| HUB AND SPOKES
| |
| | reliable or am I being sold snake oil?For
|
| AS A NEW BUSINESS STRUCTURENatural
| |
| | the most part, the Internet has quickly
|
| market forces that lead to consolidation
| |
| | done away with each one of these
|
| and the law of twos happen even faster on
| |
| | obstacles and offers added benefits as
|
| the Internet. The "best" products are
| |
| | well:
|
| anointed, information is rapidly
| |
| | When a medium can fully explain or show
|
| distributed, and customers (who face no
| |
| | how a product works, then a large portion
|
| geographic limits) seek out these "hot"
| |
| | of the product's sales typically shifts
|
| places. Moreover, as brands become
| |
| | from agents to direct sales by
|
| familiar, consumers increasingly seek
| |
| | manufacturers or suppliers.The Internet
|
| them out because they have
| |
| | has a unique capability (interactivity
|
| credibility.Unique to the Web is
| |
| | combined with a low-cost avenue for
|
| something which may be called a
| |
| | communications) to make complex items
|
| "hub-and-spoke strategy" . This also
| |
| | such as financial products
|
| facilitates the law of twos: A
| |
| | comprehensible. Because of the Internet's
|
| hub-and-spoke strategy is the
| |
| | ability to filter, the consumer is
|
| increasingly common arrangement where a
| |
| | presented with information directly
|
| major retailer establishes relationships
| |
| | relevant to his or her situation and
|
| with other Web sites, promising them a
| |
| | therefore avoids wading through a stack
|
| percentage of any sales (generally 5 to
| |
| | of folders and brochures. A well-designed
|
| 15 percent) that result from any traffic
| |
| | site can explain all of the product
|
| sent to the retailer by these
| |
| | features and benefits of whole life
|
| "affiliates." It's not uncommon for a
| |
| | insurance policies and annuities. As a
|
| major affiliate program to have over
| |
| | result, these products can now be sold
|
| 10,000 participating members, all of whom
| |
| | directly by their providers over the Web,
|
| refer traffic to the central site. What's
| |
| | since agents are no longer needed to
|
| even more interesting is the extent to
| |
| | explain the products.Time and
|
| which this type of business model is
| |
| | Self-Generated Recommendations In
|
| proliferating: Refer-it is a site that
| |
| | addition to making the complex clear and
|
| lists credible affiliate programs for
| |
| | comprehensible, the Web saves customers
|
| prospective members. As we go to press,
| |
| | time. In essence, this represents a
|
| it is approaching 500 distinct plans.The
| |
| | system that employs interactive tools to
|
| Internet is already taking its place as a
| |
| | both explain the product and recommend
|
| central tool in everyday business life.
| |
| | what consumers should purchase.
|
| Each aspect of commerce is changing in
| |
| | Convenience The convenience offered by
|
| light of the new capabilities available.
| |
| | the Internet is also a factor that will
|
| The coming changes are so powerful that
| |
| | further the shift to direct sales.
|
| it is both terrifying and exciting. The
| |
| | Everyone with Internet access can now
|
| first phase of Internet business has
| |
| | shop for products and services at any
|
| principally focused on the creation of
| |
| | time that's convenient without prior
|
| new types of businesses: The next phase
| |
| | research or preparation. As a result, the
|
| will involve the impact of these
| |
| | "preparation impediment" to direct
|
| developments on brick-and-mortar
| |
| | shopping is removed.
|
| businesses and on the economy as a
| |
| | Large chains with inefficient operations
|
| whole.The new capabilities that the
| |
| | or those saddled with the high overhead
|
| Internet makes available for
| |
| | costs related to maintaining a
|
| business-to-business commerce and for
| |
| | brick-and-mortar business will face price
|
| business-to-consumer sales will transform
| |
| | pressure that could well endanger their
|
| many industries from top to bottom.
| |
| | ongoing operations.CHANGING THE SALES
|
| Winning companies will understand that in
| |
| | CHAIN: CHANNEL CONFLICTHistorically,
|
| the emerging era success now requires new
| |
| | consumer product businesses have operated
|
| rules for action and the mastery by the
| |
| | with a well-defined chain of sales:Making
|
| organization of different types of
| |
| | the transition from selling through a
|
| skills.Questions may arise on what the
| |
| | middleman to selling direct (channel
|
| future will look like: "Will my business
| |
| | conflict) is a troubling issue many
|
| be helped or hurt?" "What should I do to
| |
| | businesses are wrestling with right now.
|
| survive?" Until recently, the pace of
| |
| | On the one hand, retailers naturally
|
| change has been so great that attempts at
| |
| | become "unhappy" with manufacturers who,
|
| answering these questions were often
| |
| | in their view, go around them and
|
| unsatisfying.Elements that will play a
| |
| | directly to the consumer with a lower
|
| central role in how the Internet economy
| |
| | price. On the other hand, the
|
| evolves. These elements have the
| |
| | manufacturer may observe cost-advantaged
|
| potential to greatly harm our economy or
| |
| | direct sellers who, because of lower
|
| to power us into prosperity for the
| |
| | prices as a result of lower distribution
|
| twenty-first century. The best way to
| |
| | costs, are winning business and market
|
| discuss these ideas is to provide two
| |
| | share. In addition, a company may have
|
| contrasting visions of the future:
| |
| | its entire sales force dedicated to
|
| The Potential Downside of Internet
| |
| | selling through the retail channel.Right
|
| Growth More than any other aspect of the
| |
| | now channel conflict is probably the most
|
| Internet, shopping "bots," software that
| |
| | difficult, vexing problem faced by
|
| searches the entire
| |
| | companies in this hypercompetitive
|
| Internet for products and services based
| |
| | environment
|
| on predefined criteria (price being the
| |
| | The problem of channel conflict is a
|
| most popular), have the capacity to offer
| |
| | central reason the PC business is an
|
| great benefit to consumers while
| |
| | industry on a high wire. If everyone in
|
| potentially bringing great harm to
| |
| | an industry moves through retailers,
|
| businesses.
| |
| | there is a fairly defined set of
|
| Today the major Internet portals,
| |
| | competitive rules. However, it is
|
| include Google , Yahoo and MSN , all
| |
| | absolutely predictable that if direct
|
| have shopping initiatives with
| |
| | selling makes sense, then someone will
|
| participating retailers that are, at
| |
| | enter the market. It may even be a brash
|
| least in part, powered by bots (also
| |
| | upstart with no roots in the retail
|
| called "intelligent software shopping
| |
| | distribution business. For the PC
|
| agents"). A visit to will reveal that
| |
| | industry, that upstart was Dell.At some
|
| there are already over many easy-to-use
| |
| | point PC owners compared notes about
|
| bots that are available for businesses
| |
| | where they had purchased their computers
|
| and consumers. Each bot typically has a
| |
| | and what they had paid, "I ordered it
|
| specialized function, ranging from
| |
| | direct from Dell" became a frequently
|
| financial bots that perform stock-related
| |
| | heard report, and before long Compaq and
|
| functions to news-gathering bots to
| |
| | IBM realized they had a problem.. What
|
| auction-related bots.The more businesses
| |
| | was Dell doing right, that these other
|
| and consumers rely on price as the sole
| |
| | manufacturers had missed?The increasing
|
| criterion for purchase, the more price
| |
| | popularity of the Internet meshed
|
| pressure every manufacturer and retailer
| |
| | perfectly with Dell's sales model of
|
| will feel. Bots that search for the best
| |
| | selling computers direct to customers. On
|
| price have the potential to trigger
| |
| | the Web, customers could visit Dell's
|
| ruinous price wars. At some point, price
| |
| | site, decide what they wanted, see images
|
| wars can ruin industries or set back
| |
| | (something that wasn't possible over the
|
| their development by several years
| |
| | phone), and place a direct order. Since
|
| through lack of funds for investment in
| |
| | Dell had no inventory tied up in a retail
|
| new and better services. To me, this is
| |
| | sales channel, the company had an
|
| the frightening downside of a world where
| |
| | estimated cost advantage of 10 to 15
|
| customers can buy from anywhere and
| |
| | percent over its competitors who sold
|
| essentially name their price.The Internet
| |
| | through retail stores.
|
| is already demonstrating some of this
| |
| | Moreover, Dell could react instantly to
|
| behavior. At this time, we are
| |
| | changes in consumer-buying
|
| witnessing deep discounting on the part
| |
| | patterns.Dell's lower-cost
|
| of large Internet retailers to attract
| |
| | Internet-oriented methods created chaos
|
| customers. For ongoing businesses, this
| |
| | throughout the PC industry-chaos that
|
| type of discounting is unlikely to be
| |
| | continues to this day. Using their own
|
| sustainable.The pace of change in the
| |
| | brands, retailers now actively compete
|
| past year has been so incredible that a
| |
| | with everyone, including their suppliers.
|
| growing population-from executives to
| |
| | While Compaq and IBM both developed
|
| retirees-feel they have more than passing
| |
| | innovative techniques that permitted them
|
| familiarity with the Internet. However,
| |
| | to lower costs and deliver custom PCs
|
| this newly claimed "knowledge" of Web
| |
| | through retailers, Dell continued to gain
|
| sites and portals and e-mail techniques
| |
| | market share and grow in profitability.
|
| belies the fact that the Internet is
| |
| | The importance of this issue cannot be
|
| still so new that there are no rules for
| |
| | overstated.
|
| "play."Internet services, including
| |
| | Keep in mind that if existing companies
|
| comparison services, software agents such
| |
| | don't grasp opportunities, others
|
| as bots, and new digital middlemen,
| |
| | will.."It may take years for an industry
|
| enable easier access to information and,
| |
| | to be turned on its head by direct sales,
|
| as a result, fundamentally change the
| |
| | but product manufacturers need to plan
|
| competitive battleground.Stores that
| |
| | for that eventuality. For example, one
|
| pitted themselves against each other
| |
| | could argue that record labels would
|
| generally rose to the occasion and even
| |
| | Never sell directly online-a move that
|
| employed "comparison shoppers," who
| |
| | would effectively go around online music
|
| cruised the aisles of competitors,
| |
| | stores, not to mention brick-and-mortar
|
| reporting on pricing so that the store
| |
| | music stores. Never assume that
|
| owner could price competitively. And
| |
| | lower-cost direct distribution won't
|
| signs touting "We'll Beat Anyone's
| |
| | happen because of channel conflict.TWO
|
| Prices" covered any store that wanted to
| |
| | GUARANTEED BENEFITS THAT ARE CHANGING
|
| preserve business no matter what.The
| |
| | COMPANIES INTERNALLY: INSTANT
|
| Internet radically changes this dynamic.
| |
| | COMMUNICATIONS AND LOWER COMPANY COSTSBy
|
| Not only can consumers move easily from
| |
| | seamlessly linking people and entities
|
| one Web site to another, checking out the
| |
| | around the world, the Internet can
|
| products and services at each, but many
| |
| | accelerate the speed of new product
|
| Internet services are specifically
| |
| | development and introduction while
|
| designed to promote comparisons among
| |
| | lowering the cost of operations
|
| products or services within a category,
| |
| | throughout the enterprise.
|
| and another growing class of
| |
| | The Web offers a whole new way of
|
| businesses-digital age middlemen-are
| |
| | setting up a business. If a company were
|
| actively working to create bidding
| |
| | never to sell a single "widget" online,
|
| situations among several suppliers that
| |
| | it would still be worth mounting a Web
|
| lead to lower prices for consumers and
| |
| | strategy.The Internet permits companies
|
| businesses. These new classes of Web
| |
| | to cut costs through seamless, automated
|
| sites raise the stakes throughout an
| |
| | communications both within the company
|
| industry. Competition takes two forms:
| |
| | (intranets) and with the company's
|
| between manufacturers or service
| |
| | suppliers (extranets). Moreover, these
|
| providers -for the product or service to
| |
| | communication systems can dramatically
|
| be purchased-and between "stores" as the
| |
| | lessen the time involved to produce
|
| place to purchase.Companies now operate
| |
| | specific products because various
|
| in a world where comparison shop-
| |
| | departments and outside suppliers can
|
| ping is almost effortless, geographic
| |
| | communicate automatically.
|
| boundaries are eliminated, and the pace
| |
| | Strategies 2, "Speed Is Everything," and
|
| of activity is far faster.WHAT HAPPENS IN
| |
| | 3, "Cut Costs and Increase Efficiency
|
| THE MARKETPLACEIn the online environment,
| |
| | Using the Web," detail many of the ways
|
| anyone offering a particular product
| |
| | companies are benefiting by using the
|
| competes with everyone else offering that
| |
| | Web. As companies are striving to compete
|
| product or something similar. On any
| |
| | in the emerging environment, they must
|
| given day, a customer may be able to
| |
| | also grapple with competitors who have
|
| locate several - or several
| |
| | put these new technologies to work: for
|
| hundred-online stores selling what he or
| |
| | faster and lower cost operations, for
|
| she wants, and the customer can then
| |
| | increasing the speed of their
|
| determine from which vendor to purchase
| |
| | product development and deployment, and
|
| the item. A recent search using a
| |
| | to more effectively manage a worldwide
|
| comparison service such as Froogle
| |
| | sales force at lower costs.FOUR MORE
|
| identified that a specific HP All-In-One
| |
| | REASONS WHY THE INTERNET UPSETS THE
|
| Multifunction printer was available
| |
| | APPLECARTThe Internet is creating
|
| from 57 different stores from $ 57 to $
| |
| | fundamental widespread changes in the
|
| 170 .Bots, the comparison services, and
| |
| | world of business. Comparison shopping,
|
| the new digital age middlemen can all
| |
| | the breakdown of geographic boundaries,
|
| work in a variety of ways. Some
| |
| | the increase in direct sales, the
|
| comparison services are operated by
| |
| | reduction in costs, and the incessant
|
| retailers; the site generally posts
| |
| | need for speed-all as a result of the
|
| information on how specific products sold
| |
| | Internet-have led to vast changes. But
|
| by the store compare in price and quality
| |
| | there are still more ways in which the
|
| with the competition. Other services are
| |
| | Internet is affecting businesses of all
|
| stand-alone Web-based businesses offering
| |
| | types. At this point, your industry may
|
| comparisons among a variety of
| |
| | be affected by one or all of the changes
|
| manufacturers.Bots (Intelligent Software
| |
| | discussed; very few businesses aren't
|
| Shopping Agents)Today Product Finder,
| |
| | affected at all, and if you're in this
|
| along with hundreds of other "bot"
| |
| | minute minority, prepare anyway. The
|
| services that are now on the Web, is
| |
| | tsunami is coming.
|
| still in its infancy. However, it has
| |
| | /. The Internet facilitates the sale of
|
| already stimulated the creation of sites
| |
| | personalized products.Consumers' desire
|
| that feature comparison shopping facts,
| |
| | for customized products has been well
|
| and I guarantee that these bots will play
| |
| | documented over the past several years.
|
| a role in changing the future of
| |
| | Who wouldn't want something made exactly
|
| commerce.Sites Offering Price
| |
| | for them? Similarly, businesses have
|
| ComparisonOn the Web, competition for
| |
| | always needed custom configurations-which
|
| customers is fierce. Because bots can
| |
| | were presented in paper-based orders. In
|
| shop the Web for a customer, companies
| |
| | recent years, the ability to manufacture
|
| have been forced to design their Web
| |
| | mass-customized products, at acceptable
|
| sites with comparison shopping in mind.
| |
| | costs, has been developed. The Internet
|
| The Net has facilitated explosive growth
| |
| | provides the missing piece: the perfect
|
| of comparison services that stretch
| |
| | sales channel.The very nature of the Web
|
| across the full spectrum of products and
| |
| | makes it an ideal mechanism for
|
| services. It's impossible to even
| |
| | custom-based orders. Buyers-whether
|
| estimate how many exist today and new
| |
| | consumers or businesses - can see
|
| services-for unserved categories or with
| |
| | pictures or illustrations of the
|
| better features in categories that
| |
| | components via the Internet, and the
|
| already have such services-are constantly
| |
| | order specifications can often be tied
|
| popping up:
| |
| | directly to an automated system that
|
| New digital age middlemen only intensify
| |
| | checks accuracy, with the site saying, in
|
| the competition .
| |
| | effect, "Yes, feature A can be added to
|
| Digital Age MiddlemenAn additional
| |
| | feature B," so the possibility of
|
| factor in the spread of Hyper Wars is the
| |
| | paper-based errors is reduced.
|
| emergence of a new kind of business,
| |
| | 4. Products that can be sold through
|
| "digital age middlemen This broad range
| |
| | searchable databases (any type of
|
| of entities may share one or more of the
| |
| | offering where the buyer provides
|
| following characteristics:
| |
| | specifications and the seller tries to
|
| First, they create a "more perfect
| |
| | match those requirements) are going to
|
| market" for buyers and sellers by
| |
| | become highly competitive online
|
| improving the information available to
| |
| | products.Consider planning for your
|
| both sides regarding the demand and
| |
| | summer vacation. If you're scanning the
|
| supply of products.Second, they generally
| |
| | newspaper for a summer rental in the
|
| serve as electronic gathering places
| |
| | general vicinity of your city, you might
|
| where buyers meet potential sellers for
| |
| | have to read the listings for several
|
| specific industries or types of products.
| |
| | different geographic areas and then scan
|
| In this sense, successful digital age
| |
| | through the ads as grouped by a Realtor.
|
| middlemen are typically vertically
| |
| | Contrast that to searching for a summer
|
| focused and aim to serve a very specific
| |
| | home online: Log on, go to one of the
|
| market, such as buyers of specific
| |
| | classified ad sites (many, but not all,
|
| financial products, or specific kinds of
| |
| | of which have been put up by newspapers),
|
| engineers or electronics firms.
| |
| | and then enter the qualities you're
|
| Occasionally this leads to selling the
| |
| | looking for: preferred township, timing,
|
| same products at different prices .
| |
| | cost, number of bedrooms, and "walking
|
| Third, the digital age middlemen defy
| |
| | distance of beach," for example. Within
|
| traditional boundaries. Location, company
| |
| | seconds a range of selections will be
|
| size, the time required to get competing
| |
| | presented.These offerings are
|
| bids from many potential suppliers, and
| |
| | unquestionably faster and better than
|
| the time involved in searching for
| |
| | working through traditional newspaper
|
| potential new suppliers are all factors
| |
| | ads. They may even eventually cause some
|
| that have traditionally created
| |
| | offerings to be cheaper, since you'll
|
| "competitive advantages" for specific
| |
| | have all the listings in front of you and
|
| companies in specific situations; these
| |
| | you can compare carefully. As newspapers
|
| services work to eliminate these
| |
| | fight to retain their revenues against
|
| constraints.And fourth, they all provide
| |
| | Web-based competitors of all kinds-for
|
| a buying mechanism of some type. Often,
| |
| | everything from home purchases and
|
| digital age middlemen pit potential
| |
| | apartment rentals to cars and job
|
| sellers against each other, and generally
| |
| | listings -new types of competitive
|
| the one with the lowest price earns the
| |
| | behavior will inevitably result.SPEED AND
|
| business.
| |
| | THE LAW OF TWOSOften categories of
|
| For buyers, the effect of digital age
| |
| | businesses start as "a ladder of many
|
| middlemen is to make goods
| |
| | rungs," but that all categories gradually
|
| and services available at lower
| |
| | become "a two-rung affair," where
|
| prices.DIRECT SALES ARE EXPANDING,
| |
| | competition resides primarily among the
|
| TRANSFORMING THE MARKETPLACE
| |
| | top two contenders, such as Pepsi and
|
| Experience to date strongly suggests
| |
| | Coke, Hertz and Avis, McDonald's and
|
| that the Internet will accelerate the
| |
| | Wendy's . It's not that there are no
|
| shift to direct sales by manufacturers,
| |
| | other competitors, but that the lion's
|
| thereby creating a major change in the
| |
| | share of the market ends up split among
|
| way both businesses and consumers shop.
| |
| | the top two competitors.The Internet,
|
| and services available at lower
| |
| | however, accelerates the playing out of
|
| prices.For buyers, of course, the
| |
| | the law of twos. There is nothing gradual
|
| downward pressure on prices is a welcome
| |
| | about what happens here. Because of its
|
| benefit of the Web. For sellers, however,
| |
| | focus on comparative shopping, instant
|
| digital age middlemen are a central
| |
| | communications, and easy distribution of
|
| factor in the emergence of Hyper Wars. By
| |
| | information, the Internet accelerates the
|
| creating a "more perfect market" with
| |
| | speed of competition. As might be
|
| full information, fewer geographic
| |
| | expected, the law of twos occurs even
|
| boundaries, and more potential suppliers,
| |
| | faster.At the "dawn" of the Internet age,
|
| the level of price competition reaches a
| |
| | there were over ten browser companies.
|
| new degree of intensity, making it harder
| |
| | Now there are primarily two entities
|
| to generate profitable revenues. As these
| |
| | Microsoft .and Foxfire .Similarly, all of
|
| online middlemen proliferate, each
| |
| | the other major Internet business
|
| transaction will feel to the seller even
| |
| | categories (thus far, music, books, auto
|
| more like a battle in a war that is waged
| |
| | buying, online stock trading, and travel)
|
| in hyperspace.
| |
| | have consolidated rapidly, leaving just a
|
| DIRECT SALES ARE EXPANDING, TRANSFORMING
| |
| | few major players.At first blush, it may
|
| THE MARKETPLACE
| |
| | seem as though the idea of rapid industry
|
| Experience to date strongly suggests
| |
| | consolidation and the law of twos is in
|
| that the Internet will accelerate the
| |
| | conflict with a central theme of this
|
| shift to direct sales by manufacturers,
| |
| | book-that market success can be fleeting.
|
| thereby creating a major change in the
| |
| | In fact, they are complementary. The law
|
| way both businesses and consumers
| |
| | of twos suggests that there will be
|
| shop.Over time, the percentage of all
| |
| | consolidation in an industry as we
|
| products sold directly from manufacturers
| |
| | currently define it. However, what the
|
| or service providers to end users has
| |
| | Internet makes it possible for new
|
| been increasing, and the cost of having a
| |
| | entrants to redefine an When this
|
| middleman is being eliminated. This
| |
| | redefinition takes place, the entire
|
| phenomenon has accelerated whenever the
| |
| | cycle starts once again: Typically there
|
| development of new technologies or new
| |
| | are multiple entrants pursuing this new
|
| media has provided ways to overcome what
| |
| | idea of the industry and rapid
|
| are generally perceived as the four
| |
| | consolidation then occurs.Although there
|
| barriers to direct sales:
| |
| | has already been consolidation among many
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| 1. The consumer's need to see the item
| |
| | online businesses, the potential for
|
| being purchased
| |
| | radical change remains: Entirely new
|
| 2. Product complexity
| |
| | business concepts are likely to evolve
|
| 3. Access to product information
| |
| | and start the process of intense
|
| 4. The consumer's need to judge
| |
| | competition all over again.
|
| legitimacy. Is this person and company
| |
| |
|
