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How the Internet Changes the Competitive Marketplace
Author: Shaun Stevens

How the Internet Changes the Competitive Marketplace

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: Refer-it is a site that lists credible affiliate programs for prospective members. As we go to press, it is approaching 500 distinct plans.
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.
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)
Today 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
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.
And 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.
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.
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:
1. The consumer's need to see the item being purchased
2. Product complexity
3. Access to product information
4. The consumer's need to judge legitimacy. Is this person and company reliable or am I being sold snake oil?
For the most part, the Internet has quickly done away with each one of these obstacles and offers added benefits as well:
When a medium can fully explain or show how a product works, then a large portion of the product's sales typically shifts from agents to direct sales by manufacturers or suppliers.
The Internet has a unique capability (interactivity combined with a low-cost avenue for communications) to make complex items such as financial products comprehensible. Because of the Internet's ability to filter, the consumer is presented with information directly relevant to his or her situation and therefore avoids wading through a stack of folders and brochures. A well-designed site can explain all of the product features and benefits of whole life insurance policies and annuities. As a result, these products can now be sold directly by their providers over the Web, since agents are no longer needed to explain the products.
Time and Self-Generated Recommendations In addition to making the complex clear and comprehensible, the Web saves customers time. In essence, this represents a system that employs interactive tools to both explain the product and recommend what consumers should purchase.
Convenience The convenience offered by the Internet is also a factor that will further the shift to direct sales. Everyone with Internet access can now shop for products and services at any time that's convenient without prior research or preparation. As a result, the "preparation impediment" to direct shopping is removed.
Large chains with inefficient operations or those saddled with the high overhead costs related to maintaining a brick-and-mortar business will face price pressure that could well endanger their ongoing operations.
Historically, consumer product businesses have operated with a well-defined chain of sales:
Making the transition from selling through a middleman to selling direct (channel conflict) is a troubling issue many businesses are wrestling with right now. On the one hand, retailers naturally become "unhappy" with manufacturers who, in their view, go around them and directly to the consumer with a lower price. On the other hand, the manufacturer may observe cost-advantaged direct sellers who, because of lower prices as a result of lower distribution costs, are winning business and market share. In addition, a company may have its entire sales force dedicated to selling through the retail channel.
Right now channel conflict is probably the most difficult, vexing problem faced by companies in this hypercompetitive environment
The problem of channel conflict is a central reason the PC business is an industry on a high wire. If everyone in an industry moves through retailers, there is a fairly defined set of competitive rules. However, it is absolutely predictable that if direct selling makes sense, then someone will enter the market. It may even be a brash upstart with no roots in the retail distribution business. For the PC industry, that upstart was Dell.
At some point PC owners compared notes about where they had purchased their computers and what they had paid, "I ordered it direct from Dell" became a frequently heard report, and before long Compaq and IBM realized they had a problem.. What was Dell doing right, that these other manufacturers had missed?
The increasing popularity of the Internet meshed perfectly with Dell's sales model of selling computers direct to customers. On the Web, customers could visit Dell's site, decide what they wanted, see images (something that wasn't possible over the phone), and place a direct order. Since Dell had no inventory tied up in a retail sales channel, the company had an estimated cost advantage of 10 to 15 percent over its competitors who sold through retail stores.
Moreover, Dell could react instantly to changes in consumer-buying patterns.
Dell's lower-cost Internet-oriented methods created chaos throughout the PC industry—chaos that continues to this day. Using their own brands, retailers now actively compete with everyone, including their suppliers. While Compaq and IBM both developed innovative techniques that permitted them to lower costs and deliver custom PCs through retailers, Dell continued to gain market share and grow in profitability.
The importance of this issue cannot be overstated.
Keep in mind that if existing companies don't grasp opportunities, others will.."
It may take years for an industry to be turned on its head by direct sales, but product manufacturers need to plan for that eventuality. For example, one could argue that record labels would Never sell directly online—a move that would effectively go around online music stores, not to mention brick-and-mortar music stores. Never assume that lower-cost direct distribution won't happen because of channel conflict.
By seamlessly linking people and entities around the world, the Internet can accelerate the speed of new product development and introduction while lowering the cost of operations throughout the enterprise.
The Web offers a whole new way of setting up a business. If a company were never to sell a single "widget" online, it would still be worth mounting a Web strategy.
The Internet permits companies to cut costs through seamless, automated communications both within the company (intranets) and with the company's suppliers (extranets). Moreover, these communication systems can dramatically lessen the time involved to produce specific products because various departments and outside suppliers can communicate automatically.
Strategies 2, "Speed Is Everything," and 3, "Cut Costs and Increase Efficiency Using the Web," detail many of the ways companies are benefiting by using the Web. As companies are striving to compete in the emerging environment, they must also grapple with competitors who have put these new technologies to work: for faster and lower cost operations, for increasing the speed of their
product development and deployment, and to more effectively manage a worldwide sales force at lower costs.
The Internet is creating fundamental widespread changes in the world of business. Comparison shopping, the breakdown of geographic boundaries, the increase in direct sales, the reduction in costs, and the incessant need for speed—all as a result of the Internet—have led to vast changes. But there are still more ways in which the Internet is affecting businesses of all types. At this point, your industry may be affected by one or all of the changes discussed; very few businesses aren't affected at all, and if you're in this minute minority, prepare anyway. The tsunami is coming.
. The Internet facilitates the sale of personalized products.
Consumers' desire for customized products has been well documented over the past several years. Who wouldn't want something made exactly for them? Similarly, businesses have always needed custom configurations—which were presented in paper-based orders. In recent years, the ability to manufacture mass-customized products, at acceptable costs, has been developed. The Internet provides the missing piece: the perfect sales channel.
The very nature of the Web makes it an ideal mechanism for custom-based orders. Buyers—whether consumers or businesses — can see pictures or illustrations of the components via the Internet, and the order specifications can often be tied directly to an automated system that checks accuracy, with the site saying, in effect, "Yes, feature A can be added to feature B," so the possibility of paper-based errors is reduced.
4. Products that can be sold through searchable databases (any type of offering where the buyer provides specifications and the seller tries to match those requirements) are going to become highly competitive online products.
Consider planning for your summer vacation. If you're scanning the newspaper for a summer rental in the general vicinity of your city, you might have to read the listings for several different geographic areas and then scan through the ads as grouped by a Realtor. Contrast that to searching for a summer home online: Log on, go to one of the classified ad sites (many, but not all, of which have been put up by newspapers), and then enter the qualities you're looking for: preferred township, timing, cost, number of bedrooms, and "walking distance of beach," for example. Within seconds a range of selections will be presented.
These offerings are unquestionably faster and better than working through traditional newspaper ads. They may even eventually cause some offerings to be cheaper, since you'll have all the listings in front of you and you can compare carefully. As newspapers fight to retain their revenues against Web-based competitors of all kinds—for everything from home purchases and apartment rentals to cars and job listings —new types of competitive behavior will inevitably result.
Often categories of businesses start as "a ladder of many rungs," but that all categories gradually become "a two-rung affair," where competition resides primarily among the top two contenders, such as Pepsi and Coke, Hertz and Avis, McDonald's and Wendy’s . It's not that there are no other competitors, but that the lion's share of the market ends up split among the top two competitors.
The Internet, however, accelerates the playing out of the law of twos. There is nothing gradual about what happens here. Because of its focus on comparative shopping, instant communications, and easy distribution of information, the Internet accelerates the speed of competition. As might be expected, the law of twos occurs even faster.
At the "dawn" of the Internet age, there were over ten browser companies. Now there are primarily two entities Microsoft .and Foxfire .Similarly, all of the other major Internet business categories (thus far, music, books, auto buying, online stock trading, and travel) have consolidated rapidly, leaving just a few major players.
At first blush, it may seem as though the idea of rapid industry consolidation and the law of twos is in conflict with a central theme of this book—that market success can be fleeting. In fact, they are complementary. The law of twos suggests that there will be consolidation in an industry as we currently define it. However, what the Internet makes it possible for new entrants to redefine an When this redefinition takes place, the entire cycle starts once again: Typically there are multiple entrants pursuing this new idea of the industry and rapid consolidation then occurs.
Although there has already been consolidation among many online businesses, the potential for radical change remains: Entirely new business concepts are likely to evolve and start the process of intense competition all over again.
Shaun Stevens

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Shaun Stevens Senior Marketing Consultant Ace Employment Services Winnipeg Experience in Marketing in the Human Resource , Training as well as Corrections Fields . www.aceemploymentservices.net [email protected]

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