Exhibit 2-1: Framework for Diagnosing Market Opportunity

1. Exhibit 2-1: Framework for Diagnosing Market Opportunity Seed Opportunity in Existing or New Value System Uncover Opportunity Nucleus: Identify Unmet and Underserved Needs Identify Target Segments Declare Company’s Resource-Based Opportunity for Advantage Assess Competitive, Technical and Financial Opportunity Attractiveness Make Go / No Go Assessment

2. Supporting Slide 2-A: Requirements of an Effective Segmentation In order for a customer segmentation to be effective, it must be meaningful, actionable, measurable and substantial Meaningful • Customers must demonstrate needs, aspirations or behavioral patterns that are similar within a segment and different across segments • A distinction between a price-sensitive and a quality-seeking segment is meaningful, since the two segments demonstrate distinguishable sets of needs Actionable • A company must be able to reach customers within each segment through effective and targeted marketing programs • A customer segment consisting of customers with blue eyes is not actionable, since it is very hard to identify and reach only customers with blue eyes Substantial • Segments must be large and profitable enough to make the investment in serving them worthwhile • myCFO.com is targeted towards high net worth individuals, helping them manage their portfolios. Even though the number of those individuals is small, the $ amount managed is sizeable, thus constituting a substantial segment Measurable • Key characteristics of the segments (e.g., size and spending patterns) must be easy to measure Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 269)

3. Table 2-1: Segmentation Approaches

4. Supporting Slide 2-B: Geographic Segmentation — Description Description • Geographic segmentation divides the market into distinct geographical units, such as nations, states or regions • In the Internet space, geographic barriers are to a large extent lifted • However, there still are many industries where local relationships and distribution channels play a key role, maintaining the need for a local focus • Webvan is currently operating in Atlanta, Chicago, Sacramento and San Francisco; entry into new geographical markets will require the building of the necessary home- delivery infrastructure • Many construction sites have a local or regional focus, since relationships with local or regional contractors and suppliers are of critical importance Segmentation Examples • Country • Region • Urban vs. Rural • Density • Climate Source: Philip Kotler, Marketing Management, 1997 (Chapter 9, page 257)

5. Exhibit 2-9: Schwab — Defining Existing or New Value System ReleaseTrappedValue Create NewValue

6. Exhibit 2-10: Schwab — Unmet and Underserved Needs (1997 Timeframe) Process Steps Unmet and Underserved Needs Plan Savings Goal • Planning tools to simplify goal setting Determine Optimal Asset Allocation • Education on investing Receive Ideas and Recommendations Research Stocks • Aggregation of investment information Place Order • Place order and track status anytime, anywhere Track Portfolio Performance • Access real-time account information Receive Dividends Sell Stock • Place order and track status anytime, anywhere Tax Reporting • Download to tax software

7. Supporting Slide 2-G: Schwab — Opportunity Attractiveness vs. Resource Availability Quality Information High Customer Service Quality Advice Opportunity Attractiveness Low Low Price Full Management Low High Resource Availability Note: Opportunity attractiveness based on competition level and opportunity financials

8. Supporting Slide 2-H: Schwab — Resource Availability Capability highly addressing segment need Capability moderately addressing segment need Capability not addressing segment need Segments Partner Capabilities Company Capabilities Overall

9. Supporting Slide 2-I: Schwab — Effectiveness of Different Segmentation Methods = Low = High Segmentation Methods Segmentation Criteria

10. Supporting Slide 2-J: Schwab — Needs-Based Segmentation “Saving for a Goal” “Financial Planning” “Traders” • Saving for retirement • Saving for college • Saving for house down payment • Estate planners • Tax planners • Trust fund managers • Hobby investors • Active traders Schwab’s market segments fall into three categories Source: Jeffrey Veen, Hot Wired Style, Monitor Analysis

11. Supporting Slide 2-K: Types of Needs and the Tools to Surface Them Standard Tools New Tools ManifestedNeeds LatentNeeds Tool highly surfaces need Tool moderately surfaces need Tool does not surface need

12. Exhibit 2-11: Schwab — Segmentation (1997 Timeframe) Secondary Priority High Priority Tertiary Priority De-emphasize Other White Collar Blue Collar Retiree University Student High Net Worth (<$1M) Buy and Hold Frequent Trades Current Offline Schwab Customer A < 30 C I Single > 30 L D G N No Children B O P J K Not Schwab Customer Married Children E H M Mature( > 55) F

13. Exhibit 2-12: Schwab — Competitor Map to Segments High performance level Low performance level Medium performance level

14. Exhibit 2-13: Schwab.com Overall Opportunity Assessment

15. Exhibit 3-1: Components of a Business Model Value Cluster Marketspace Offering Resource System Financial Model

16. Supporting Slide 3-A:Point-Counterpoint: Single Vs. Cluster of Benefits

17. Exhibit 3-2: Shattering Myth That Consumers Care Only About Prices On-line PERCENTAGE OF CUSTOMERS WHO CARE ABOUT ATTRIBUTE ATTRIBUTE Source: JP Morgan Report: etailing and the five Cs

18. Table 3-1: Consumer Decision Process — Flower Example Problem - Recognition Information Search PRE-PURCHASE Evaluation of Alternatives Purchase Decision PURCHASE Satisfaction POST-PURCHASE Loyalty Disposal

19. Supporting Slide 3-B: Consumer Decision Process — Flower Example Problem - Recognition Information Search Pre-Purchase Evaluation of Alternatives Purchase Decision Purchase Satisfaction Post-Purchase Loyalty Disposal Flowers • Need recognition, potentially triggered by a holiday, anniversary or everyday events • Search for ideas and offerings, including: • Available on-line and off-line stores • Gift ideas and recommendations • Advice on selection style and match • Evaluation of alternatives along a number of dimensions, such as price, appeal, availability, etc. • Purchase decision • Message selection (medium and content) • Post-sales support • Order tracking • Customer service • Education on flowers and decoration • Post sales perks

20. Exhibit 3-8: Schwab Egg Diagram • Schwab Learning Center • Live Events • Principles of Investing • Understanding Market Cycles • “Did You Know” Q&A Overall • General Goal Planner • Investor Profile • Sample Investment Plans Retirement • Retirement Planner • IRA Analyzer Product Offering Estate • Estate Tax and Probate Calculator • Alternatives Comparison College • College Planner Tax • Tax Strategies • IRS Withholding Calculator On-Line Investment Process • Get educated about investing • Online chat with Customer Service Representatives • Customer Service via phone • Customer Service via email • Customer Service at Branch • My Watch List • Plan investments • Post Investment Support Overall • Quotes and Charts • Analyst Center Stocks and Options • Stock Analyzer Bonds and Treasuries • Schwab BondSource Services CDs and Money Markets • SchwabOne • Perform Research • Margin Loans • Money Transfers • Automatic Investing • Options Service • After Hours Trading • Account Protection • Bill Payment • Perform Investment • Decide on Investment Annuities • Schwab Select Annuity Life Insurance • Insurance Needs Calculator • Schwab Signature Services • Schwab AdvisorSource • Options Service • Global Investing Service

21. Exhibit 3-9: Schwab Resource System Learning Center Onesource Invest in CSR Training Align CSR Compensation with Quality of Service Center of Knowledge and Innovation Customer Service Innovative Products Superior Service Hire IT Staff Investment in R&D 24x7 Access Train IT Staff Investment in IT Cutting Edge Technology System Reliability Partnerships with Content Providers Multiple Points of Access Optimize Staff in Branches Hoovers Online Lower Prices Streamlined Operations Charge For Value Added Services Phone S&P Media General Branch Provide Lower Commission for Frequent Traders Competitive Commission Rates = Core Benefits = Capabilities = Resources

22. Exhibit 3-10: Schwab Resource System Learning Center Onesource Hire IT Staff Invest in CSR Training Align CSR Compensation with Quality of Service Capable IT Staff Center of Knowledge and Innovation Well-Trained CSRs Innovative Products Superior Service Investment in R&D Train IT Staff 24x7 Access Investment in IT Cutting Edge Technology System Reliability Partnerships with Content Providers Multiple Points of Access = Company needs to outsource or partner Optimize Staff in Branches Hoovers Online Lower Prices Streamlined Operations Charge For Value Added Services = Company can perform in-house Phone S&P Media General Provide Lower Commission for Frequent Traders Branch Competitive Commission Rates

23. Supporting Slide 3-K:Schwab Activity System Large investment in R&D Exceptional team of engineers Innovative products Increase in trade volume System able to handle large volume In-house technology development Low price Downsized branch staff Technology Leadership Investment in IT Increase in non-trade revenue 24 x 7 Customer service Large, well trained sales force Superior service High quality Investment Information Hoovers Online Multiple points of access Comprehensive information Partnerships with content providers S&P Comstock On-line Phone Branch Media General

24. Supporting Slide 3-L:Schwab Value Proposition “Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice”

25. Table 3-6: Partners Give/Get Matrix

26. Exhibit 3-11: Schwab Revenue Growth Choices Advanced Software Tools After-hours trading International Expansion New International Expansion Learning Center In-Branch Seminars New Online Investment Bank PRODUCTS Existing Existing New Existing New OFF-LINE MARKETS ON-LINE MARKETS

27. Supporting Slide 3-N : Business Model Choices Must Be Consistent With Sources of Competitive Advantage Business Model Options (Not Mutually Exclusive) Forward-Integrated Producer Content Production eBusiness Interface Content Utilization Backward-Integrated User Content Production eBusiness Interface Content Utilization Content Production Content Production Supply Aggregator eBusiness Interface Content Production Content Utilization Content Production Content Production Content Production Content Utilization Content Utilization Content Production eBusiness Interface Content Utilization Demand Aggregator Content Utilization Content Utilization Content Utilization

28. Table 5-6: Schwab Marketing Communications • Direct • Targeted direct mail • Calls made to investors who demonstrate difficulty (e.g. large periods of inactivity) • “Red hot” calls for emergency investment decisions • Personalized • Personalized web pages (mySchwab.com) Individualized Audience Focus • Traditional Mass Marketing • Television (network, cable, local) • Print media • National and local radio • Athletic event sponsorships • General Approaches • Banner ads • Affiliate sites • Sponsorship of sites (e.g. Schwab sponsorship of Mini Center on Babycenter) • Leveraging customer base (e.g. investor customer base leveraged for on-line banking) • Free information on site • Innovative approaches (e.g. on-line commissions donated to Breast Cancer Foundation) Broad Off-line On-line Communication Media

29. Exhibit 5-14: Assessment of Key Branding Elements for Schwab and E*Trade = Very High = Very Low = Moderate = Low = High

30. Exhibit 5-14: Assessment of Key Branding Elements for Schwab and E*Trade (continued) = Very High = Very Low = Moderate = Low = High

31. Exhibit 5-15: Assessment of Key Brand Attributes for Schwab and E*Trade Schwab.com etrade.com = very low = low = moderate = high = very high

32. Exhibit 6-4: The Delivery System Needs to Support and Reinforce the Resource System DELIVERY SYSTEM MAPPING THERESOURCE SYSTEM People Supply Chains Processes Systems Assets Source:Christensen, Clayton M. 2000. Meeting the Challenge of Disruptive Change. Harvard Business Review 78, no. 2 (March-April).

33. Exhibit 6-13: Schwab IT Infrastructure Source: Tempest, Nicole and Warren McFarlan. 1999. Charles Schwab Corporation (A). Case no. 9-300-024, 9 September. Boston: Harvard Business School Publishing.

34. Exhibit 6-14: Timeline for Schwab Innovations November 9, 1999 • Paperless trading with eConfirms October 7, 1997 • SchwabLink available on the web October 20, 1999 • After Hours trading • OneSource: Mutual fund program allowing investors to purchase Schwab and non-Schwab funds free of charge May 7, 2000 • Stock Analyzer launched, offering third party equity analyst recommendations and earnings projections October 1, 1997 • First speech recognition service for investors May 14, 1998 • First U.S. website enabling order placement in Chinese October 1995 • eSchwab: Electronics software package dialing into Schwab system • Telebroker: 24x7 quote and order placement by telephone August 19, 1999 • Plans for cross-platform wireless trading • Entire trade clearing system brought in-house April 16, 1999 • New site based on user input May 24, 1999 • MySchwab launch September 1997 • Customized asset allocation tool available on-line January 27, 1998 • MoneyLink: Electronic funds transfer service February 3, 2000 • Learning Center: Interactive education tool for on-line learning January15, 1998 • Schwab.com launches March 7, 2000 • Schwab and Barclays announce internet-based foreign exchange service April 27, 1999 • Retirement Planner on-line • Equalizer: DOS based product enabling PC users to trade stocks on-line • SchwabLink: Service for fee-based financial advisors • Streetsmart: Windows-based software allowing on-line trading of equities, bonds and mutual funds March 1996 • Upgraded eSchwab: First major brokerage firm to offer trading via the Internet January 20, 1998 • IRA Analyzer launches August 14, 1999 • Velocity software trading system for active investors March 15, 2000 • Schwab expands advice offering with Portfolio consultation September 21, 1998 • CD ROM Tool for retirement setup and monitoring September 8, 1999 • New web tools for investment advisor offering March 31, 2000 • Schwab and Dow Jones unveil on-line Chinese news and research service November 23, 1998 • Web tool to track and benchmark investor performance November 23, 1999 • Velocity 2.0 launch June 1995 • Advisor Source: Referral service for fee-based advisors December 1, 1999 • Enhanced Analyst Center December 22, 1999 • New on-line mutual fund tools

35. Exhibit 7-10: Charles Schwab -- Customer Acquisition StageStep 1: Articulate the Business Strategy • Schwab Learning Center • Live Events • Principles of Investing • Understanding Market Cycles • “Did You Know” Q&A Overall • General Goal Planner • Investor Profile • Sample Investment Plans Retirement • Retirement Planner • IRA Analyzer Product Offering Estate • Estate Tax and Probate Calculator • Alternatives Comparison College • College Planner Tax • Tax Strategies • IRS Withholding Calculator On-Line Investment Process • Get educated about investing • Online chat with Customer Service Representatives • Customer Service via phone • Customer Service via email • Customer Service at Branch • My Watch List • Plan investments • Post Investment Support Overall • Quotes and Charts • Analyst Center Stocks and Options • Stock Analyzer Bonds and Treasuries • Schwab BondSource Services CDs and Money Markets • SchwabOne • Perform Research • Margin Loans • Money Transfers • Automatic Investing • Options Service • After Hours Trading • Account Protection • Bill Payment • Perform Investment • Decide on Investment Annuities • Schwab Select Annuity Life Insurance • Insurance Needs Calculator • Schwab Signature Services • Schwab AdvisorSource • Options Service • Global Investing Service “Use technology to offer innovative products and superior service at lower prices to investors unwilling to pay for investment advice” Innovative products 1. Value Proposition 3. Resource System Low price Technology Leadership 2. Marketspace Offering Superior service High quality Investment Information

36. Exhibit 7-11: Schwab Desired Outcome Summary MARKET OPPORTUNITY • Significant Opportunity • Financially Attractive Segment • Competitively Attractive Segment FINANCIAL EVALUATION • Revenue • Profit • Cost • Balance Sheet BUSINESS MODEL • Value Proposition vs. Competition • Offer vs. Competition • Capabilities vs. Competition • Sustainability of Value Proposition IMPLEMENTATION & BRANDING CUSTOMER INTERFACE & OUTCOMES • Lower Customer Acquisition Costs • Transition Customer Base • Outperform competition on Interface Perceptions • Customer Satisfaction & Loyalty • Brand Associations vs. Competition • Best-in-class IT Infrastructure • Ability to Deliver Brand Promise BusinessModel

37. Exhibit 7-12: Charles Schwab -- Customer Acquisition Stage Market Opportunity Business Model Implementation & Branding Customer Financial Avoid crowded markets Provide unique VP Build brand Acquire new customers Increase revenue Target attractive segments Provide attractive offering Invest in technology Increase usage Increase system uptime Play in attractive market Leverage capabilities to deliver offering Increase number of IT staff Increase customer satisfaction Optimize cost Train branch staff Improve customer service Increase customer loyalty Increase profit

38. Table 7-4: Charles Schwab -- Customer Acquisition StageCurrent and Target Levels for Select Metrics *Source: Tempest, Nicole and Warren McFarlan. 1999.Charles Schwab Corporation (B). Case no. 9-300-507, 13 September. Boston: Harvard Business School Publishing.

39. Exhibit 8-21: The Rise in Schwab’s Market to Sales Ratio

40. Competitors in the Brokering environment • Full Service (Merril Lynch) $117 • Advice & research & Personal • Prof. products • Other services • Bricks (expensive) • Discount (Charles Swab) $ 64 • Less advice • No research • Less opulent • No products • On-line E-trade $30 - $9 • No advice No research No bricks No services

41. Two major problems if Charles Schwab wants to move online • Cannibalization – Lower margin channel starts taking away higher margin clients • Channel contamination - Incur cost in one channel, get income from other • ESchwab and Schwab was fundamentally separate

42. Should Charles Schwab merge channels – Q1: Online growth (95% of millionaires had an online account)

43. Pros of channel merging Employees want it Online grows Cons of channel merging Revenues Cost Stock (40% employee owned) Overworked – low morale Ends up dead Pros and cons of channel merging

44. Charles Schwab decision (1997) • Charge $29.95 per trade up to 1000 shares for all customers with an online account • Do not aggressively promote on-line in order to remove focus from price competition • Give PC’s and Web access to all employees • Make customers migration one of the components to compute the bonus of Customer Service Representative

45. What happened after Schwab moved online? • 500 000 accounts switch to-online in 5 months • Commissions per trade fall significantly • 3% fall in profit • Mid term • Trades pick up to $115 000 per day • Average commission fall to $53 in Q4 98 • Revenues increase 19% during 1998 • Stock price rises 158% from July to Dec 98

46. Income 3Q 1999 $ 1 854 $ 418

47. Competitor map H ML Service CS E-trade L H Price L