Wall Street, meet MySpace

Three decades after San Francisco-based Charles Schwab led an investor revolt against mainstream stock brokerages, an Internet start-up a few miles to the south is redefining the meaning of a discount brokerage.

The Burlingame online brokerage's stock trades are free - hence the name Zecco, an amalgam of letters derived from "zero commission costs."

But giving away free trades - which Goliaths Bank America and Wells Fargo soon matched - isn't what poses the biggest long-term threat to the established players on Wall Street, analysts say. Some predict it's just a matter of time before free commissions are widespread.

In an attempt to capitalize on the younger generation's comfort with online social networks, Zecco and a low-commission competitor called TradeKing are fostering virtual "communities" where investors can trade stock tips, boast about their trading prowess and conduct their trades in public view for everyone to analyze.

As Zecco's CEO Jeroen Veth puts it, "It's Zecco meets MySpace."

The Internet has reshaped the brokerage industry by making it less expensive to execute trades and adminis ter accounts. But some analysts think online social networks like Zecco's could empower do-it-yourself investors and fundamentally disrupt Wall Street's broker-driven way of life.

About half of investors today are what market research firm Forrester Research calls "validators." These investors do their own research but want to bounce their conclusions off an expert rather than do it solo or delegate the decision-making to a stockbroker or financial adviser.

"That expert could be a broker, but it could be a guy in the Zecco community who is just kicking butt, whose own trading activity has been verifiably successful," said Bill Doyle, vice president of Forrester Research in Cambridge, Mass. "I think it can change where people turn for advice."

For some, upstarts like Zecco will revive memories of the dot-com boom, when pajama-clad day-traders logged on to buy and sell stocks via their home computers. Investors became regulars at investment sites like Motley Fool and gleaned tips from countless message boards, sometimes falling victim to "pump-and-dump" scammers who touted stocks and then sold them before the hype faded.

Zecco hopes its site will become a trusted magnet for such do-it-yourselfers. Its site features Motley Fool's "CAPS" stock ratings compiled from investor opinions, and investors can share tips and tactics on numerous blogs and forums.

The big draw, though, is likely to revolve around members who post profiles describing their investment and trading styles, investment experience and stocks they love or hate. Zecco also is beta-testing ZeccoShare, an opt-in feature that will allow others to peek at their portfolio and track their trades. Investors also can set up alerts if they want to track or mimic another investor's trades.

"It's really a plan for the next generation of investors," Veth said.

It's also a sign that there's room for specialty brokers, because investing is no longer just a game of getting big to attain economies of scale. For example, Zecco's customers tend to be about age 35. Though they lack the assets of baby boomers, Veth hopes they'll grow up financially with Zecco. Meanwhile, Florida-based TradeKing is aiming for fortysomething do-it-yourselfers who want to employ more complicated options-trading strategies.

"You don't want all the customers," said TradeKing CEO Don Montanaro, whose career started in the Palo Alto office of former discount broker Quick & Reilly. "You just want the smart, profitable ones."

Since Zecco's launch last October, it has opened 32,000 accounts, while TradeKing is up to 45,000 since it went live in December 2005. Those numbers could be inflated if customers opened more than one account, analysts say, but Zecco predicts it will become profitable in mid-2008, while TradeKing says it's already in the black.

"You really can effectively promote a niche strategy," said David Schehr, research director for Gartner, a technology research firm in Stamford, Conn. "You don't have to buy a lot of TV ads and build up a huge branch network and the rest of that."

Indeed, Zecco's marketing campaign has been Spartan, mixing guerrilla marketing with cut-rate online ads. One notable stunt that triggered several CNBC television news reports when Zecco launched was inspired by a competitor who caught wind of Zecco's plans and told a reporter there's "no free lunch."

Zecco hired vendors to dole out 4,000 hot dogs on Wall Street, while "protesters" paraded around with placards bearing slogans such as "Make love not commissions" and "Question authority (and your stockbroker)."

Free trading inevitably will also make investors question how Zecco can give away its product and still hope to make a profit.

In short, Veth said, a brokerage that gives away stock trades isn't radically different from banks that gave away toasters decades ago. Approximately 60 percent of Zecco's revenue will come from charging interest on margin loans and from reinvesting idle cash that investors park in low-interest accounts.

Veth also is cognizant that free commissions are a loss leader that few Americans actually will exploit. Though customers can make up to 10 free trades a day, only 4 percent of U.S. investors trade more than 10 times a year, according to Forrester Research. Traders who exceed Zecco's limits pay $3.50 a trade.

Many active traders also dabble in options transactions that still carry commissions. Zecco hopes options will account for about a third of its trading, while options already account for about half the trades at TradeKing, which has honed its products to appeal to options traders.

But commissions are hardly the only source of income for brokerages. Zecco, for instance, projects that roughly 20 percent of its revenue will come from selling premium products like outside research and GainsKeeper software, which tracks capital gains and tax data. It will earn money by steering trades to certain companies, a practice known as payment-for-order flow. And some brokerages also make money by lending out their customers' stock to short-sellers, who bet that the stock will decline.

Unlike old-line brokerages, though, Zecco also hopes to make as much as 20 percent of its revenue by selling advertising if the social networking experiment catches on.

"There is still so much money to make in the brokerage industry," said Veth, a former Merrill Lynch executive. "Don't get me wrong, I'm not this new hippie kind of guy who says that trades should be free and nobody should make money. No, I'm in this industry to make money. There is just more besides commissions."