Friday, September 22, 2006

Zecco - zero commission trading

While I'm not always a big fan of Google, I have to grant them this. In my most humble opinion, click-through advertising has driven this whole Web 2.0 movement as much as any other factor (low-cost hosting, bandwidth, user-interaction included). Google/Overture made sources of traffic fairly invisible to advertisers. So long as users click-through, advertisers pay. With the aggregation of publishers and advertisers through these networks, the cost of generating (initial) ad sales essentially falls to zero for startups. Coupled with cheap hosting & bandwidth, free open-source code for SQL/databases & web servers, outsourced engineering, the fast growth of broadband access (and numerous other supporting factors), no-cost revenue generation via click-through advertising make prototyping and launching web services and applications very low risk.

Why state the obvious? Om Malik did this write up on Zecco. Apparently Zecco is looking to launch zero commission trading, making up the $2 per trade cost to them on advertising revenue. Paradigm-shift anyone? Trading (and paying for trading) has been around for a wee bit. Bohemoths like Charles Schwab, Ameritrade, eTrade and other personal finance 'retailers' generate billions focusing on trading revenue to the mass-market. If its at all possible to pull off, by the time the big guns try to adapt to this model, Zecco will be driving massive traffic and usage. Yahoo! Finance is already one of the biggest traffic (and ad revenue) draws for Yahoo! Combine that functionality (boards, blogs, real-time stock prices) with zero-trade commissions, and Zecco can eat up share not only from the trading firms, but from the finance portals as well.

Obviously big-name advertisers will wait on marketing directly via Zecco until it has a big enough audience draw, but thanks to Adsense/Overture, Zecco doesn't need to wait on (or invest in) generating revenue on their own. The same could be said for the thousands of other web sites leveraging click-through advertising on traffic volume alone. How does Web 2.0 differ from Web 1.o? These businesses with seemingly no revenue model (paying for $2 per trade in return for $0 would at first seem *cough* irrational), should everything else fail, have a safety net thanks to Google/Overture. Without it, business models like Zecco's would probably be too high risk for even crazy, base-jumping, shark riding entrepreneurs to take on.
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