CREATION OF ONLINE DISCOUNT BROKERAGE HOUSES AND THE THREAT CAUSED TO GIANT CORPORATIONS BY A SMALL COMPANIES:
CHARLES SCHWAB VS. MERILL LYNCH.
BY:
MBA STUDENT
ABSTRACT
Technological innovations and development of high speed internet in late 1980s created opportunity for many businesses playing in financial markets to change their strategy and find new ways of fighting against competition and apply competitive advantage tools in succeeding in their business. On the other side, investors benefited from this as well. Now, they had new ways of investing their capital and spare resources with little cost and more opportunities to invest. This led to the creation of Electronic Communication Networks (ECN) in financial markets, which caused dramatic impact on how financial markets operate and on how stocks are traded. As a result, firms with strong leadership and management took some risk, changed strategies in conducting part of their business and entered financial markets through the Internet. They started to provide online services. Now, small companies like Charles Schwab could easily compete with companies like Merrill Lynch, who was giant Investment Banking firm. In traditional financial markets Investment Bankers played the role of intermediary for firms and companies to issue stocks and bonds with the purpose of raising capital. The internet was going to destroy their business and push them out of the business. At the same time, these virtual financial markets created strong financial risks to those companies involved with online IPOs and they had an option to choose between traditional approach and online IPOs. This paper analyses how Charles Schwab was successful in putting Merrill Lynch business in danger by providing almost the ...