| BUSINESSWEEK ONLINE : JUNE 28, 1999 ISSUE | ||||||||
| ||||||||
 | ||||||||
| COVER STORY
How Schwab Grabbed the Lion's Share Dawn G. Lepore, Charles Schwab Corp.'s chief information officer, likes to tell the story of a recent panel she sat on that featured executives from several Internet upstarts. At first, her fellow panelists seemed surprised to see her. ''But when I mentioned that our site gets 76 million hits per day, the eBay guy sitting next to me gasped,'' she laughs. ''I got a lot more respect after that.''
ACCOUNT EXPLOSION. Of course, the rewards of success are pretty high, too. Having captured 42% of the assets invested in online-trading accounts today, the San Francisco-based discount broker has made itself the player to beat in online financial services. In the past 15 months alone, it has added 1.3 million Internet accounts. Those gains have sent Schwab shares soaring: Even after the recent market swoon, its stock has leaped 329% over the past year, to around 89. So how did Schwab make the switch so quickly? For starters, its managers recognized the Web's potential long before Internet frenzy spread beyond Silicon Valley. Their wake-up call came in 1995, the first year more personal computers were sold in the U.S. than televisions. Although no techie, founder Charles R. Schwab quickly got on board. That gave the initiative a big boost and helped win it adequate funding, even though any payoff was highly uncertain. The decision to launch the online business as a separate unit was another key move. ''Those people were completely focused, so it's not, 'I have now 20 things to do, and by the way, the Internet is my 21st thing,''' recalls Lepore. Early on, she and her colleagues also worked hard to end resistance from Schwab's branch staff, who felt threatened by the online unit. The company sent frequent E-mails to employees highlighting the rapid growth in online trading. And the branch staff was trained first, so they, not the tech staff, trained customers to use online services. Lepore says that ensured that ''they felt like part of the change.'' RISKY SHIFT. The staffers' backing proved vital when customers began to rebel against the two-tiered pricing system that schwab.com initially set up. Full-service customers were charged an average of $65 to trade on the Net, while Schwab.com users were paying just $29.95. Faced with complaints, the branch staff warned that the price differential needed to go. So in January, 1998, David Pottruck, Schwab's co-CEO, brushed aside fears that a shift would cannibalize Schwab's traditional business and priced all Net trades at $29.95. The move cut $150 million from expected revenue and sent Schwab's shares tumbling from 41 to 28. But soon, the risk paid off, as volume soared. That made Schwab a Net rarity: Unlike a lot of other online ventures, it makes money. ''E-commerce has been very profitable for us,'' Lepore says. And that's how she plans to keep it. By Nanette Byrnes in New York *Video interviewers: Steve Hamm, Marcia Stepanek, Neil Gross _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
|  |
 | |
 RELATED ITEMS Internet Anxiety COVER IMAGE: Internet Anxiety CHART: Nothing But Net TABLE: Jumping on the Bandwagon A Brutal Survival Plan (extended) How Schwab Grabbed the Lion's Share (with video) CHART: Schwab's Net Assets ONLINE ORIGINAL: GE's Welch: ``This Is the Greatest Opportunity Yet'' ONLINE ORIGINAL: PaineWebber's Cyber-Seer: ``We're Only at the Beginning of This'' ONLINE ORIGINAL: Toys 'R' Us' Nakasone: ``We Needed to Move Quickly'' ONLINE ORIGINAL: For Compaq, Nowhere Left to Go but Up? INTERACT E-Mail to Business Week Online | |||
