1. CASE II - 14 Charles Schwab & Co., Inc., in 1999

2. CompanyBackground 1971 Charles Robert Schwab, Jr. founded a First Commander Corporation1973 The corporate name changes to Charles Schwab & Co., Inc.

5. Schwab The Innovator: 1971-1995 Schwab invested heavily in technology as a way to lower costs. In 1985 Schwab introduced a DOS-based software product called “Equalizer” that allowed retail investors to conduct online transactions and research via their personal computer. In the late 1980s and on into early 1990s, Schwab developed several technology-based services that would became central components of its business:

6. TeleBroker In 1989 Schwab has introduced TeleBroker, a fully automated telephone system that allowed customers to retrieve real-time stock quotes and place orders. In 1995, 80 million calls (75 percent of total) and more than 15 million trades were handled electronically, and service was offered in English, Spanish, Mandarin and Cantonese.

7. SchwabLink In 1991 Schwab introduced a service for fee-based financial advisor called SchwabLink. It provided fee-based advisor with back-office custodial services. Advisors could plug into Schwab’s computer to trade both Schwab and non-Schwab products. They could outsource all transaction, record-keeping, and statement preparation duties to Schwab’s computerized system for fee based on the number of transactions and the size of customer account and assets.

8. OneSource In 1992 Schwab introduced the Schwab Mutual Fund OneSource program, a revolutionary fund supermarket that helped customers purchase Schwab and non-Schwab no-load Mutual funds with greater ease and without paying transaction fees. OneSource generated revenue by charging fund providers for listing the fund in the fund supermarket and providing them service.

9. Schwab in 1995 Schwab owed much of its success to the heavy investments it had made in technology and automation system, which allowed the company to build extremely cost-effective operations. In 1995 Schwab spent almost double the average level of advertising and communications expenditures for a brokerage firms. By year-end 1995, Schwab’s commissions is rise to $751 million from $244 million in 1990.

10. The Evolving Brokerage IndustryMid-1990s: The Rise of the Internet In October 1995 Schwab introduced e.Schwab, a product that provided investors with account and research information over the internet. In early 1996, Schwab announced an upgraded e.Schwab and became the first major brokerage to offer trading via the Internet.

11. New Entrants in the Industry Electronic brokers such as E*Trade and eBroker sprang up and offered prices as low as $12 per trade. In three month in 1996, E*Trade watched Web-based trading grow from zero to 20 percent of their total volume. By mid-1996, competition among online traders had increased considerably: 13 online trading channels existed in addition to Schwab.

12. Late 1990s: Online Trading Gains Momentum As online Web site evolved, they began to provide readily available, mostly free financial information to investors. By 1998, online trading was a compelling force in the brokerage industry. An assets held at online brokerages equaled one-eight of the total amount of assets held at the top five brokers in the country. By 1999 it was estimated that there were about 100 online brokerages.

13. Late 1990s: Online Trading Gains Momentum In June 1999, Schwab reported 2.5 million active online accounts, an increase of 1.3 million accounts from year-end 1997.

14. E*Trade and Beyond:New Models of the Brokerage Firm E*Trade Group Inc. was incorporated in California in 1982 and began to provide online investing services to self-directed investors through its Web site in February 1996. In 1998, the company’s reported goal was to replicate full-service firms’ spectrum of services electronically, but without using human brokers or building branch.

15. E*Trade and Beyond:New Models of the Brokerage Firm As companies like E*Trade sought to reshape the brokerage industry, Schwab was actively developing an alternative model to the full-service brokerage. Schwab’s model was based on providing investors with the degree of advice and service they wanted, through the channel they preferred.

16. Full-service(commission) brokerage market size

17. E*Trade and Beyond:New Models of the Brokerage Firm Executive VP Daniel Leemon, Schwab’s chief strategist, divided the 30 millions U.S. households that had brokerage accounts in to three types of investors: “delegators” – people who wanted to offload the investment chores to others that have about 12 million people. “self-directed investors” – people who do investment on their own. “validators” – people who knew what they wanted, but at times needed some information and advice to confirm it.

18. Three types of Investors Leemon pointed out that the “validators” usually turned to full-service firms for support.

19. June 1999: The Competitive Environment Widens By mid-1999, Schwab’s business model had proven successful compared against online brokerage like E*Trade. But Merrill Lynch’s announcement of upcoming online trading meant there would be pressure from the other direction.

20. Merrill Lynch &Co., Inc. Merrill Lynch was the big player in the full-service brokerage business. It entered the o managed nearly $1.5 trillion in customer assets, almost triple what clients invested at Schwab. Of Merrill’s client, 400,000used Merrill Online to manage their accounts, which totaled $300billion assets. But Schwab had created tremors at Merrill Lynch, and on Wall Street in general, when its market capitalization topped $36 billion in June 1999, surging past Merrill Lynch’s $26 billion market capitalization.

21. WingspanBank.com On June 24, Bank One announced that it had established a new business unit, WingspanBank.com, to sell a range of financial services over the internet. WingspanBank was a virtual bank through which financial services could be distributed over the Internet. The new bank offered checking accounts, certificates of deposit, credit cards, mortgages, insurance, mutual funds, electronic bill payment, brokerage services, and online trading.

22. Managing Growth at Schwab On March 13,1999, Schwab held a daylong companywide event called VisionQuest. Through interactive sessions, employees learned about Schwab’s role in the investment market, changes in the financial services industry, and timely issues such as baby boomers and the Internet.

23. Managing Growth at Schwab Evelyn Dilsaver, a senior vice president at Schwab commented that Schwab’s key characteristic was to “be able to turn on a dime, adapting quickly to change.” and being a “change junkie” was critical at Schwab. Schwab gave employee power to create change and the technology to implement it. As Dawn Lepore, Schwab chief information officer put it, “We have a culture that embraces technology. We have 14,000 employee, but we think of ourselves as having 14,000 technologists.”

24. Afterward – What Schwab do? After late of 1990s Schwab face a crisis from many competitors such as Merrill Lynch, WingspanBank and E*Trade. Schwab decided to change a CEO to Charles Schwab - its founder – and decide to change business model from transaction model to relationship model. And they also try to expand the customer base to a higher tire by buying a U.S. Trust and Schwab buying some other company such as Chicago Investment Analytics to raise a company capacity and launch a new product like Schwab Equity Ratings

25. Fin Thank you for your attention