Online Brokers: Fish or Fowl?
by:Julio Gomez
gomezwire.com
With the dramatic move in consumer Internet stocks like Yahoo! and Amazon.com, investors are wondering if Internet brokerage plays like E*TRADE and Ameritrade are poised to catch the next wave of price run-ups.
Skeptics argue that E*TRADE and Ameritrade, the only pure Internet brokerage plays, are still basically brokers, and are therefore overvalued based on their Internet affiliation. Hmm. By that logic, Amazon is a bookstore and Yahoo! is TV Guide.
Of course, it does take a lot more to get someone to open a brokerage account and trade than to use a Web directory or buy a book. But brokerage is big business, and Internet brokerage is still a wide-open field. The real question is: can E*TRADE and Ameritrade grow as fast as the Internet?
The bottom line: E*TRADE and Ameritrade stock prices can reflect current investor optimism in the Internet if they position themselves to do the following:
1) Capitalize on traffic. Destination E*TRADE, now delayed until September, aims to be a competitive financial portal site that's open to the public. The firm has decided it's not going to cede the role of market data provider to the likes of Yahoo! and Microsoft. After all, the markets are THEIR business. Advertising adds another revenue stream, and increased public traffic creates a captive customer acquisition pool for them to harvest cheaply. Ameritrade plans to unveil a financial destination site later this year as well.
2) Broaden their offerings. Today's 5 million online investing accounts include all the early converts that didn't have to be told twice about the benefits of online trading. While firms like SURETRADE focus on stealing active traders away from other online brokers with $7.95 trades, enticing neophytes will take more effort. To coax new investors to open accounts, E*TRADE and Ameritrade need online financial planning and management tools that feel more like Quicken than Bloomberg.
3) Educate the masses. Mainstream investors are paralyzed. Sure, convenience, speed, and vast information sources are "empowering." But what good is a gun without a target? Firms need to educate consumers on basic investment principles, and help them learn to use the investing tools offered by the firms.
Turns out that discount brokers traditionally haven't been in the business of directing consumers. Full service firms are in a great position to serve mainstream investors online, but that's another story. Any broker that wants Internet valuation needs to step into the advice gap and come up with products and services that guide, not just enable, investing. The window? 18 months. Without compelling products for John Q. Public, online account growth will slow during this time frame, while Internet growth rages on. |
