How The Internet Changes The Competitive
Battleground
Author: Shaun Z. Stevens

Natural market forces that lead to consolidation and the law of
twos happen even faster on the Internet. The "best" products are
anointed, information is rapidly distributed, and customers (who
face no geographic limits) seek out these "hot" places.
Moreover, as brands become familiar, consumers increasingly
seek them out because they have credibility.

Unique to the Web is something which may be called a
"hub-and-spoke strategy" . This also facilitates the law of
twos: A hub-and-spoke strategy is the increasingly common
arrangement where a major retailer establishes relationships
with other Web sites, promising them a percentage of any sales
(generally 5 to 15 percent) that result from any traffic sent
to the retailer by these "affiliates." It's not uncommon for a
major affiliate program to have over 10,000 participating
members, all of whom refer traffic to the central site. What's
even more interesting is the extent to which this type of
business model is proliferating:

The Internet is already taking its place as a central tool in
everyday business life. Each aspect of commerce is changing in
light of the new capabilities available. The coming changes are
so powerful that it is both terrifying and exciting. The first
phase of Internet business has principally focused on the
creation of new types of businesses: The next phase will
involve the impact of these developments on brick-and-mortar
businesses and on the economy as a whole.

The new capabilities that the Internet makes available for
business-to-business commerce and for business-to-consumer
sales will transform many industries from top to bottom.
Winning companies will understand that in the emerging era
success now requires new rules for action and the mastery by
the organization of different types of skills.

Questions may arise on what the future will look like: "Will my
business be helped or hurt?" "What should I do to survive?"
Until recently, the pace of change has been so great that
attempts at answering these questions were often unsatisfying.

Elements that will play a central role in how the Internet
economy evolves. These elements have the potential to greatly
harm our economy or to power us into prosperity for the
twenty-first century. The best way to discuss these ideas is to
provide two contrasting visions of the future: The Potential
Downside of Internet Growth More than any other aspect of the
Internet, shopping "bots," software that searches the entire
Internet for products and services based on predefined criteria
(price being the most popular), have the capacity to offer great
benefit to consumers while potentially bringing great harm to
businesses. Today the major Internet portals, include Google ,
Yahoo and MSN , all have shopping initiatives with
participating retailers that are, at least in part, powered by
bots (also called "intelligent software shopping agents"). A
visit to http://www.botspot.com/ will reveal that there are
already over many easy-to-use bots that are available for
businesses and consumers. Each bot typically has a specialized
function, ranging from financial bots that perform
stock-related functions to news-gathering bots to
auction-related bots.

The more businesses and consumers rely on price as the sole
criterion for purchase, the more price pressure every
manufacturer and retailer will feel. Bots that search for the
best price have the potential to trigger ruinous price wars. At
some point, price wars can ruin industries or set back their
development by several years through lack of funds for
investment in new and better services. To me, this is the
frightening downside of a world where customers can buy from
anywhere and essentially name their price.

The Internet is already demonstrating some of this behavior. At
this time, we are witnessing deep discounting on the part of
large Internet retailers to attract customers. For ongoing
businesses, this type of discounting is unlikely to be
sustainable.

The pace of change in the past year has been so incredible that
a growing population—from executives to retirees—feel they have
more than passing familiarity with the Internet. However, this
newly claimed "knowledge" of Web sites and portals and e-mail
techniques belies the fact that the Internet is still so new
that there are no rules for "play."

Internet services, including comparison services, software
agents such as bots, and new digital middlemen, enable easier
access to information and, as a result, fundamentally change
the competitive battleground.

Stores that pitted themselves against each other generally rose
to the occasion and even employed "comparison shoppers," who
cruised the aisles of competitors, reporting on pricing so that
the store owner could price competitively. And signs touting
"We'll Beat Anyone's Prices" covered any store that wanted to
preserve business no matter what.

The Internet radically changes this dynamic. Not only can
consumers move easily from one Web site to another, checking
out the products and services at each, but many Internet
services are specifically designed to promote comparisons among
products or services within a category, and another growing
class of businesses—digital age middlemen—are actively working
to create bidding situations among several suppliers that lead
to lower prices for consumers and businesses. These new classes
of Web sites raise the stakes throughout an industry.
Competition takes two forms: between manufacturers or service
providers —for the product or service to be purchased—and
between "stores" as the place to purchase.

Companies now operate in a world where comparison shop- ping is
almost effortless, geographic boundaries are eliminated, and the
pace of activity is far faster.

WHAT happens in the marketplace ? In the online environment,
anyone offering a particular product competes with everyone
else offering that product or something similar. On any given
day, a customer may be able to locate several — or several
hundred—online stores selling what he or she wants, and the
customer can then determine from which vendor to purchase the
item. A recent search using a comparison service such as
Froogle identified that a specific HP All-In-One Multifunction
printer was available from 57 different stores from $57 to
$170.

Bots, the comparison services, and the new digital age
middlemen can all work in a variety of ways. Some comparison
services are operated by retailers; the site generally posts
information on how specific products sold by the store compare
in price and quality with the competition. Other services are
stand-alone Web-based businesses offering comparisons among a
variety of manufacturers.

Bots (Intelligent Software Shopping Agents) are now today 's
product finder, along with hundreds of other "bot" services
that are now on the Web, is still in its infancy. However, it
has already stimulated the creation of sites that feature
comparison shopping facts, and I guarantee that these bots will
play a role in changing the future of commerce.

Sites offering price comparison are now web wide. On the Web,
competition for customers is fierce. Because bots can shop the
Web for a customer, companies have been forced to design their
Web sites with comparison shopping in mind. The Net has
facilitated explosive growth of comparison services that
stretch across the full spectrum of products and services. It's
impossible to even estimate how many exist today and new
services—for unserved categories or with better features in
categories that already have such services—are constantly
popping up: New digital age middlemen only intensify the
competition . Digital Age Middlemen

An additional factor in the spread of Hyper Wars is the
emergence of a new kind of business, "digital age middlemen
This broad range of entities may share one or more of the
following characteristics: First, they create a "more perfect
market" for buyers and sellers by improving the information
available to both sides regarding the demand and supply of
products.

Second, they generally serve as electronic gathering places
where buyers meet potential sellers for specific industries or
types of products. In this sense, successful digital age
middlemen are typically vertically focused and aim to serve a
very specific market, such as buyers of specific financial
products, or specific kinds of engineers or electronics firms.
Occasionally this leads to selling the same products at
different prices . Third, the digital age middlemen defy
traditional boundaries. Location, company size, the time
required to get competing bids from many potential suppliers,
and the time involved in searching for potential new suppliers
are all factors that have traditionally created "competitive
advantages" for specific companies in specific situations;
these services work to eliminate these constraints.

Fourth, they all provide a buying mechanism of some type.
Often, digital age middlemen pit potential sellers against each
other, and generally the one with the lowest price earns the
business. For buyers, the effect of digital age middlemen is to
make goods and services available at lower prices.

Direct sales are rapidly expanding this controlling the
marketplace . Experience to date strongly suggests that the
Internet will accelerate the shift to direct sales by
manufacturers, thereby creating a major change in the way both
businesses and consumers shop. and services available at lower
prices.

For buyers, of course, the downward pressure on prices is a
welcome benefit of the Web. For sellers, however, digital age
middlemen are a central factor in the emergence of Hyper Wars.
By creating a "more perfect market" with full information,
fewer geographic boundaries, and more potential suppliers, the
level of price competition reaches a new degree of intensity,
making it harder to generate profitable revenues. As these
online middlemen proliferate, each transaction will feel to the
seller even more like a battle in a war that is waged in
hyperspace. DIRECT SALES ARE EXPANDING, TRANSFORMING THE
MARKETPLACE Experience to date strongly suggests that the
Internet will accelerate the shift to direct sales by
manufacturers, thereby creating a major change in the way both
businesses and consumers shop.

Over time, the percentage of all products sold directly from
manufacturers or service providers to end users has been
increasing, and the cost of having a middleman is being
eliminated. This phenomenon has accelerated whenever the
development of new technologies or new media has provided ways
to overcome what are generally perceived as the four barriers
to direct sales.


About The Author: Mr. Shaun Z. Stevens E-Commerce Employment
Analyst call_kirk@hotmail.com http://www.winnipegjobshark.com
http://www.ace-training.net