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December 13, 1999

E-Business 100
E-Trade: More Than Trading

Illustration by James O'Brien t a time when online brokerages are hot, E-Trade Group Inc. is lighting up the Internet as one of the hottest. But E-Trade hasn't stopped at online trading: It's also competing with financial portals such as MSN.com and Finance.yahoo.com and will soon offer online banking services. The future holds even bigger plans for the company, including an initiative to integrate E-Trade services and products into media outside the Web, including wireless and interactive television.

"Eventually, we want people to be able to access E-Trade at their convenience on whatever kind of device they choose," says Debra Chrapaty, chief media officer for E-Trade, ranked No. 5 on InformationWeek's E-Business 100 list. "The best never rest; we've got to be smarter and faster than the competition."

On the portal front, E-Trade offers customers financial information and provides a launching pad for online shopping, discussion groups, and chat rooms. "We want to be in your home; the center of your financial life," Chrapaty says.

Still, E-Trade is not as comprehensive as other portal sites, such as Finance.yahoo.com. "Many financial sites have portal envy," says Bill Doyle, research director of online financial services at Forrester Research, an IT advisory firm. "It's a distraction for E-Trade right now. But they have been trying new stuff out, and for that I give them a lot of credit." Doyle says that while E-Trade has done a better job than other financial institutions looking to become portals, such as Citicorp, the company should stick to its original goal and focus on being a top-notch online brokerage.

Despite its forays into portals and other areas such as online banking, E-Trade is best known as an online brokerage. Indeed, after Charles Schwab, it's the second-most well-known online brokerage brand on the Web, according to a Zona Research report. Even though the site suffered major outage problems last spring, the brand name was left relatively unharmed. A massive advertising campaign touting it as the anti-broker brokerage has worked well for the company, helping it wrangle in more than 600,000 new clients in the past six months alone. "They have done a great job of positioning and moving with current trends," Doyle says. "But they've spent lavishly for the customers they've gotten. Compared with other Internet-only brokerages, they're doing well."

During the past year, the company has worked hard to expand its product offerings by investing billions of dollars in acquisitions and technology upgrades. In June, E-Trade announced it was acquiring the electronic bank Telebank for $1.6 billion--the largest acquisition in the company's history and worth twice as much as its total revenue for the year. The deal has been delayed by U.S. regulators, but E-Trade is confident that it will be finalized. Chrapaty acknowledges the stiff price tag, but says the acquisition will be worth it. "This market is fast-moving," she says. "It's easy to say you'll build a new service, but it requires expertise and, more important, time."

While Wall Street has accepted the planned acquisition as just one Internet company merging with another, at least one industry expert is skeptical. "It's a lot of money to spend for a virtual entity," Doyle says. "It doesn't give them what they need, which is multiple channels." The lack of multiple selling channels, which would give customers more personal contact, such as telephone service or face-to-face service, has hurt E-Trade in terms of overall customer satisfaction for some time, Doyle says.

A Forrester Research report on E-commerce that surveyed 17,000 online customers ranked E-Trade seventh of 10 online financial firms. Traditional brick-and-mortar firms such as Charles Schwab, Merrill Lynch, and Fidelity scored higher. Out of the seven categories used to determine the rankings, E-Trade scored the worst in customer service, ranking ninth. Unanswered E-mails, customer-service representatives with limited product knowledge, and run-of-the-mill decision-support tools overshadow the site's seamless trading process and competitive commissions, the report's summary of E-Trade's performance says.

During the past year, E-Trade says, it has invested heavily in its customer-service development, tripling the number of customer-service associates and adding around-the-clock E-mail service. "A year ago, there were some issues," says an E-Trade spokesman. "But we've enhanced our customer service by adding more support associates and providing them with the technology and tools to provide better and faster service."

E-Trade's biggest challenge is its explosive growth, says Dan Burke, a senior analyst with Gomez Advisors, an E-commerce advisory firm that ranked E-Trade as the top online brokerage--but only ninth among 50 firms in winning customer confidence. "Their biggest challenge has been that they've been growing so quickly, it's put a strain on the site and the customer support. They're a victim of their own success in that case."

Even though the company has struggled with customer satisfaction, its innovative thinking, new product developments, and relentless marketing campaigns have helped it grow at an incredibly rapid rate. For fiscal year 1999, which ended Sept. 30, the company increased revenue by 85% from the previous year. "They have a vision and the agility to change gears and move quickly when they have to," Doyle says. "It's an attractive story."

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