Firm Starts To Trade On $100M IT Revamp

Imagine being at the epicenter of the world's most information-driven industry, competing in history's fastest-moving business revolution. Throw in carte blanche management support for IT investments and you get some sense of the ride Ameritrade CIO Jim Ditmore is on.

As Ditmore approaches his one-year anniversary at Ameritrade, the brokerage is roughly six months away from completing a $100 million IT overhaul that will give its online trading service end-to-end redundancy. The company will have duplicate routing paths, carriers, data centers--the whole nine yards.

That huge investment makes sense when you consider that 88 percent of the brokerage's trading volume comes from Web accounts (1999 revenue was $268 million; first-quarter revenue came in at $111 million). This puts Ameritrade's IT spending on a par with that of E-Trade, a company with more than twice its revenue, notes Larry Tabb, an analyst with the Tower Group, a consulting firm that specializes in financial industry technology.

"While they may not be the size of E-Trade, they need a similar infrastructure," Tabb says. "Unfortunately, those things don't come inexpensively."

So far, Ameritrade's site has been free of the outages that have blemished E-Trade, Charles Schwab and others. Ameritrade learned an early lesson. Following growing pains in late 1998, including an inability to deliver up-to-date account balances, it adopted a go-slow approach to promoting its Web trading services.

The brokerage spent just $60 million on advertising in 1999--well above 1998's $44 million, but well below original plan. With a bulletproof infrastructure in place, Ameritrade will spend up to $200 million on ads this year. Since starting more aggressive advertising again in September, "we've taken the huge capacity increases in stride," Ditmore says. Ameritrade averaged 81,000 online trades a day in its fiscal first quarter, up from 53,000 the previous quarter.

With complete service, equipment and site redundancy in the works--a back-up data center Ameritrade purchased in Kansas City goes live in April, complete with DS-3 links to the primary data center--Ditmore's confident Ameritrade won't disappoint its customers. "From the time a customer's transaction leaves the ISP, gets to our server and gets processed, you can have any one component fail, and it will not affect that particular transaction," he says.

Since arriving from Bell Atlantic, Ditmore has also: