Youve Got Problems: Getting AOL Back on Track
America Online Inc. is still reeling from the effects of the Time Warner acquisition, an SEC inquiry and the departure of founder Steve Case. But that didn't stop John McKinley, erstwhile star at Merrill Lynch, from signing on to help stem AOL's subscribeJohn McKinley, chief technology officer and president, AOL Technologies, recalls vividly the afternoon in late december 1998 when Charles Schwab Corp.s market valuation reached $25.5 billion, surpassing merrill lynch & co. Inc. For the first time. The upstart brokeragea pioneer in discount brokerage and online tradinghad trumped the much larger and established company, which many years earlier had been equally revolutionary in its relentless ambition to bring wall street to main street. "It was a gray day; there was a lot of angst," says McKinley, the cto of merrill at the time. "People wanted to jump out of windows." But McKinley, who had been hired by Merrill just months earlier to upgrade the giant brokerages dusty technology and put it in a position to compete for the onslaught of online trading activity that companies like Schwab, E*Trade Financial Corp. and Ameritrade Inc. were getting fat on, wasnt moved by the Schwab coup. McKinley had a plana step-by-step approach that wouldnt transform Merrill into a day-trading hothouse but instead would offer customers inexpensive electronic transactions, self-directed, Web-based portfolio management, and online consultation as part of a set of services that included traditional broker-client relationships at a higher fee. His online blueprint, and the companys internal efforts to integrate and revamp its isolated pockets of disparate technology platforms, was a radical undertaking. It had its share of skeptics in the media and inside the company, too many of whom assumed the lethargic Merrill was doomed to remain a step behind the New Economy.
In the end, though, McKinleys strategy won out. Now a much more efficient, streamlined and modern organization with a full range of online and offline products, Merrill is back on relatively sound financial footing, with net earnings for the first nine months of 2003 higher than its earnings for all of 2002. Meanwhile, online brokers, some in the red, struggle to squeeze transactions out of a shrinking customer base. Ironically, Schwab has tried to stimulate growth by becoming more like Merrill, providing more product offerings and consultative services for higher-end clients. That hasnt swayed fickle investors: Five years after topping Merrill, Schwabs market cap has dropped to less than $16 billion, while Merrills has ballooned to more than $50 billion.