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Intelligence Briefings: Managing Customers With E-Business

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The rise of the infomediary

One of the main areas of interest for companies is how e-business can help them intermediate, disintermediate or reintermediate. in markets where intermediaries exact high charges or cash-flow delays, such as travel, Web-based services -- whether by agents or suppliers of low-cost airlines, for example -- are proving very successful. In some cases, the Web encourages the different participants in the value chain to jump stages. For example, in a two-tier distribution system, with both wholesalers and retailers, end-customers can buy from wholesalers and retailers from product suppliers. Some suppliers, such as airlines, have made the mistake of thinking that their best interest is served by taking on the whole system -- for example, by going direct, rather than by encouraging strong inter-tier competition, so that distribution margins fall.

One of the great myths of e-business is that it necessarily favours direct supply to customers -- whether business customers or end-consumers. In fact, it is now quite clear that this is not so. One of the real strengths of the e-business approach is that it enables the break-up of within-company value chains, so that one part of the company intermediates the sale of another part. It also allows the emergence of all kinds of Web-based intermediaries.

In the US, the National Transportation Exchange matches loads with empty trucks, creating a spot market for loads. NTE collects commission based on the value of each deal, the fleet manager or owner-driver gets extra revenue, and the shipper gets a good price. NTE was originally set up on a proprietary network, but this was expensive, and limited access only to those buyers and sellers prepared to invest. Similar intermediaries have emerged in a variety of businesses which have spare capacity.

This also applies within the marketing industry. For example, Adauction.com sells off spare on-line advertising space. There are three different types of auction -- the MarketPlace monthly auction, Tune-in for specific product categories, and LastCall for last minute. There are over 3,000 registered buyers who have all undergone a credit check. Even a site as popular as Yahoo can be left with over three-quarters of its advertising space unused. Adauction has now been relaunched as a vertical market portal (vortal), with on-line research tools and features such as news and discussion groups.

Chemdex is a similar website for research chemists, with nearly 200 suppliers, offering nearly 500,000 lab products. This saves using lots of catalogues and phone time. Chemdex also uses procurement software to enable buying on the Web via the customer's corporate purchasing policy.

The above are examples of different infomediary roles. Chemdex is an aggregation role, compared with the auctioning role of Adauction and the broker/exchange role of NTE. However, all three roles could be combined on one site. Such approaches favour situations in which buyers and sellers are widely dispersed, where there is a lack of a real (as opposed to a virtual) market-place, and also where there is no single dominant company. Because of the knowledge and expertise needed to develop and run such sites and the willingness of commercial users to pay fees to get real savings, these types of sites are likely to be much more profitable than consumer sites.

The share of business of these infomediaries is expected to grow rapidly. They have the economic advantage of balancing the power of buyers and sellers, letting neither dominate. They reduce the cost of switching for customers, and also the cost of finding new customers for suppliers. They allow customers to provide information on suppliers and suppliers to validate customers. They also allow small companies to get the advantages of big company systems such as airline ticketing and billing. It seems that business-to-business infomediaries are more likely to succeed by focusing on particular opportunities.

So, this is not disintermediation, but just a new form of intermediation. There is still physical work to be done, but it can now be separated from commercial work -- for example, the infomediary matches the buyer and seller, but the supplier's inventory manager and a contracted physical distributor make the goods available and transfers goods. Of course, in some cases, inventory can be abolished altogether.

Some conventional intermediaries have moved to the Web. Marshall in the US and RS Components in the UK -- both distributors of electronic components -- now use the Web to serve tens of thousands of customers with products, information and support, and provide usage data to suppliers. Wyle Electronics Trading (semiconductors and computer systems) uses IBM middleware to link Web-based applications with mainframe-based corporate databases and warehouse systems. This means that when customers place an order on its Website (www.wyle.com), nobody has to check it or rekey it.

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