eTrade 2001 Annual Report Download - page 66

Cost of Services
Cost of services increased 16% from fiscal 2000 to fiscal 2001 and 71% from fiscal 1999 to fiscal 2000. Cost of services includes
expenses related to our brokerage clearing operations, mortgage origination activities, banking operations, customer service activities,
web site content costs and systems maintenance. The increases in cost of services in fiscal 2001 reflect a full year of additional
expenses for the acquisition of E*TRADE Access and a partial year for the acquisitions of E*TRADE Mortgage, Web Street, and
Dempsey, as well as the impact of amortizing internally developed software as a significant number of large projects were completed
in November 2000. The increase in cost of services in fiscal 2000 reflects the overall increase in customer transactions processed by
our brokerage and banking subsidiaries, a related increase in customer service inquiries, and operations and maintenance costs
associated with our technology centers in Rancho Cordova, California and Alpharetta, Georgia. Also impacting cost of services is
increased activity in our Banking segment where active customer accounts increased 70% from September 30, 2000 to December 31,
2001 and in our Global and Institutional business segments, where active customer accounts have increased 51% from September30,
2000 to December31, 2001. Growth in our banking and international subsidiaries combined with investment in our wealth
management business resulted in an increase in cost of services in fiscal 2001 as compared to fiscal 2000 and in fiscal 2000 as
compared to fiscal 1999. These additions to costs have been partially offset by reduced clearing and other transaction-related expenses
as volumes have decreased year over year, and by the operating improvements described below. The initial impact of our facility
restructuring, effective August 29, 2001, has also been reflected in the results of fiscal 2001, reducing our ongoing lease costs relating
to vacated facilities.
Cost of services has not decreased at the same level as transaction revenues because of the need to maintain an acceptable level of
customer service across an account base that continues to grow and the need to service a wider range of product offerings. Looking
forward, we plan to continue to identify and implement cost savings strategies in this area, including a greater integration of our bank
and brokerage customer service and the implementation of a tiered customer service strategy across the organization which will
include improved interactive voice response call servicing and a tier-focused automated call routing system.
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Selling and Marketing
Selling and marketing expenses decreased 51% from fiscal 2000 to fiscal 2001 and increased 60% from fiscal 1999 to fiscal 2000. The
selling and marketing expenditures reflect expenditures for advertising placements, creative development and collateral materials
resulting from a variety of advertising campaigns directed at expanding brand identity, growing the customer base and increasing
market share. Selling and marketing expenditures also include selling efforts in support of our Global and Institutional business
segment. In fiscal 2000, we continued the momentum behind our significantly expanded marketing efforts through national television
advertising and new strategic marketing alliances, as well as our first Super Bowl sponsorship. Decreases in selling and marketing
expenditures from fiscal 2000 to fiscal 2001 are primarily due to reductions in customer acquisition spending, including advertising,
online and direct mailing and promotional activities. We believe marketing dollars are being spent more efficiently since we cross-sell
banking services to our brokerage customers in accordance with applicable regulatory requirements. In addition, our strategic
relationships are scaleable and structured to allow us to rapidly take advantage of market upswings and minimize risk in market
downturns.
Our cost per net new account totaled $281 in fiscal 2001, an increase of 7% from $263 in fiscal 2000, which was an increase of 7%
from $245 in fiscal 1999. These increases are indicative of the increasing difficulty in acquiring new accounts given changing market
conditions. We believe that our reduction in selling and marketing expenditures over the past year should not significantly impact our
competitive position because substantial investment in marketing efforts has already been made to build a strong brand identity and
because we are focusing marketing and sales resources on cross-selling our services to our existing customer base, which is a less
expensive way to generate and maintain business.
2002. EDGAR Online, Inc.