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Home » Business And Finance Articles » How The Internet Changes The Competitive Battleground

How The Internet Changes The Competitive Battleground

HUB AND SPOKES AS A NEW BUSINESS STRUCTURE

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 populationâ€"from executives to retireesâ€"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 businessesâ€"digital age middlemenâ€"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 â€"for the product or service to be purchasedâ€"and between "stores" as the place to purchase.

Companies now operate in a world where comparison shopping 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 â€" or several hundredâ€"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 servicesâ€"for unserved categories or with better features in categories that already have such servicesâ€"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.

And here is another random article you might be interested in...

Foreign Currency Mortgages – The Pros And Cons

Virtually all mortgage borrowers go with a mainstream UK lender to make the biggest purchase of their lives, it's the done thing and to be honest most people don't realise there is a viable alternative â€" the foreign currency mortgage.

Interest rates are reasonably healthy in the UK at the moment, particularly in comparison with the 1980s, however interest rates are a lot higher here than they are in the Eurozone, Switzerland, America and Japan.

Did you know that you can borrow the capital you need for your house purchase in Euros, US dollars, Swiss Francs or Yen instead of Sterling? This means that you could take advantage of the lower interest rates elsewhere, securing the loan on your house.

These 3 month money market interest rates allow you to compare UK interest rates with other countries:

Japanese Yen 0.12%
Switzerland 1.03%
Eurozone 2.46%
US $ 4.48%
Sterling £ 4.64%

(Source: 3 month Money Market Rates, Financial Times, 9 Dec 2005)

As you can see, Sterling is significantly higher than some of the others. However, you will lose out on some of that advantage because you will pay a premium to borrow currency from another country. Still, if interest rates continue as they are at the moment, then there are still large savings to be made.

You're probably wondering why, if the savings are so good, only 1% of UK householder mortgages are taken out in overseas currencies? Unfortunately, there are other factors to consider.

Interest rates - can be unpredictable and even though they have been stable for years, anything unexpected could happen to affect them (eg the 9/11 attacks). If interest rates in the country you were borrowing from increased, then you would lose a lot of the advantage between the foreign currency mortgage over the standard UK mortgage.

Exchange rates â€" herein lies the most unpredictable area of risk. Because you borrowed in Euros, for example, the loan must be repaid in Euros. If the Euro/Sterling exchange rates were linked and increased and decreased at the same rate, then it wouldn't be a problem, but of course that's not the case.

If Sterling strengthened against the Euro, then you will be quids in. To repay the loan, you wouldn't need to convert as much Sterling into Euros, and you would make a big saving. That's the scenario that makes the foreign currency mortgage so attractive.

However, if Sterling falls against the Euro, then you will be out of pocket, having to repay effectively more than you initially borrowed. It's a huge gamble, and your home will rest on it. Your home will be at the mercy of the exchange rates, so you could win, or lose, a significant amount of money.

To get a foreign currency mortgage you will need a deposit of at least 20% for your house purchase, so you will need to have a good cashflow to arrange it.

There is an alternative to the above, one that represents less risk. You can link your UK mortgage to an interest rate in a different country. This means that you are not gambling on the exchange rate, but you will still be subject to the interest rate, in the hope that they will not at any point exceed the UK interest rate. There is less risk involved, however these kinds of mortgages do tie you in for a longer period, ie 5 years, and the redemption penalties will be more than nominal. There is a certain degree of flexibility though, and you can often transfer the mortgage to another property if you want to pay the loan off early.

The above option is particularly popular with mortgages linked to the Swiss Franc interest rate, because their interest rates have stayed at beneath 1% for the last four years. The Eurozone interest rate is also very stable, and has not moved in five years.

Whatever your decision, and even with a UK mortgage, it's a gamble and deserves a lot of thought. It's probably worth talking to a financial specialist about it. There's big savings to be made, but have you got the stomach for it?