Commerce, as we know it today, has taken thousands of years to evolve. Think back to
high school history class when you learned of people trading items such as flints, silk,
rum or spices and the traders who journeyed vast distances just to get their hands on
valuable products in far-away lands. I was reminded of the evolution of commerce as I
recently toured northern New England, visiting many of the companies you read about in
this magazine. I had unintentionally timed the trip during the best part of fall when the
multi-hued foliage is dazzling. While the colors of the season are striking, they also
symbolize the end of the growing season in this part of the country — except for one
crop: that of the tag sale sign. Amid the beautiful colors, I was amazed by the multitude
of tag sale signs that adorned the scenic neighborhoods along the way. As we drove along,
I witnessed buyers and sellers haggle, and wondered if this scene, so familiar to so many,
would one day be a thing of the past as a result of the Internet, which has changed all
the rules of commerce. After all, millions of dollars of venture capital are betting that
we will never again buy or sell products in the same way. Ready or not, the Internet is
about to change the rules of commerce, supply and demand and Economics 101 yet again!
Amazon.com was one of the first companies to change the way we purchase products,
leveraging the Internet and passing on incredible savings resulting from incredible
purchasing power. This was a vast improvement over brick-and-mortar stores in that it
allowed us to shop at our convenience and have available a wide array of products often
unavailable at the corner bookstore. This service provides a one-to-one relationship
between the seller and the buyer. Amazon's strength is that it allows a limited amount of
products to be purchased by a limitless number of people.
E-auctions
Of course, only vendors that Amazon.com selects will benefit from selling
products on their site. The number of products you can purchase on Amazon.com is limited
by the number of vendors with whom Amazon.com can effectively make reseller agreements. A
more open approach, which allows anyone to sell products on its site, is eBay, the famous
auction site. eBay allows buyers to post products and customers to bid online. The buyer
with the highest bid gets the product. What a great concept! It is working so well that
people are quitting their jobs to sell products on this service. The strength of eBay is
that it allows a limitless number of sellers to post products to be bid on by purchasers.
Reverse Auctions
So what about the losers of the bidding process on eBay? Shouldn’t they be
allowed to purchase online as well? For these people, we have the concept of the reverse
auction, which refers to the concept of letting a buyer request a product they need and
the seller decide whether to accept the bid. Priceline.com is a famous example of such a
service that allows people to bid for hotel rooms, airline tickets and some other items as
well. Airlines are already a natural for this type of service since no two people seem to
pay the same price on the same flight anyway. The strength of Priceline.com is that it
allows a limitless number of buyers to purchase from a fairly limited number of sellers.
What’s Next?
Although Amazon.com represented a tremendous paradigm shift in commerce, eBay
extended the shift by allowing anyone to participate in the buying or selling process.
eBay doesn’t have to get involved in reselling every product on the site as called
for by the original Amazon.com business model. Priceline.com opened up the bidding process
to the buyers, empowering them to decide how to pay for products. It is, however, limited
to the vendors Priceline.com selects. The next phase of commerce will represent the power
of eBay’s business model multiplied by Priceline’s business model. The future of
commerce will allow an unlimited number of buyers to list their requests for goods and
have them filled by an unlimited number of sellers.
The Internet is allowing for buyer-initiated commerce, something not possible in the
brick-and-mortar world. You can’t just go into the mall and scream, “I want to
buy a Rolex for less than $5,000.” There are some huge players betting on this new
paradigm. Already more than $100 million of venture capital is flowing into a number of
firms to make this happen. The companies in this infant industry are all struggling to
differentiate themselves, one of which is eWanted.com, calling what it provides an
“upside-down auction.”
IMA, one of the longest-standing players in the call center software market, has
launched an entirely new division, buyingedge.com,
that will address this new market. I entered a request on buyingedge.com to purchase a
stereo receiver and an extremely detailed form was presented to me. This site seems very
well thought out. The market for what I call buyer empowerment services is growing so
quickly that it already seems to need categorization, as I have done below. As these
services are dynamic and ever-changing, I expect them to evolve quickly, so check them out
for yourself to keep up-to-date.
Quote Services. Some of the companies in this field are
currently providing quote services from a variety of suppliers. These companies consist of
buyingedge.com, Respond.com and Imandi.com. Since buyers are presented with numerous
suppliers, it becomes possible for the buyer to always get great deals from a number of
suppliers.
Demand Aggregators. The concept here is that by aggregating
consumer purchases within a certain time frame, the service can drive down prices by
negotiating with a set of suppliers. Think of this as a consumer co-op with no
negotiating. Two major players here are Mercata.com
and Accompany.com.
Upside-Down Auction. Although eWanted.com uses the term
upside-down auction as a slogan to differentiate themselves from the field, I expect the
concept to be widely adopted by others in this market as well. Buyers are able to post
their need for any product and sellers compete to sell their wares to the buyer. Although
the sellers are not predetermined, a rating system will eventually emerge on all these
sites and perhaps a universal rating system will emerge among all of these services as
well. By allowing limitless buyers as well as sellers, this category has enormous
potential to drastically change commerce. This type of service provides the best value
proposition for the buyer, presents a much more targeted contact than a cold lead for the
seller and is tremendous time saver for both the buyer and the seller.
Volume Auction Seller Automation Services. The ability to
offer your products on various auction sites is limited only by your capacity to interface
with the buyers on every auction site that is springing up in the market. Andale.com is a
service that automates the process of offering your goods and services to various auction
sites. The goal, of course, is to provide maximum efficiency by eliminating as much human
interaction as possible.
While researching this story, I learned that many of the companies involved in this
market think that auctions will redefine commerce as we know it and wreak pricing havoc.
Everyone will have to compete for the buyer’s business and this will lead to a
dynamic pricing revolution. I must concur.
Perhaps the best twist on this story is IMA’s buyingedge.com, which is making the
technology of reverse auctioning available to any company that wants it. IMA calls its
technology demand chain management. Regardless of what you call it, you had better be
aware of it because it is bound to change every business in the future. This technology
allows your customers or potential customers to bid for your products online. Although
this concept may seem radical to you, if you have competition in your market and you
don’t embrace this concept, your competitor probably will, leaving you in a very
unfortunate situation.
If you do have a unique product, this technology allows you to manage your sales
process more effectively. Its strength really shines if you are struggling to make a quota
and are behind. You can reduce your acceptable price at various times throughout the year
to increase your sales levels or decrease inventory.
The Internet is breaking down commerce barriers at a dizzying pace, and e-commerce is
rewriting purchasing and selling rules that have been set in stone for millennia. The
future of commerce is that of giving the buyers of our products the best pricing possible.
If you think this is ridiculous, then a competitor will emerge that doesn’t share
your view. With no brick-and-mortar constraints to limit new competitors, a new paradigm
has indeed begun to take form and in the future there will be two types of companies
— those that collect many new sales online and those that collect dust. If you want
to be in the former category, then repeat after me: “Hail to the e-customer, for the
customer is king.”
Sincerely,
Rich Tehrani
Group Publisher
rtehrani@tmcnet.com
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