The World Wide Web today receives so much attention that corporate pronouncements about going online usually elicit no more than a techno-yawn.
Not so with Merrill Lynch & Co.
When the nation's biggest brokerage announced online securities trading last month, even Wall Street's Web diehards took notice.
The move ended months of delays and not-so-private soul-searching among traditional brokerages over whether to launch into cyberspace, and it underscores the potential of the Internet not just to cut costs but to topple management pyramids.
"Internet investing is a classic invasion of a disruptive technology into an established market," says Clayton Christensen, associate professor at the Harvard Business School and author of "The Innovator's Dilemma: When New Technologies Cause Great Firms to Fail."
The Internet undercuts the middle man and empowers lower-level decisionmakers, thereby boosting efficiency.
For investors that's good - more money to invest rather than pay in commissions. But it's too much of a good thing for large, established institutions like Merrill Lynch. The Internet threatens brokers - and the commission revenues they generate for their employers - because they might be left sitting by silent telephones as clients research and trade on the company Web site.
The online travails of mainline brokerages like Merrill Lynch appear in other industries. The Internet has hit the underbelly of brokerages much as PCs walloped the makers of minicomputers and mainframes early last decade.
For proof of disruption, look no further than Charles Schwab, a discounter launched as an alternative to traditional brokerages. Schwab a few years ago hurled itself at the Internet - and into a pot of gold.
Online customer assets in two years have swelled more than fourfold to $174 billion. Today, 61 percent of its trades are performed online. On an average day in January, Schwab investors traded $2.6 billion. (Of course, technology can backfire: Schwab's Web site has crashed three times since December.)
Rather than handle client assets the way a traditional brokerage does, Schwab coaches investors, providing reams of research and, when requested, face-to-face advice.
"We help educate investors, giving them tools and information to make their choices easier, but the final choice is theirs," says Martha Deevy, senior vice president for electronic brokerage at Schwab.
The approach initially worked for small investors, but now wealthy clients - traditionally the turf of the Merrill Lynches - are making the switch. "We're definitely working up the asset chain to more higher-net-worth individuals," says Ms. Deevy.
Traditional brokers like Merrill Lynch can fight back by launching their own online brokerages. But they have to be separate entities, says Mr. Christensen. Otherwise, managers at the old-line brokerages are likely to stifle innovation and boldness.