned to the Internet to manage their investment decisions," Thomas K. Lewis, co-chief executive officer of Ameritrade, said.
The alliance finally lets Ameritrade offer IPOs to its retail customers--a service it has been itching to offer. Its biggest competitors, including Schwab and E*Trade, already offer that service.
E*Trade this morning said it has formed E*Trade Germany, a new joint venture with Berliner Effektenbank and New York Broker Germany. Terms of the transaction were not disclosed.
According to a recent study by J.P. Morgan Securities, Germany has Europe's most advanced discount brokerage industry, with potential for continued expansion. By the end of 1998, there were 7.5 million Internet users in Germany, representing only 9 percent of the population. J.P. Morgan expects this number to grow to more than 27 million by the end of 2002. Similarly, the study anticipates the growth of online brokerage accounts from 200,000 at the end of 1998 to nearly 3 million by 2002.
"Through this joint venture company, E*Trade is joining together with its local partners to strengthen its ability to aggressively develop a premiere online personal financial services Web site for the retail market in Germany," said Judy Balint, president of E*Trade International. "The combination of E*Trade's global brand, products, and services with the significant local presence of Berliner Effektenbank should make for a formidable new entrant to the German online investing market."
The move brings E*Trade one step closer to offering worldwide 24-hour trading. Online brokerages have been racing to set up shop across Europe and Asia as more Internet users come on board and Web-based financial services catch on.
E*Trade Germany will be located in Berlin and is currently preparing to file for a full banking license--a precursor to operating a retail brokerage business in Germany.
Setting up on the Web
Morgan Stanley also is feeling the heat from online brokerages as well as other full-service trading houses as they come online. The venerable brokerage house is now moving to overhaul its Net trading services to allow its brokers to offer online trading, according to reports.
Morgan Stanley plans to announce later this week a service similar to that of Merrill Lynch, where its customers can migrate from full-service trading to online trading at a discount, the New York Times and Wall Street Journal reported. Morgan Stanley, however, plans to have its service available at least six weeks before Merrill's planned launch.
While Morgan Stanley already runs Discover Brokerage Direct, an online discount broker, the new plan is likely to eliminate Discover as a separate unit and lump it with Morgan Stanley's traditional brokerage services, according to reports. The service will be renamed Morgan Stanley Dean Witter Online.
Morgan Stanley's online service will cost $29.95 a trade or be included in a full-service brokerage account package, charging an annual fee based on account assets, according to the reports.