It's exactly 25 years to the month since K. Aufhauser & Company became the first firm to offer stock trading on the world wide web in August 1994.
Competing brokerage firms quickly adapted in 1995. A company now known as TD Ameritrade bought K. Aufhauser and E-Trade switched from an 'online' service, only offered through AOL and Compuserve, to a web-based platform accessible to anyone with a web browser.
A look back to 1994
Remember internet and web are not synonymous. This is an important distinction when you look at how E-Trade, the actual first mover on home computer trading, quickly and correctly adapted to disruptive innovations and became a fast follower and an early adopter of new technology.
As a first mover, E-Trade founders William Porter and Bernard Newcomb revolutionized the brokerage industry when they launched TradePlus in 1982. This was an 'online' service. So what's the distinction and how did the earliest 'online' trades different from 'web-based'?
Well, as a service TradePlus clients could pay a $195 sign-up fee, a monthly subscription of $15 for one hour of connection time PER MONTH and a discounted commission of $40 per trade. If the client exceeded an hour connected to TradePlus during the month they'd be charged $24 ... PER HOUR. So if there are 20 trading days per month on average, a client could spend 3 minutes per day online to place trades with quotes that were delayed 20 minutes. (For real-time quotes it was an additional $60 per month.) The service also was only available through either AOL or Compuserve.
Innovative but incredibly expensive and inaccessible.
As a fast follower, E-Trade leadership believed that the dual public launches of the world wide web in 1991 and web browsers like Mosaic in 1992 were the future. So they made the call to ditch their soon-to-be noncompetitive revenue model above and they became an early adopter and fast follower of TD Ameritrade's web-browser based business model in 1995.
W.W.W. wins
Today that looks like a clear decision. In case you haven't turned on a computer or phone lately, the world wide web won and AOL is no longer overloading your physical home mailbox with plastic CDs every week. But 25 years ago, E-Trade EASILY could have tied their future to the fortunes of CompuServe and AOL for a few more years. After all, E-Trade was considered the fastest growing company in Silicon Valley. In 1992 they generated $850,000 in revenue. By 1994 they'd grown to $11 million in revenue and their partner AOL was just starting to grow into a monster. By 1996, over half of the US homes with internet access dialed up through AOL.
Nonetheless, E-Trade 'the first mover' in electronic trading in 1982 shifted and became E-Trade 'the fast follower' of TD Ameritrade in 1995.
How did it work out? We don’t need to wait 20 minutes for a delayed quote or hook up a phone line to a desktop computer and dial up AOL to find out.
Twenty-five years later this web contraption has stickiness for stock trading and FinTech.
Now will the web-based platform last another 25 years? Will blockchain disrupt the model? Will these firms continue to disrupt and dominate or will they be disrupted by a startup?
We’re having these conversations with founders every week. We look forward to more.