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“The success of E-trading depends on brand, customer focus and robust technology…” - Views on News from Equitymaster
 
 
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  • Mar 22, 2001

    “The success of E-trading depends on brand, customer focus and robust technology…”

    Richard S. Braddock has held several positions ranging from President of Citicorp, Chairman of True North Communications and Chairman of Priceline.com. He was also a founder /investor of ETrade, one of the worlds pioneers in Internet trading. He is currently on the Board of Directors of Eastman Kodak and Cadbury Schweppes. He is also a Member of the Advisory Board of MphasisBFL Limited.

    In an interview with Equitymaster.com, Mr. Braddock shared his views about Internet and how he perceives Internet to evolve as one of the successful medium of business in the future.

    EQM: Is there any change in Mphasis’s strategy given the concerns of a slowing US economy. Does that necessitate a change at all?

    Mr. Braddock: I don’t think this necessitates any change. In fact, this could open up a lot more opportunities over here. One of our company’s biggest strength is our customer list. We believe we have a great set of customers and most of our customers are well on their way in what I would call life cycle development. So I think they have an opportunity in an environment, which is first of all going to be disruptive, and secondly where more companies are going to look for efficient solutions through outsourcing so as to perform well. Frankly, in addition, Mphasis is not nearly as big as we hope it will get to see and generally we expect the company at this stage to grow its way through hard markets.

    EQM: Are there any special initiatives that you are doing to move up the value chain or in terms of services to be offered to the customers in the new technology areas?

    Mr. Braddock: There are several things that we are undertaking to move up the value chain. Unfortunately, our business thrives on customer-by-customer basis and often this involves confidentiality. So it is hard to disclose. But there is one that I can use as a good example of how far this outsourcing revolution has gone in India. There is within Mphasis’s business an effort called M-source, which is actually a call centre. You can sit and listen to an Indian person armed with the fullest technology speak real time to a customer in US. Doing so, it is economically much better for a buyer of this service rather than seeking a solution from a US company. With the telecom efficiencies the way they are now, I think that there is a major opportunity for this country as well as for the company in this business.

    EQM: Will the US economy revive in the second half of the current year or will it remain flattish? Would you like to hazard a call on it?

    Mr. Braddock: I don’t think there is going to be a lot of economic momentum until in well into the second half of the current year. I think there is not much in economic fundamentals. If you look at the consumer confidence numbers, they are way down at levels we have not seen for many years and that has to reverse in a positive direction. I think it will take quite some time to have it rectify itself.

    EQM: You were one of the founders of E*Trade. At that time, what were the significant barriers that E*trade encountered in its development?

    Mr. Braddock: In the earlier stages, the major problem was primarily demand. There was not much business. In those days, it was markets primarily dominated by institutions. Only those with lot of assets could survive. So, effectively E Trade was the pioneer in the case of opening up entirely a new market that unfortunately became a day trader market and that later had some negative repercussions for the dotcom’s. In fact, it had significant negative repercussions. But in the early stages it was just getting customers, building a brand and building credibility, through low price ways to transact on the Internet. But six months after the company went public, there were eighty discount brokers. But, as you know, ease of entry on the Internet is not a problem generally and when these players came in, things changed dramatically. Then the challenges for the company took on different characteristics.

    EQM: What is the one thing that you think is essential for an online trading service to win the race?

    Mr. Braddock: I have to say that there are atleast three factors. I think they have to have a brand to attract the appropriate kind of customer. Secondly, they have to have a mix of customers that includes significant number who can be profitable. As you know, there are many customers in this space who can never make anyone money, if you have priced it at US$ 15 per transaction. Number three is that you need to have a fairly robust technological solution because it has to not only encompass the transaction but also the customer focus. “In the long run, not all businesses are going to survive in the Internet era...”

    EQM: The click and brick model is being debated the world over. Now that the technology boom has eased up, there is a feeling that may be we need to support also the whole online model with an offline model. How far do you think this is true and how far do you think that this is an excuse for all those online models that haven’t done well?

    Mr. Braddock: What I believe you mean by clicks and bricks is that the Internet is a business platform and in effect it’s an alternate distribution system for many sellers and to other traditional services. Over a period of time, there is going to be a lot of size and traction in that method. I also feel that, in the long run, not all businesses are going to survive in the Internet era. Many more ideas are going to fall away and then I think that over time, only a few businesses will continue to grow dramatically.

    EQM: So do you think that the financial product or the financial sector is going to be the number one choice for Internet related transacting? Will that still hold true?

    Mr. Braddock: I don’t think the Internet alone will solve the traditional problems that financial services are facing because you have banks at one end and another place to buy your stocks and another place to buy shirts. But one of the things that I did not agree, which ETrade is trying to do, is to become a financial supermarket by using the Internet. The truth is that, if you look from the customer perspective, they are great benefits to use a discount brokerage because you are saving lot of money. But there are no great benefits using Internet for banking service because you don’t try to save money using that. Sometimes it may be convenient but not always because you can’t get cash through Internet. In short, it is really a complex product to buy and I also feel that it is not delivered well via Internet also. But, I think there are other products like travel services and online airline booking, which incidentally is also the largest category on the Internet in the US, in terms of e-commerce that can do well.

    EQM: Do you think that priceline.com was affected by the lack of response from the airlines or was their insufficient consumer demand?

    Mr. Braddock: See, your perspective is understandable. But still we are a billion dollar business and we are very well situated to capitalise on any upturn and so we feel good at where we are. When our business took a hit in the fourth quarter because of some hiccups with our service, we told the market that we are going to make money in the next quarter. Even going forward, we expect this business to grow dramatically – because we have both demands and supply.

    EQM: Are there any books or personalities that influenced you the most?

    Mr. Braddock: I would probably fall back more on reading than people. I generally like to read books on history, biographies and autobiographies. The personalities that I like are Winston Churchill, Bismark and General McArthur.

    EQM: You have been a pioneer in many respects, what takes up your time?

    Mr. Braddock: I have another company, in which I am a chairman. It is a private company. I expect this to become visible in two or three months. One of the primary reasons why I like Internet is that I like to work in high growth areas and try to help create new businesses.

    EQM: Is there anything specific you would like tell us about the company?

    Mr. Braddock: Well, it’s a joint venture with Disney and it is in the entertainment area. It is a very clever idea and is also backed by a relatively significant technology and intellectual property.

     

     

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