Dotcom Online Broker Economics

So I mentioned the long forgotten online broker MyDiscountBroker.com yesterday. It was always clearly the dregs of the .com broker industry, and their ads seemed to go out of their way to position MDB.com as the K-Mart of the industry. I suppose some economist would have something to say about counter-signaling.

Anyway, I did a little digging (first page of Google). According to an old ClickZ.com report from 1999, the company planned a $40 million advertising campaign. It's not clear that they ended up plowing through the whole $40 million, but they definitely spent a lot, because their ads were on CNBC all the time. Anyway, what did that $40 million get them? In 2003, during the depths, the company's parent sold them to Ameritrade for... $4.2 million. Apparently they had 20,000 accounts at that point.

That story really doesn't stand out historically, because there were tons of companies that had a similar arc. They launched a me-too business, spent million upon millions on millions, and then sold out for pennies on the dollar. It's one reason I'm fairly sanguine on the current web boom. Sure, there are a lot me-toos. And a lot of them will go to the deadpool. But by and large, you just don't see the kind of crazy over-capitalization and overspending as you did then -- at least that's my sense. Whenever I talk to anyone involved in a start-up, it sounds like nuts and bolts stuff, like engineering talent, is the big cost.

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