When quickly grew on the back of its zero-fee trading system, it was a direct threat to incumbents. Companies like and made money by charging clients for equity trades, forming a regular revenue stream at the publicly-traded companies. Could those fees go to zero?

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Yes, as it turned out. Robinhood’s radical pricing forced its larger, public rivals to follow suit. The impact for the online brokers was falling share prices. In effect, Robinhood’s model forced its rivals to slash fees, cutting revenue in the process, leading investors to push their market value down.

We love tracking how new, young companies change the face of larger, public companies (more here, and here). It’s the good end of capitalism in action.

But, since that first shakeup in pricing, things have changed yet again. As noted, big brokers that Robinhood forced into changing their fee structure were initially repriced. Since then, however, :

Shares of Charles Schwab Corp. closed at $40.98 on Friday, just 2% below their closing price on Sept. 30. That was the day before the San Francisco-based online brokerage said it was  on online stock trades to zero, an announcement that rattled the e-broker industry and triggered a nearly 10% one-day drop in Schwab stock.

The same Wall Street Journal notes that other firms like TD Ameritrade and have also regained ground, if not as much as Schwab.

The recovery feels a bit like a reversion to the mean, as trading fees were a minority revenue stream at the companies we’re discussing. But there’s a final wrinkle in the mix worth our consideration. Namely, ad spend.

CAC

Speaking loosely, not being able to tack on a $5 or $10 fee to equity trades amongst clients probably costs trading platforms (all of them) some near-term revenue. Fair enough?

Consider my surprise then when I began to note Schwab and others ( at a minimum) running expensive television advertisements touting their zero-cost trading and other low-cost services (Fidelity is proud of its zero-fee funds, for example). More simply, the incumbent players in the market are spending their ad budgets showing off new pricing schemes that Robinhood forced them into.

This makes some sense. But I’ve also seen more Robinhood ads as well. In short, we’re seeing folks try to beat one another on low pricing as a way to drive customer acquisition and, I presume, retention.

This is great for me, Alex, the consumer. For Robinhood which has than its incumbent rivals, seeing them use the startup’s prior selling point in their own advertising is fascinating.

If this advertising moment winds up boosting customer acquisition costs amongst Robinhood and its rivals, while likely depressing short-term top line from those customers (see the opening line of this section), the economics of trading could become less attractive. This might hurt Robinhood more than its rivals, as it has a less-developed suite of services (though, as we’ve reported, the company is working on the matter.)

Summing, what we’ve seen is a startup (Robinhood) push its rivals (incumbent trading platforms) into matching its competitive advantage (zero-cost trades). Then, its rivals (publicly-traded, profitable companies) started using Robinhood’s old selling point (low-cost financial services) as a way to attract more customers to their own wares, but with likely larger budgets.

Robinhood’s next few moves will, therefore, prove fascinating. Does the richly-valued unicorn have another trick up its sleeve? I wouldn’t bet against it.

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News broke this morning that will reduce its commissions . As while reporting the news this morning, the move is part of a trend that has also seen and reduce trading fees.

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Shares of Schwab competitors and Schwab itself are down today. This, of course, brings up Robinhood and its platform that charges end-users nothing to trade stocks.

The genius of early product work was that it took something that could be priced nigh-zero in a digital world (trading) and set its actual price near the marginal cost of the transaction. By excising the margin, the then-startup attracted legions of fans, and, afterward, .

According to its most recent funding round, a $323 million Series E in 2019, Robinhood is worth $7.6 billion today. That’s not to say that its road has been smooth. The company ran afoul of effectively everyone when it ; Robinhood has also , something not uncommon for high-growth startups.

All the same, Robinhood’s pitch to consumers that there was no reason to pay $4.99 or $7.99 or $9.99 just to execute an equity trade worked. Throw in the company’s tools like options and margin products, and Robinhood was offering quite a lot for not too much money. Incumbents had to compete, therefore, on price and features.

Robinhood’s launch was an asteroid impact into the fees-for-trades equity world. Schwab’s move today is the first die-off of a dinosaur revenue stream.

Yet Again

Before I torture that analogy further, let’s remind ourselves of when we last touched on the theme of startups impacting incumbents. In early August we wrote that , a publicly-traded banking service, had been repriced by the market by nearly half after it disclosed a diminished future outlook in an earnings report.

Green Dot placed the blame for its smaller revenue and profit expectations on the back of what its CEO described as “so-called neobanks,” the sort of firm like Chime and Acorns that we’ve covered extensively over the years.

In the case of Green Dot, well-funded upstarts were taking parts of the market away. and et al often have a focus on slim fees, and features. In that way they are similar to Robinhood as we’ve seen above; a market that was too comfortable in its pricing found itself under attack from younger competitors unfocused on short-term profitability.

ÌÇÐÄÊÓƵ tend to win in these situations, even if they don’t switch providers. Schwab customers just got a fee cut, for example, without having to move to a startup platform. I’ve written skeptically (here, here) about Robinhood’s valuation, yes, but I also want to note that its impact on regular folks has so far been positive at least in one way.

There is excess amidst tech startups and other venture-backed companies. There are silly valuations. There are bad actors. But let’s not forget that sometimes startups do have the ability to disrupt pricing regimes that made no sense. As marginal costs fall, so should prices. And quickly.

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