E*Trade Group Inc - One Of The First All-electronic Brokerages

ONE OF THE FIRST ALL-ELECTRONIC BROKERAGES

E*Trade Securities was founded in 1992 in Palo Alto, California, as a subsidiary of Trade*Plus, but its online trading technology was in use as early as 1983. Trade*Plus was a service bureau founded in 1982 by Bill Porter, a physicist and inventor with more than a dozen patents. The company provided online quote and trading services to Fidelity, Charles Schwab, and Quick & Reilly. When Porter asked himself why he had to pay a broker hundreds of dollars for stock transactions, he realized that someday everyone would have computers and use them to buy and sell stocks and other securities. It wasn't until 1992 that Porter launched E*Trade Securities, one of the first all-electronic brokerages. At first E*Trade offered online investing services through America Online and CompuServe. From 1993 to 1995 E*Trade made Trade*Plus the fastest-growing private company in Silicon Valley, according to a survey by The Business Journal. E*Trade's lowest trading fee was $19.95, and in 1994 sales from Trade*Plus and E*Trade reached $10.9 million. In 1996 E*Trade began Internet trading with the launch of www.etrade.com.

By 1996 E*Trade had evolved organizationally from an entrepreneurial type of company to one with a more well-defined corporate structure. In March 1996 Porter turned over his CEO duties to Christos Cotsakos while remaining as chairman. Cotsakos was a decorated Vietnam veteran with 19 years of experience with Federal Express and five years at A.C. Nielsen Co., where he was co-CEO, chief operating officer (COO), president, and a director. Under Cotsakos's leadership, E*Trade would become a public company and one of the leading online financial services companies. In April 1996 the company opened a second facility in Rancho Cordova, near Sacramento. Its goal was to duplicate operations there, so there would never be any lost connections with clients. In August the company went public as E*Trade Group Inc. with an initial public offering (IPO). By the end of December 1996 E*Trade had 112,800 customer accounts, up three times from the previous year.

In 1997 E*Trade raised additional capital through a secondary offering. During the year the company launched E*Trade Canada, its first international venture, as well as its Mutual Fund Center, which initially offered some 3,500 funds. Revenue for the year was $142.7 million, and the company was profitable with net income of $13.9 million. Perhaps the most challenging event of the year was the stock market "crash" of October 20, 1997, when on two consecutive days the Dow Jones Industrial Average and the NASDAQ Composite Index experienced the largest one-day point drops and the largest one-day point gains in the history of Wall Street. Trading volume reached never-before-experienced levels. On the Monday following "Black Friday," E*Trade processed 45,000 transactions.

By the end of calendar 1998 E*Trade had nearly 700,000 customer accounts and claimed to retain more than 95 percent of its accounts. The launch of a redesigned Web site, dubbed Destination E*Trade, in September 1998 helped the company gain industry recognition as the leading online brokerage service for the second half of the year. Heavy expenditures on the new Web site and related marketing costs resulted in an anticipated loss on annual revenue of $245 million. In December 1998 the company launched its E*Trade Bond Center, bringing the benefits of online brokerage and financial services to fixed-income investors. Other events for 1998 included two acquisitions: OptionsLinc, a Web-and telephone-based service for executing and managing employee stock option and purchase plans; and Share-Data Inc., the leader in stock plan software for private and public companies. The two acquisitions gave E*Trade an entry into the large corporate marketplace. The company improved its capital position with a $400 million strategic investment from Softbank Corp., its Japanese partner and that country's leading software distributor. Internationally, E*Trade added two licensees in Japan and the United Kingdom, for a total of 11 master licensees serving more than 32 countries.

In 1999 E*Trade's brand-building expenditures and temporary moratorium on profits paid off. The company's revenue climbed to $621.4 million for fiscal 1999 ending September 30, with a reported net loss of $54.4 million. Much of the revenue was used to build one of the strongest brands in online financial services, and to fuel new product development and diversification. The launch of Destination E*Trade in September 1998 helped the company to gain 1 million net new active accounts in fiscal 1999. E*Trade was receiving an average of $52 million in deposits every business day, compared to an average of $20 million the previous year. Customer assets increased 154 percent to $28 billion. Market share, as measured by online trades per day, rose from 10 percent of the market to 15 percent, and Opinion Research Corp.'s Internet Brand Study ranked E*Trade as the fourth-most-recognized e-commerce brand, behind Amazon.com, eBay, and Priceline.com. In its fourth quarter of 1999 E*Trade had 4.69 million unique visitors, making it the most visited online investing site, according to Media Metrix. The company also expanded its Mutual Fund Center, offering more than 5,000 funds and introducing four E*Trade proprietary funds.

Internationally, E*Trade expanded in fiscal 1999 by opening Web sites in France, Japan, Sweden, and the United Kingdom. It completed three major acquisitions: ClearStation Inc., a financial media Web site that combined investment analysis with community discussion and opinion; TIR Holdings Ltd., discussed above; and Confluent Inc., whose main product was a calendar engine that E*Trade planned to use to create a personal financial manager.