NEXT ONLINE BROKER AD BLITZ COMING

Americans, already inundated with advertisements about island-owning tow truck drivers and kids with helicopters, are in for an even bigger advertising barrage this summer for online trading firms.

Executives of such companies told attendees of Putnam Lovell deGuardiola & Thornton’s electronic brokerage conference in San Francisco earlier this month they were at least doubling their 1998 budgets.

Presenters included E*Trade Group Inc., Discover Brokerage Direct (a subsidiary of Morgan Stanley Dean Witter & Co.) and Ameritrade Holding Corp.

Each is spending big bucks to distance itself from the pack. As the number of investors flocking to PCs to buy and sell securities skyrockets — Credit Suisse First Boston estimates that in the first quarter of this year, 500,000 online trades occurred daily, up 15% from the previous quarter — the number of companies offering trades is climbing, too.

With 130 firms offering online trading and even more gearing up to offer discount prices, including full-service heavyweights Merrill Lynch & Co. Inc., Morgan Stanley Dean Witter & Co. and PaineWebber Group Inc., no one can afford not to pull out all the stops.

Such competition has fueled advertising even as Securities and Exchange Commission Chairman Arthur Levitt chastises the firms for making investing look too easy in their commercials.

Bankboston Robertson Stephens estimates that ad spending by online brokerages will reach $525 million this year, up 91% from the $275 million spent in 1998.

“It’s time to move beyond brand building to promotion,” Tom O’Connell, president of Discover Brokerage, told attendees about his company. By yearend, Discover will double its $50 million advertising budget — as well as doubling its staff and expanding its office space.

Ameritrade to spend $200M

J. Joe Ricketts, co-CEO of Ameritrade, a traditional discount broker that began focusing on Internet trading as late as 1997, announced plans to spend $200 million on brand awareness, starting with a major campaign this summer. Likening the online trading competition to the Oklahoma land grab, he said Ameritrade enjoyed a mere 0.3% return on equity in 1998, compared with an 86.8% return in its fourth year of existence, 1978.

“The opportunity is enormous with more and more households coming online,” Mr. Ricketts told the audience. Taking this year’s ad budget into account, he estimates it costs the firm $194 to acquire a new account, while Ameritrade’s net income on each account, much of which comes from money made on customer balances, is $218. “It’s like drilling for gold,” he said giddily.

DLJ Direct and E*Trade aren’t exactly resting on their laurels, either. DLJ expects to have spent $65 million on advertising by yearend, up $40 million from last year. E*Trade hasn’t announced its 1999 ad budget, but it spent $150 million last year and to give some indication, it flaunted a new print and TV ad campaign at the conference. Separately it has launched an aggressive campaign to get inactive accounts — people who’ve registered but not established a balance — to activate, including incentives that give customers frequent-flier miles based on their initial deposit.

The presenters also laid out expansion plans.

E*Trade talked of its month-old partnership with ClearStation Inc., a financial community website with 100,000 registered members, its launch of E*Trade London and Japan, and its plan to integrate delivery into wireless handheld devices like PalmPilot, the wildly popular personal digital assistant.

Discover boasted about its partnerships with Yahoo!, CNNfn, Compuserve and Quicken.com, as well as its own plans to integrate its technology into handheld devices.

Despite their efforts to act unconcerned, the sense of competition among discount brokers is palpable. DLJdirect CEO Glenn Tongue, a former Merrill Lynch employee, scoffed when asked about the threat Merrill’s going online poses to his business.

“They have this enormous channel conflict that I think will create incredible confusion with its implementation, he said.”

He added that while Merrill might steal some market share, its move should also “accelerate investors’ migration to the Internet, which is good news for us all.”