Hello? Zecco?

Filed in archive Investing on September 26, 2006

So I read in various places about this new investing startup Zecco that is going to offer free stock trades, and make its money from site advertising versus customer commissions. Then I got an e-mail from a guy at Zecco talking it up.

So, now that I'm remembering to write about it, the Web site, Zecco.com, which is set to be functional on October 9, is just some lame spammy search engine called trafficclub. If Zecco's trying to make a few bucks before the official launch instead of building the hype with an actual Web site, that's lame. If their site has been hacked, that's lame, too. Either way, not an auspicious beginning--and this from a company backed by one of Skype's original backers.

Well, I'll proceed as if the site's fine, using info I've culled from elsewhere.

This post from TechCrunch, which tracks "Web 2.0" companies, has a pretty good assessment of Zecco's chances. The article's basic point is that Zecco is trying to build a business based on price when all its predecessors have already seen the writing on the wall, and are thus expanding into services that bring more money. So, Zecco may undercut ETrade, but what if ETrade says "Fine, our commissions are free, too"? Then Zecco is screwed, because it doesn't have the traction in any other investing products. It might hasten the day that all stock trades are free (just as Skype, et al, are hastening the day that long distance phone service will be free), but does it have another trick up its sleeve when it comes to surviving that post-apocalyptic world? (Not to be too dramatic.)

The other point made at TechCrunch is that the days of a booming market that attracts active traders are gone--most people have moved back to slow-go investing and do little trading. The market that would have been huge in 2000 is considerably smaller now, which is why the ETrades of the world have been trying to expand their services--relying on stock trade commissions is not a healthy business model.

Zecco's going to try to be more than a trading platform, and that's where it stands a chance. Zecco can lure customers with free trades, then pitch them on its "community", which will include forums, blogs, etc. It's "the intersection where online brokerage meets Yahoo Finance and Myspace" according to Zecco. With enough participants, feeding ads to the community might make some money, and of course if enough are roped in, then selling financial products that actually cost money could be in their future.

There's always a danger in giving something free, though--you attract people that want something for nothing. And if they come based on that promise, they're unlikely to start pulling out their wallets. Zecco could end up in the business of counting eyeballs in the hopes of surviving on ad revenue, a dicey proposition.

I'm all for free trades, though, no doubt about that. And if ETrade doesn't react to this with free trades of their own, I might just switch. Zecco will be interesting to watch, at least if their Web site starts showing something other than spammy fake search results.

P.S. I should mention that Zecco got its act together and its site actually appears now at http://www.zecco.com.

P.P.S. Be sure to check out the second comment below from Soren Kenner, who straightens out a few things concerning Zecco's business model.