A few years ago, when the Internet was in its infancy, idealists dreamed that it would become a force for greater world harmony. Well, dream on. In todays business world, at least, the Web
more closely resembles a high-tech war zone, a place where only the biggest and strongest can hope to survive.
Steve McDonald is about to find that out the hard way. As chief executive officer of TD Waterhouse Group, Inc., the Toronto Dominion Banks newly renamed discount broker-
age, McDonald is poised to take on some of the toughest competitors in the online arena, companies such as L*Trade Group Inc., Charles Schwab & Co., Fidelity Brokerage Services Inc. and Datek Online Holding Corp.
Soon, those combatants will be joined by the mightiest brokerage of all: Merrill Lynch & Co., which plans to launch its own Internet trading service by the end of the year.
This is more than a clash over some niche market. Simply put, online trading has emerged as one of the fastestgrowing categories of e-commerce.
This year in North America, Internetbased brokerages are projected to earn $8.7 billion in commissions and interest-spread income, according to a study published last week by the Toronto office of The Boston Con-
sulting Group. That’s 15 per cent of the total retail market for brokerage services, up from 9.8 per cent in 1998.
And the pace of growth is accelerating. By the end of the next decade, online brokers are expected to handle at least half of all the world’s retail stock trading. The betting is that most of that business will be controlled by a handful of global players, companies with the resources and brand recognition to compete in every major country and securities market.
Will TD Waterhouse be among the giants? An impartial observer might consider it a long shot, but McDonald and his associates do have several things going for them. TD Waterhouse, formerly known in Canada as Green Line Investor Services, is currently the world’s second-largest discount broker, with 2.6 million accounts and more than $105 billion in customer assets in the United States, Canada, Britain, Hong Kong and Australia. Ranked by the volume of online trading activity, it’s number 3, behind Schwab and E*Trade, both of which are based in California.
It’s an impressive start, but McDonald knows the fight is just beginning. That’s why he and his colleagues have been working overtime to reorganize TD’s brokerage operations. The first
and most visible change was the decision to drop the Green Line name in favour of Waterhouse, a New York City-based discount brokerage acquired by the bank in 1996. “In this world, people don’t have time for multiple brands and confusing messages,” says McDonald, who lives in Toronto but
now spends three or four days a week at TD Waterhouse’s head office on Wall Street. “We’re selling a consumer product, so we needed a single name to get across the message that we want to be a global player.”
Step two was TD’s decision to spin off the brokerage last month in a $ 1.5billion share issue, the largest Internetrelated initial public offering in the history of the New York Stock Exchange. About a third of the proceeds went to help repay TD’s investment in the business (the bank still owns 88.5 per cent of TD Waterhouse). The rest will be used to finance future growth. Already, there is talk of expanding into Japan, France and Germany, countries where online trading is just beginning to take off. “One of the things we have to manage carefully is the pace of growth, be-
cause each new market is a lot of work and requires a different approach,” McDonald says. “Our solution is to focus on the big markets first and grow from there.”
If only it were that simple. In its traditional market, TD Bank can afford to move cautiously, testing and retesting each new product before rolling it out nationally. In the realm of e-commerce, however, that’s a recipe for extinction. The winners so far—outfits such as America Online, Amazon.com and E*Trade—have been hyperkinetic risk-takers that are not afraid to go deep into the red to grab market share.
To promote its new identity, TD Waterhouse plans to spend at least $150 million this year on advertising, twice as much as in 1998 but still about a third of E*Trade’s current ad budget. The new campaign is set to begin in September; between now and then McDonald won’t be getting much downtime. “We have no children and my wife is used to not seeing me much during the week anyway,” he says. Just as well, because the Web wars can be all-consuming.
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