In 1995-96, the internet Internet primarily represented a disruptive technology to Schwab. This is because, as defined by Christensen, disruptive technologies can be identified as those that 1) displace an existing market, industry, or technology and produce something new and more efficient, 2) come from the bottom of the market and are not yet valued by the existing customer base, 3) generally appear financially unattractive to established companies since the potential revenue is small and difficult to project in the long term, and 4) make a product more affordable and accessible to a larger population.
By 1996, the Internet swiftly displaced the brokerage industry by creating the electronic brokerage market, a new sector within the brokerage industry. It provided customers the ability to trade without a broker efficiently and cheaply, in turn creating a new market of investors which Schwab had not anticipated. Ultimately, the technology offered cost advantages that transformed the brokerage services, which were historically expensive and limited to a select market of highly educated investors, making it more affordable to a larger population. …show more content…
The bottom market base offered Schwab lower gross margins, which was unattractive, thus creating space at the bottom of the market for new disruptive competitors to emerge. In response, Schwab pursued “sustaining innovations” at the higher tiers of the market because this is what historically maintained revenues through the maintenance of higher brokerage fees to the existing customer base which was positioned at the top of the