Friday, April 28, 2006

 

TD Ameritrade

In our presentation of our prediction of the financial services industry in 2010, we highlighted the shift towards the "mobile-enabled" online trading model, as visible in the "Financial Services 2010" snapshot below. Under such circumstances, relationships with mobile service manufacturers and application developers would become critical. A first mover would get a significant and sustainable advantage due to the dynamics of the industry. I have visualized the best, worst and most likely scenarios for TD Ameritrade Holding Corporation below:


Best case scenario: Industry moves towards mobile-enabled online trading. TD Ameritrade is able to foresee this and is the first mover to integrate online trading using mobile devices. This gives it a huge lead over its competitors, which take time to jump onto the mobile bandwagon. By the time the competition follows suit, TD Ameritrade has already established itself in a dominant position. Its position is fortified by the partnerships established and the barriers to entry owing to customer loyalty. It continues its trend of aggressive M&A (Datamonitor report, 2005) and acquires companies specializing in other financial services, which it is able to incorporate into the "mobile-ready" setup.

Worst case scenario: TD Ameritrade fails to see the mobile-enabled S-curve ahead and is late to react to it. Competitors have already taken the lead by the time TD Ameritrade reacts. Given the strong consolidation dynamics in the industry, the company is soon acquired.

Most likely scenario: Owing to its customer centricity and focus on dealing with the unexpected, TD Ameritrade is able to foresee the "mobile-enabled" wave and is proactive in forming the relationships with mobile service manufacturers and application developers. By this time, Fidelity, which is big on using advanced technology for competitive advantage, has already started taking similar steps. This propels both companies ahead of the rest of the competition. Both companies get into heavy M&A activity, consolidating the industry further - and finally settle into their own niches, differentiated by the financial services they specialize in.

The recommendation for TD Ameritrade is short and simple: detect the upcoming change and act proactively to gain the first mover advantage, as described in the best case scenario.

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