Net Worth: Shaping Markets When Customers Make the Rules
John Hagel III and Marc Singer, 1999
Boston, Massachusetts: Harvard Business School Press
ISBN: 0-87584-889-3
"... although some forms of infomediaries will exist on the Web in the way that authors describe it, I don't believe they will have the powers and influence the authors ascribe them. However, almost all companies will need to manage the customer relationship. To do so effectively, they will maintain some form of customer profile information. And this book certainly helps..."Reviewed by Pawan Vora
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@ the reviewer |
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Pawan Vora is a user interface designer at NexTag.com.
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Not very long ago, the buzzword was disintermediation -- it was going to remove the middleman or the intermediary function of retailers (or resellers) so that the consumer could directly buy products and/or services from the manufacturers -- resulting in savings which would be passed on to the consumers. The authors of Net Worth, John Hagel III and Marc Singer, reject the notion that the Internet will uniformly lead to disintermediation. They advocate an "infomediary" role for the Web that, by having direct access to customer profile, will bring buyers and sellers together in useful ways. Although sellers currently do have access to some customer profile information, it is generally limited to their products and services; usually, they do not have information about customers -- even their own customers -- who buy from their competitors. For example, one airline may have information about passengers' travel on their airline, but not about their travels with other airlines and through other modes of transportation.
This customer profile, that infomediaries will have access to, will be "rich" in the sense that it will not only include descriptive information about consumers, but also their transaction histories, direct preference measures, and purchase-trigger events (e.g., birthdays, anniversaries), integrated across vendors and products (or services). By having access to this information, "infomediaries" will be able to create a deep understanding of customers' needs and preferences.
The infomediaries' task will not be easy. To provide value to sellers and consumers, they'll need to create the necessary trust in consumers and alleviate their privacy concerns so as to have them willingly share their personal information. Obviously, this trust-building will not happen overnight. Because this trust-building could take several years and that the financial investment would be significant during this time, the authors strongly believe that, on their own, startup businesses will be unable to compete in the infomediary businesses. However, the startup culture of speed and innovation is so important for success, that the authors see a potential for successful strategic partnerships between startups and businesses that have well-established trust relationship with consumers (and, of course, deep pockets). Having an already established trust relationships will also provide the infomediaries access to information for existing customers, which would help to seed customer profiles. The payoffs will be huge; the authors venture to predict that successful infomediaries could generate more than $4 billion in revenues by their tenth year of existence and more than $20 billion in market value.
To become successful infomediary enterprise, the authors suggest the following steps:
- Building the profile. At this stage, infomediaries focus on acquiring a critical mass of clients, accumulating a rich profile of these clients (by offering them some "value" compensation in return), and building a network of appropriate vendors to maximize the value of the profiles.
- Creating economic Webs. Economic Webs occur when groups of consumers and vendors collaborate around a platform of mutual interest (e.g., Windows or the Web). In addition, infomediaries will need to push adoption of standards, without which infomediaries will not be able to track their online behavior and consequently will be unable to create integrated profiles of their clients' needs and interests.
- Increase "richness" of customer profile. In this stage, infomediaries will increase the sophistication and robustness of customer information profile, which will enable them to offer targeted information, products, and/or services to consumers and vendors. Doing so will offer compelling incentives to both consumers and vendors to get "locked in" -- that is, stay within, and continue to invest in, the infomediary web.
The end result of the infomediary web will an unbundling of the core process of vendors' businesses. By allowing infomediaries to take over the function of customer relationship management, vendors will be able to focus their energies on product innovation and commercialization.
Although the authors make a compelling argument to lead us to believe that infomediaries will rule the eBusiness world, I have my doubts. Why? For several reasons:
- Infringement of personal space. Unless consumers are convinced of and/or offered "huge" benefits for divulging their personal information, I believe many consumers will be hesitant to have some form of program running on their computers recording their every move on the Internet. The issue is not necessarily of privacy, but of violation of personal ("browsing") space.
- Unproven ability to make inferences on shoppers' behavior from their browsing behavior. Have you ever tried looking at Web server logs to figure out what a user was trying to do? And what about all those unusable sites where you want to find some information, but are unable to find it. You try all different paths and give up in frustration. Try weeding out such unnecessary browsing from your data without being present and knowing what someone was trying to do. Anyone who has spent any time observing users browsing, even in lab settings, on just one site knows that making inference about users' browsing behaviors is very difficult. You just compound the problem exponentially when you talk about tracking consumers' behaviors over an unknown and huge domain of the Web and expecting to make reasonable inferences about their needs and preferences. Furthermore, tracking such data from millions of consumers, and making inferences about their intentions and future buying behavior is a tremendous undertaking.
- Efficiency of shopping and psychology of shopping are two different things. The authors' proposal is based on efficiency of shopping and assumes rational behavior of consumers. Buying behavior is not rational. Inertia, familiarity, and recommendations from trusted friends are, in my opinion, among the most important factors in people's buying decisions. Disagree? Tell me how people select long-distance telephone company and why they switch and why some of them don't switch at all. And tell me why people invest in anything but index funds, when we know that index funds have historically done better than the managed mutual funds? In essence, the authors' business model is based on efficient (or to use the popular term "frictionless") commerce. It is not based on the psychology of shopping, buying, and decision-making.
To summarize, although some forms of infomediaries will exist on the Web in the way that authors describe it, I don't believe they will have the powers and influence the authors ascribe them. However, almost all companies will need to manage the customer relationship. To do so effectively, they will maintain some form of customer profile information. And this book certainly helps in explaining what choices customers have in terms of keeping their information private and what strategies companies could potentially deploy to encourage customers to divulge information about themselves and at what stage of customer acquisition and retention to build their customer trust. But, be prepared! The book may sound repetitious and redundant at times. But Millionaire Next Door sounded so to me and is a bestseller... it makes me question my ability to predict reader behavior!
p.s. After writing the above review, I came across ebates.com, which seems to be very close to the author's proposal of offering value to the customers in return for their demographic and behavioral information. Check it out and let me know what you think at pvora@mindspring.com.
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Last update: December 12, 1999
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