The Web Pays: New Market Recasts Industries - Page 5

Money, Money, Money

By John T. Mulqueen

It should come as no surprise that the companies whose business it is to make money have figured out a way to make a buck or two on the Web. Charles Schwab & Co., E*Trade Group, TD Waterhouse Investor Services, Fidelity Investments, Ameritrade, Principal Financial Group, Datek Online Brokerage Services and DLJdirect are all in the top 50 of the Interactive 500.

Aside from the whirligig stock markets themselves, consolidation and mergers are the most conspicuous forces affecting the financial services business, including the online sector.

Credit Suisse Groups $11.5 billion bid for Donaldson Lufkin & Jenrette, including DLJdirect, is the largest transaction directly involving an online service, but E*Trade and Schwab have bought other companies to expand their reach and services.

E*Trade has expanded into France, Germany and Norway through acquisitions or partnerships. The company has set up offshore trading operations in Bermuda to handle its expansion into overseas trading, including Japan. And it has acquired other companies, such as, to gain access to new customers and to acquire new products.

Once just a high-volume trading machine, E*Trade is emulating Schwab and more traditional full-line firms by offering automated teller machine services, online banking and support for financial advisers. The firms new marketing line - "E*Trade. Its Your Money" - tries to drive home the idea that it is a financial services company.

International markets are especially attractive, since the markets for investing and online trading are just beginning to develop in Europe and elsewhere.

Schwab is expanding across product lines and geographic regions. The company plans, for instance, to add bond trading to its services, which also include equities and mutual funds, and it has begun offering services in Hong Kong, China. Schwab and E*Trade announced Chinese language information services within days of each other. And TD Waterhouse, perhaps the most conservative of the online firms, is trying to develop a business in India.

The major financial firms - such as The Goldman Sachs Group, Merrill Lynch & Co. and Morgan Stanley Dean Witter - so far have not made any attempt to buy a major online firm, or at least no attempts have been made public. They are, however, buying the companies that handle the trading for these firms, and often have their own electronic trading systems.

Goldman Sachs is buying Spear Leeds & Kellogg, a leading market maker and owner of a 20 percent stake in RediBook, the third largest electronic communications network. Goldman Sachs reportedly has been trying to acquire Knight Trading Group, the largest market maker and trader processor for the online firms. Merrill Lynch has acquired Herzog Heine Geduld, another market maker with an electronic trading product, and Deutsche Bank has picked up National Discount Brokers.

These companies are being acquired more for their ability to make markets - trade among themselves in securities - than for their online capabilities, but the capabilities are there for development.