Online markets could see brands lose control

I got an e-mail from Amazon.com founder Jeff Bezos last week about the company’s new auction service. I’ll tell you about that in a second, but along with Yahoo!’s takeover of Broadcast.com in the same week, it’s clear these moves are the first tiny tremors of a massive earthquake – probably the biggest earthquake in marketing yet.

Bezos’ e-mail was interesting for two reasons. Around 8 million other Amazon.com users also got it. Yet, for Amazon.com, the cost of sending these 8 million messages online was just a tiny fraction of an equivalent snail-mail exercise or media advertising campaign. Equally important was the subject matter, Bezos’ new auction service: “Now, with Auctions, our community of almost 8 million customers (including you – thank you) can sell anything they want on the Amazon.com Website.”

What Amazon.com is doing – along with others such as eBay – is exploiting the plummeting costs of online communication to create new types of market. This is seminal stuff. Since the year dot, information has flowed vertically, down, from organisations with deep pockets to the audiences they wanted to reach. That flow of information effectively created markets which were organised and controlled by companies, for companies. Now, information is also beginning to flow horizontally – across markets – from consumer to consumer, to create different forms of market effectively controlled by consumers, for consumers.

The Yahoo! deal is part of the same trend. Broadcast.com’s pioneering development of Net-based radio and TV will slash the costs of distributing (if not producing) radio and TV so much that in a future of greater bandwidth, the current corporate monopoly on broadcasting will be broken. If we wanted to, you and I could become our own radio and TV stations broadcasting globally.

We probably won’t. But the same potential of ultra-cheap horizontal communications between consumers will create new business beasts, such as infomediaries – companies which use these new information flows to weld millions of individuals into an economic force in their own right. The clearest view of the potential implications of these new beasts comes from John Hagel and Marc Singer in their new book Net Worth (Harvard Business Press). It is an essential read.

The prime economic role of the infomediary is to capitalise on the falling costs of communication to gather information about individuals, and then use the power of that information to get a better deal for these individuals from the companies and brands they deal with.

They will do this in a number of ways. Like a media owner, they will charge marketers for access to audiences – their members. But the value of this access will be far higher than any traditional media owner. For example, it will give assured access to people in a certain income bracket who are looking for a particular class of family stationwagon.

Like a retailer, they will also aggregate buying power, the difference being that the buying power is wielded directly on behalf of the consumer. If, for example, 5,000 of the 8 million members of the infomediary grouping are currently in the market for a stationwagon. Then the infomediary would approach stationwagon makers saying, “what do you bid me for this custom?”

In other words, just as trade unions organise workers under the slogan “unity is strength”, so the infomediary will do the same with consumers, to collectively bargain with companies over price.

Infomediaries will also use their ability to search markets, allowing members to outsource the searching hassle of shopping, while protecting their privacy. The infomediary solicits for stationwagon bids, for example, so that consumers don’t have to. It also does the comparing and contrasting of features and offers, while drawing on comments previous customers have made about that supplier to help members make the right decision.

Yet, until the deal is made, that supplier never gets to know the names or addresses of its prospective customers. Which, by the way, makes a potential mockery of most current direct marketing and relationship marketing programmes, because the customer’s real relationship shifts to the infomediary. A customer’s attitude to a direct mail offer? “Contact my agent.”

However, we are not going to see full-blown infomediaries for some time. The first UK experiment, Request, failed for lack of funding. And Hagel’s projections of launch costs for an all-singing, all-dancing mass market infomediary, for the US market, are stomach churning: negative cashflows of over 1bn in the first seven years before its first tiny surplus appears.

But there are other routes forward – through highly specialised and targeted services, for example. And the potential rewards for a mass market version are so huge that a number of consortiums are going for it. Hagel, who is a McKinsey consultant, is working on some major launches due in the next six months. And their eye is on the profits that start flowing once the costs of achieving critical mass, in terms of customer acquisition, trust, information systems and databases fall out. Then the revenues that accrue from being the most powerful gateway to the consumer “ever”, just pile up.

If such beasts ever do emerge they will change the face of marketing. Irrevocably. By creating what Hagel calls reverse markets, where the customer is in control, soliciting business from companies on his terms, they threaten to marginalise many traditional brands. “What gives brands power today will not be sustainable in the future. New forms of brand will emerge that will be even more powerful than existing brands,” he says, because they will seize control of traditional companies’ relationships with their customers and manage these relationship for them, whether the company likes it or not.

Says Hagel: “Today’s brands are product- or vendor-centric brands – they are statements about the quality or attributes of the product or vendor.” In future, however, “the most powerful brands will be customer-centric brands” – meaning that the brand-holder knows the individual customer better, and deploys that knowledge most effectively for, and on behalf of that customer.

That is the emerging benchmark for future competitive success.

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