Running a Cyberbusiness
1.What is unique about the marketspace?
2.How can you create value in the marketspace?
3.What are some practical guidelines to follow?
Everyone is rushing to participate in the new 'marketspace'
formed by the World Wide Web and online services. It is a new
and exciting way of doing business and, like every other means
of doing business, will benefit those who adopt the right strategies
and execute them well.
This paper provides ideas and suggestions to help you plan as
a marketspace entrepreneur and manager. While you also need to
thoroughly understand issues related to technology and design
to be successful running a cyberbusiness, this paper will focus
on broad business issues relating to the marketspace. It is intended
for managers of startup companies as well as existing companies
that are trying to extend their efforts to the marketspace.
In this paper, we will discuss three issues that we feel are essential
to explore: What is unique about the marketspace? You need
to understand how the marketspace differs from the traditional
marketplace. This will allow you to devise strategies that take
advantage of the unique characteristics of this new way of doing
How can you create value for your company using the marketspace?
Once you understand the uniqueness of the marketspace, you can
decide how to use it to create value for your company. In this
section, we will discuss the many value-creation opportunities
in the marketspace. What are some practical guidelines you should
follow? Some practical guidelines to follow when doing business
in the marketspace. It is important that you master strategies
required to succeed in the marketspace, which are often quite
different from traditional business strategies.
1. What is unique about the marketspace?
Let's set aside all the hype about the marketspace for a moment.
There are four fundamental elements that are truly unique to
Marketspace is a new type of medium. The marketspace, which is
quickly becoming the convergence of the Internet and online services
and may eventually include CD-ROMs, ATM machines, stand-alone
kiosks, corporate data networks, and television; is an interactive,
customizable, two-way, multimedia, and global medium. In a sense,
the marketspace is a combination worldwide newspaper and global
interconnected computer. In a few years, it could be the combination
of worldwide television and the global computer.
You need to understand these characteristics in order to maximize
the value you can extract from this new medium. For instance,
the marketspace will allow you to provide richer publishing than
traditional mediums, customize your offerings to individual users,
and interact directly with individuals. You need to cast away
traditional mass-media thinking and move toward customized medium
concepts, reexamine traditional media cycle time and move toward
instant publishing, and move from one-way communications to two-way,
Marketspace is the great equalizer. The marketspace is independent
of geography, time, and scale. Because marketspace information
production and publication costs are relatively low and because
distribution is instantaneous and global, the marketspace will
allow small companies (and even individuals) the same access to
consumers and suppliers that only large companies have enjoyed
In this sense, the marketspace will become the 'great
equalizer.' For small companies, this is an unprecedented
opportunity to level the playing field. The implications for
large and small businesses alike is that increasingly, the key
to winning the marketspace battle will not so much be the traditional
ideas of economies of scale and scope, but providing more value
to consumers of brands, products, services, and content.
Marketspace provides a new distribution channel. The marketspace
provides an entirely new distribution channel of which your business
can take advantage. Specifically, the two key opportunities are
for direct data and information transmission and direct marketing
of goods and services. The marketspace will allow your business
to exchange information very inexpensively with a very large number
of people as well as enable you to become a worldwide direct marketer.
This distribution channel differs significantly from others for
two reasons: first, it is an 'intelligent channel'
that can easily be utilized to augment the traditional distribution
function with information gathering and dissemination, automated
customer service, and many other value-added services. The marketspace
is much more than a pipeline to the customer's home; it is a pipeline
to the customers themselves. Second, this distribution channel
has virtually no variable costs.
Marketspace will fuel unprecedented growth. The marketspace is
becoming a unique one-stop shopping concept for information and
people. This scope is attractive because it creates network externalities,
that is, it becomes more powerful and valuable (to users, advertisers,
and marketers) as more people and services join the community,
just as the phone system becomes more valuable when more people
can be reached.
The implication for businesses is that the marketspace will represent,
at least in the medium term, an exponential opportunity. While
the early developments have been and will continue to be slow,
the size of the marketplace will grow rapidly and fuel its own
growth. As such, businesses that can get an early lead in this
marketspace should reap exponential rewards in the future.
To achieve this exponential growth, every marketspace business
should focus on creating network externalities in its corner of
the marketspace. What we mean is that you should find ways to
create communities of interest around your area of the marketspace
and to create mutually beneficial relationships within those communities.
The key message we want to convey in this section is two-fold.
First, the marketspace is in many ways similar to the traditional
marketplace: to be successful, you need to have a value proposition
that is attractive to your target market; you need to provide
value superior to your competition's; and you need to keep innovating
to stay ahead of the curve. These fundamental principles of business
have not changed--the marketspace will not make money for you,
and without solid business thinking you will not succeed.
Suggestion #1. When entering into a marketspace business, take
the time to do key traditional business analyses. Write a vision
statement and a positioning statement. Do a competitive analysis,
customer analysis, channel analysis, and company analysis as well
as a typical marketing analysis. Remember, the marketspace is
not going to make money for you. You can use the marketspace
to make money but you need to have the right business strategy
and need to execute it better than everyone else in order to succeed.
The second key point is that it is important for you to understand
the uniqueness of the marketspace, because you need to adapt your
business thinking and your internal processes to fit the marketspace,
and because you would leave most of the value of the marketspace
on the table if you did not take advantage of its unique capabilities.
Suggestion #2. Do not rely only on traditional business thinking.
The marketspace has attributes that are unique to it. Think
carefully about how you can leverage the key components of the
marketspace to add value: rich content publishing, interactive
applications, personalized delivery of content, rapid publication
cycle, 24-hour-a-day service, global reach, intelligent low-cost
distribution channel, direct link to consumers, and so on.
2. How can you create value in the marketspace?
In this section, we will discuss in more detail what types of
value levers are available to you in the marketspace. Of course
this can never be an exhaustive list; it is meant to stimulate
your thinking. The marketspace is a new phenomena and there are
few absolute answers as to what will and will not work. However,
we would like to offer a systematic way for you to think about
the different opportunities offered by the marketspace and help
guide you in what we hope is the right direction for your business.
There are three main Targets of Value for your marketspace efforts:
consumer interactions, internal processes and business dealings.
Consumer interactions include every aspect of your business that
eventually reaches consumers and thus impacts your reputation
and brand equity. Business dealings represent all different forms
of interactions with other organizations such as your suppliers,
governments, business associations, and so on. Internal processes
are the communications, tracking, and coordination mechanisms
you use to run your business.
We think it is important to separate the Targets of Value into
three categories because the key success factors required in each
target are significantly different. For any marketspace project
that affects your consumer interactions, you must carefully evaluate
the impact on brand equity, consumer satisfaction, and public
perceptions; marketspace projects that alter your business dealings
must be absolutely fault-proof, secure, and efficient; while marketspace
projects that improve your internal processes must be well-coordinated,
inexpensive, and easily customizable.
Suggestion #3. Separate your Cyberbusiness plan into the three
different Targets of Value and carefully think through the value
elements, key success factors, and action plans for each target.
1. Targets of Value
There are many different Levers of Value or methods to create
economic returns applicable to each of these three Targets of
Value. These levers include leveraging communities of interest,
buying/selling advertising, buying/selling products and services,
reengineering processes, and restructuring an industry.
2. Levers of Value
Suggestion #4. When you examine the three possible Targets of
Value, a useful way to examine them is through Levers of Value
such as leveraging communities of interest, buying/selling advertising,
buying/selling products, reengineering processes, and restructuring
While there is no 'right way' to approach these
different Levers of Value, we have depicted them as a pyramid
because we believe there are some Levers of Value that are more
fundamental or more basic than others. For instance, you need
to learn to create and leverage communities of interest before
you can sell advertising or products and before you try to restructure
an industry. Therefore, these Levers of Value do suggest a timeline
by which you might want to approach your marketspace strategy.
Suggestion #5. Consider experimenting with the more 'simple'
or 'well-understood' Levers of Value such as
building communities of interest and selling advertising before
you take the plunge to more complex endeavors.
The key point to retain is that every area of your company can
benefit from the marketspace by generating incremental revenues,
cutting costs, or improving productivity. Therefore, every function
of your company should have a marketspace strategy to take full
advantage of the marketspace opportunity.
Suggestion #6. The marketspace can create value for your company
in every business function you perform, from public relations
to recruiting to purchasing. Your company therefore needs to
look at everything it does and create a marketspace strategy for
each key business process.
Let's use an example to illustrate some of these value levers:
Company XYZ manufactures camping and hiking equipment and is just
beginning to use the marketspace to conduct business. XYZ will
start this journey slowly by simply becoming a part of Internet
newsgroups and online areas that fit its business.
XYZ first listens in on the conversations users are having in
different areas of the marketspace to get feedback about people's
interests, complaints, and wish lists. Eventually, it gets more
ambitious and posts questions about some of its products and some
competitor offerings. It then invites people to e-mail their
comments and suggestions directly to them, offering free products
to the best idea received every month. XYZ now receives more
than 100 pieces of mail a week from current and potential customers.
This mail includes demographic, psychographic, and interest information
people provide in order to enter the contest.
Suggestion #7. An advantage of the marketspace is that it can
help you easily target the right 'communities of interest.'
Think carefully about which communities of interest you want
to interact with, what their needs are, and how you can best interact
with them in order to achieve your goal in the marketspace.
Suggestion #8. Take advantage of the thousands of existing communities
of interest. There is no need to start from scratch when you
can leverage existing sources.
XYZ uses the information in many ways: first, product design
receives all the new customer ideas and conducts more market research
in the newsgroups and chat rooms (and some live focus groups)
to determine new product features.
Marketing people can also get the e-mail addresses and accompanying
demographic information. Using that information, they can send
potential and current customers information about upcoming products,
product offers, and other value-added services for users. This
information is of course tailored to the user's demographics and
interests to increase its relevance. Further, this information
is combined with the global marketing database, which contains
demographic, psychographic, interest, and product purchasing information
about current and potential customers.
Strategy people can receive any information relating to competitive
offerings and competitor strategies that can be gathered through
postings, user comments, and online chats.
Lastly, the information is passed along to Human Resources staff
who incorporate it into the potential candidates database. HR
managers can send resume requests to potential candidates through
bulk e-mail. Successful candidates are then asked to submit to
an online questionnaire and/or an online interview. Only then
would a live interview be conducted.
Let's recap: So far, XYZ has created some value for itself by
conducting market research, creating stronger relationships with
potential and existing customers, and hiring more effectively
and efficiently. The two basic opportunities illustrated are:
XYZ has leveraged existing communities of interest that mirror
its products and services and it has already understood the power
of integrating its marketspace strategy within many divisions
in its organization.
Suggestion #9. Your business function marketspace strategies
need to be well integrated into a coordinated corporate marketspace
strategy in order to maximize the value you can create using the
Building communities of interest
Let's continue with our example: XYZ has been fairly successful
in its early marketspace incursion and has decided to expand.
XYZ has decided to put up its own area in marketspace; in this
case it has decided to put up its own Web page. The early goals
for the Web page are to create a community of interest around
XYZ products and leverage that community to expand the early efforts
at market research and customer information acquisition. Basically,
XYZ is trying to shift people from a generic 'camping/outdoors
community of interest' to their branded 'XYZ
community of interest.'
The best way to do this is to provide value-added services to
attract the relevant communities of interest. Using the market
research it has been doing online, XYZ knows that the key interests
in the 'camping community' are: suggestions
and descriptions of camping locations, up-to-date camping conditions,
and equipment recommendations. XYZ therefore builds those services
into its Web site, not necessarily because it will help to generate
revenues (especially early on), but because it will attract the
right community of interest to its site.
XYZ has built a marketspace area that provides users with value-added
services such as top camping sites by region, including pictures,
descriptions, road directions, costs, best time to go, other things
to do around the region, and so on; daily weather reports for
each of those regions, including a weather map and weather warnings;
and suggestions for equipment best suited for the camping site
Suggestion #10. The first thing you should concentrate on when
building your own area of the marketspace is to attract the largest
number of loyal people from communities of interest that are of
interest to you, such as your target customers, key suppliers,
business partners, the media, and so forth. The key to attracting
these different communities of interest is to understand their
marketspace needs well and cater to those needs in a fashion that
provides more value to them than other marketspace or non-marketspace
Instead of having a typical click-here-until-you-get-what-you-want
interface, XYZ's site has a personal guide approach: The user
indicates preferences for region, type of camping (climbing, relaxing,
fishing, and so on), and time of year, and it comes back with
a list of suggestions that can then be explored in more depth.
Another example of this value-added concept is the idea of an
online cookbook. This cookbook should not simply be a glorified
list of recipes; an online cookbook should add value beyond a
traditional cookbook. For example, this cookbook would ask questions
about an event such as the type of event (birthday, romantic,
formal dinner party), number of people, and time of year, and
would then list appropriate suggestions for the event.
Once the user has selected a menu, the application would print
all the recipes, prepare a day and evening planner (when to start
what), prepare a grocery shopping list, print invitation cards
and addressed envelopes for all the guests (or could contact them
by e-mail), and offer aperitif and wine suggestions. The online
medium allows you to combine the power of publishing with the
flexibility and customizability of computing. Take advantage
of it--your customers will thank you for it!
This value-added approach has helped XYZ gather a large and faithful
electronic community of outdoor enthusiasts. However, XYZ has
not really created economic value for itself because it has until
now offered this service to users for free. A key question XYZ
must answer eventually is: Should it charge a fee for this service
(either a flat-fee subscription rate or a variable usage fee)?
Two factors would push XYZ to start charging users for its service:
The service XYZ provides adds enough value to the consumer relative
to other marketspace and non-marketspace offerings such that consumers
will be willing to pay for it.
XYZ wants to protect its non-marketspace business and does not
want to give away something of equal or better value than its
non-marketspace alternatives for free. On the other hand, XYZ
needs to realize that charging for its content will likely reduce
the size of its community of interest and thus reduce the value
of its advertising and the size of its market for products.
Suggestion #11. Charging for value-added content will provide
extra revenues and protect your non-marketspace offerings. However,
it is likely to reduce your advertising and product sales revenues.
You need to find the appropriate mix for your business.
Let's recap again: The value XYZ has created so far is hard to
quantify but is substantial: XYZ now has a list of 100,000 potential
customers it can target to sell products to; it has added 100
people to its list of 'desirable employees'
and is actively recruiting them; it has been able to include over
500 customer suggestions into the design of its products; and
it has amassed a wealth of information on what its competition
is doing. Not bad so far. But this is just a beginning.
Advertising your marketspace
The next step for XYZ is to broaden the appeal of its online marketspace
to a larger customer community. Its goal is to double the number
of people that access its site within the next six months. To
do so, it begins heavily promoting its marketspace area by: Integrating
its online presence with its traditional media advertising and
promotion. It adds its Web address to all of its brochures and
pamphlets, its 'phone answering service wait music,'
and radio/TV advertising. Also, XYZ heavily promotes its marketspace
area to its existing customers by providing 'gold customer
status' of its marketspace area to current customers.
Forging alliances with other online marketers to trade links.
For example, XYZ has agreements with a mountain biking manufacturer,
a climbing gear manufacturer, and a collection of camping associations
to include links to their marketspace sites as long as they include
a link to XYZ. These arrangements can work particularly well
for non-competing, complementary companies whose online customer
base is of similar size and similar interests.
Capturing traffic from many corners of the marketspace. XYZ
has decided to make sure that users of online services can have
easy access to its service. It thus strikes a deal with the main
services to provide links from their service to its Web page.
Ensuring that its service is available from all the main World
Wide Web search engines such as Yahoo, Lycos, and Webcrawler.
Posting messages on relevant newsgroups and online BBS to let
users know of its online presence. Buying advertising space in
online magazines and relevant community-of-interest publications
(such as outdoor magazines in the case of XYZ). Using e-mail to
advertise special events and promotions to existing members of
its community to keep them coming back.
Accumulating cyber-points for frequent users, redeemable for
XYZ wants to know the results of this marketing effort for two
reasons: to improve its future marketing efforts and to be able
to provide quality information to potential advertisers on its
Suggestion #12. It is important that you carefully track customer
usage of your marketspace to improve your own marketing efforts
and provide accurate numbers for potential advertisers and other
partners. One way to measure this, of course, is to find out
the number of people who visit your site. A better way, we believe,
is to find out how many people have visited your marketspace at
least 3 times in the last 6 months (or some other measure of customer
Suggestion #13. To build loyalty in your community of interest:
Add value to your target communities of interest
Change your content frequently
Include 'series-type' content (for example,
create an online soap opera users have to access every week to
stay current with the story)
Accumulate cyber-points for frequent users Run special promotions/contests
online Encourage users to interact with each other through moderated
chats/BBS Be creative and unpredictable Use other media to advertise
your site Use e-mail to draw existing members back to your site
Create 'network externalities' between the
members of your communities of interest, that is, create mutually
beneficial dependencies between your members and you and between
XYZ's marketing efforts have paid dividends: Its community of
users is now up to 250,000 with more than 175,000 of those users
accessing the service as least once a month.
Now that XYZ has created a sizable community of interest, it wants
to find out how to leverage it more effectively. The first step
it takes is to sell advertising on its area. XYZ has no experience
doing this (it is used to buying advertising, not selling it!)
so it doesn't know where to start. The key questions it asks
To whom do I sell advertising? One of the great value-added features
of the marketspace is the ability to target specific communities
of interest. For example, if XYZ wants to advertise to bird-watching
enthusiasts in the marketspace, it needs to find a bird-watching
area in which to place ads. XYZ needs to understand the demographics
and psychographics of its community of interest very well and
target potential advertisers with similar audiences. The more
similar the audience, the more valuable the advertising is to
XYZ could have reversed this thinking and first understood what
types of advertisers it wanted to go after. Knowing this, it
could then have crafted value-added content to attract communities
of interest that are desirable to these types of advertisers.
Where you start depends on where you think the bulk of the value
comes from. If you think you will make most of your money through
delivery of your branded content, products, and services, use
the former method. However, if you believe advertising will provide
you with the bulk of your revenues, consider crafting content
that will appeal most to your advertising targets.
Also, don't forget that you can put advertising anywhere in your
marketspace. For example, consider selling advertising to local
restaurants in areas of your marketspace that are available only
to your employees (your internal network). You could also consider
selling advertising to your supplier's suppliers on your purchasing
marketspace; selling advertising to journalists on your press
relations marketspace; or selling advertising to the tenants of
your marketspace mall.
Where do I put the advertising? XYZ should place the advertising
in the most appropriate places in its marketspace. For example,
bird-watching trips should be in the bird-watching camping trip
information area; kayak and canoe manufacturers should be in the
river expeditions area. The more closely matched the advertising
is to the content, the better. As such, XYZ is not only a seller
of advertising; it also performs the service of intelligent advertising
editing for its advertisers.
What types of advertising are there? XYZ can create many different
types of advertising: in its BBS, billboards, 'hot panels',
yellow pages, special promotions, and sponsored areas. BBS advertising
is comprised of promotional text messages in a BBS and can be
either corporate advertising or classified ad-type advertising.
Advertising billboards are simply 'static'
(not linked) branded advertisements, either graphics, animation,
or full-motion video. 'Hot Panels' are billboards
that link the user directly to the product/service being advertised.
Yellow pages are directories of services that can be searched
by the user and are thus hidden until requested by the user.
Be creative; there are endless possibilities.
How much advertising should I put in my marketspace? There are
no set formulas for determining the optimal amount of advertising.
For 'content advertising', that is, advertising
not requested by the user but embedded in the content areas, advertising
should be as unobtrusive as possible. Current estimates range
from somewhere between 5% and 15% of the area of the page. This
number can be higher if the advertisement is well-designed and
does not interfere with the content. The number will be higher
the more relevant the advertising is to the content displayed.
For example, an ad for a canoe-maker placed in an article about
buying canoes can be larger and will look less intrusive than
the same ad in an article about canoeing in Oregon (it's a subtle
but important distinction).
It is crucial that you master this mix of advertising and content
appropriately and that the advertising you bring to your marketspace
adds value to your customers. You want to avoid falling into
the trap of advertising overload, which will diminish the value
of your content (and then diminish the value of your advertising
as your community of interest shrinks).
In the areas where advertising is expected (such as when the user
selects yellow pages or purchasing suggestions), advertising can
have a much larger presence. The important point here is that,
unlike a traditional medium that has a limit on the ratio of advertising
to content, there is no such limit in the marketspace. In theory,
XYZ can sell as much advertising space as it wants to because
it is not bound by physical limitations of magazine packaging
or TV/radio's time linearity.
However, it is important to note that advertisers will be willing
to pay more if their advertising is easier to find. Therefore,
there are some practical limitations to advertising revenues,
not from the customer experience point-of-view, but from the value
to advertisers. Arguably, there can be some optimal point at
which XYZ can maximize its advertising revenues. For instance,
if XYZ's area of the marketspace contains so much advertising
that it becomes difficult to find a particular advertiser's message,
the value of each ad placed on their service might diminish.
The chart below outlines such a scenario and shows there might
be a point at which total advertising revenues are optimized.
However, as search tools and other technological facilities improve,
this limitation should disappear.
4. How much advertising to sell?
What kind of revenue models can I use? There are many ways to
get advertisers to pay for advertising. One is to ask for a flat
monthly fee, to be renegotiated periodically. Another is to charge
only when the content page containing the advertisement is displayed.
Yet another is to charge only when users actually link to the
advertiser's area. You can charge people for different 'prominence'
levels, such as a bigger yellow page or easier-to-find ads. Lastly,
you can have a lot of flexibility over the time exposure of the
advertising, which you can quite easily change daily. Of course,
all combinations of the above are possible.
How much do I charge for this? Rates can vary widely because the
market for marketspace advertising is in its infancy. However,
the market will become more efficient and pricing structures will
emerge. In the meantime, a good way to think about the pricing
structure is to compare it to traditional print media advertising
on a reach basis. For example, XYZ currently pays $25,000 for
a 1/8 page ad in a monthly magazine with a circulation of 500,000
people. The cost per person reached is thus $25,000/500,000 which
is $0.05 per person. This could represent a starting point
for negotiations when offering advertisers a similar 'prominence'
ad. XYZ could thus charge $8,750 for such an ad (175,000 users
x $0.05 per user reached is $8,750). Because marketspace advertising
can be made more 'valuable' than standard print
advertising, value per reach of marketspace advertising should
eventually surpass that of other media. Of course, the value
of a marketspace ad depends largely on the prominence of the ad
and the type of ad as described previously. Popular World Wide
Web areas are already charging substantial advertising fees.
What else can I do to add value to my advertising? The marketspace
can provide much easier access to marketing information than traditional
media can. For example, you can easily gather a lot of usage
information about people in your community of interest and share
that information with your advertising partners (and others interested
in buying targeted lists of users). Make sure you are aware of
and follow all the legal restrictions related to privacy of information
because they will be applied to the marketspace.
Also, you could do 'selective real-time advertising.'
This type of advertising would select the most appropriate pieces
of advertising most closely matching the user's profile. For
example, advertising for hiking boots in the hiking section of
XYZ should be for women's boots if a woman is using the service
and for men's if a man is using the service. The possibility
to match the advertising to fit the profile of the user ensures
a higher relevancy.
Lastly, you should work very hard to provide results to your advertisers.
For example, you should have monthly reports sent online to all
your advertising partners containing absolute and trend reach
numbers, cost per reach, hot links, $/hot links, browse to hot
link conversion rate (% people who click on hot links as % people
who see it), and any other relevant information.
Suggestion #14. Advertising in the marketspace is a business in
its infancy. There are few answers yet. The best advice we can
offer is for you to work very closely with your advertising partners,
track their results compared to other alternatives they have,
and readjust quickly to the realities of the emerging marketplace.
Of course, a key advertiser in your marketspace should be your
company! That is, you should use your area of the marketspace
to advertise and sell your products and services and to run special
promotions. The size of the marketspace product sales industry
is estimated to grow rapidly and reach approximately $4 billion
by the turn of the century. Although this is a very small number
in relation to total retail sales, it is important to note that
the forecasts predict exponential growth.
Many books have been written on how to best use the marketspace
to sell your products. In this section, we will try to give you
a high-level view and high-level suggestions on practices to sell
your products and services.
Marketing through cyberspace can provide several key value levers:
Provide incremental sales. Marketing in the marketspace can help
boost total demand for your products and services because it can
help you reach customers who otherwise would not have bought from
you. This is especially true for businesses who, because of lack
of size and/or market pull, have not had much exposure from retailers.
In this case, the marketspace again will act as the great equalizer
because there are no restrictions on 'shelf'
space in this new medium. Also, the marketspace will allow you
to reach a global audience, 24 hours a day, 7 days a week with
a consistent quality shopping experience.
Of course, a large portion of your online sales might eventually
cannibalize your offline sales, simply because consumers have
a fixed budget they can spend on goods and services. The benefits
for your company of this transition to online buying are less
obvious than in the case of incremental sales. Therefore, it
is important to carefully analyze your profit margins for both
your online and offline sales to target the appropriate retail
channel mix for your company.
Promote cross-selling and up-selling. One key advantage the marketspace
holds over the marketplace is the ability to add value to your
bottom line through very effective cross-selling and up-selling.
When you build a shopping application, you should include automatic
cross-selling and up-selling mechanisms.
Push inventories out. The marketspace will allow you to more
easily implement an ordering system where your company can build,
assemble, or acquire inventory after an order has been placed.
This would lower inventory carrying and obsolescence costs.
Disintermediate. One of the key values you can capture from the
marketspace is the ability to 'disintermediate'
or to shrink your distribution chain. The marketspace can enable
marketers to capture more of that value.
Think of selling products on the marketspace as being a customized
direct catalog marketer. The key difference is that the marketspace
and catalogs have vastly different cost structures: catalogs
have reasonably small fixed costs and relatively high variable
costs while the marketspace has medium fixed development costs
but virtually no variable costs. As the marketspace community
continues to grow, marketspace direct marketing will be substantially
cheaper than traditional print catalog marketing.
Furthermore, the ability to disintermediate has significant implications
for customer ownership. As your company gets closer to the customer
by reducing its distribution chain, it begins to take more control
(and responsibility) for customer loyalty. Your company will
depend less and less on the channel to maintain good relations
with customers and thus will need to develop competencies in this
area to increase customer loyalty.
There are significant issues related to disintermediation: Channel
relations. Of course, the channel will resist any attempt you
make to cut them out of the profit loop. For companies with strong
channel relationships, it will be difficult to exploit this opportunity
because the companies' channel partners will threaten your marketplace
business if you bypass them in the marketspace.
At the same time, it is inevitable that companies with little
presence in your industry, precisely because they have received
little channel support in the past, will emerge using the marketspace
as a channel.
Real estate decisions. You can realize large savings in real
estate if you decide to consolidate your retail and/or product
distribution networks. Of course, this will be practical only
when a large portion of your sales are in the marketspace. The
important point here is for you to evaluate your offline and online
marketing efforts and your cost structures separately. For example,
XYZ should not include its real estate depreciation expenses or
sales staff expenses when evaluating the profitability of its
marketspace efforts because it would distort the results.
Keeping separate and accurate P&L statements for your
marketplace and marketspace businesses will allow you to quickly
decide which is more profitable, and therefore what the optimal
mix for your business should be.
Suggestion #15. Keeping separate P&L statements and cost
accounting processes will allow you to quickly judge the profitability
and desirability of marketplace versus marketspace. Pricing and
pricing parity decisions. Marketing products, services, and information
in the marketspace should significantly cut your marketing and
distribution costs. The key decision to make is whether you will
keep most of these savings or pass them on to consumers. The
argument for passing the value on to consumers is that you can
quickly create a presence for your company in this new marketspace
and try to position yourself for the expected exponential growth.
The argument for keeping the bulk of the value includes higher
short-term profitability (because price sensitivity will not drive
marketspace retailing in the short term as much as other factors
such as security, ease of use, and interface) as well as price
parity with goods sold in retail environments.
Suggestion #16. If you have an existing marketplace position
you want to protect, consider pricing your marketspace goods as
close to price parity as possible with your marketplace goods.
Here are some key suggestions you should follow to capture as
much of the value from selling products, services, and information
Provide more value than the alternative. Not only should your
product or service beat the marketspace competition, it should
be better than the non-marketspace alternative. For example,
consumers have no strong incentive (after the novelty wears off)
to use the marketspace to find their credit card balance if they
can find it in 30 seconds by making a phone call and entering
their card information. In this case, the phone is easier to
use to perform the same service. However, if the credit card
company offers the possibility to quickly examine transactions
made in the past or sort the bill in many interesting ways, which
the user cannot easily do on the phone, then the service becomes
Personalize the shopping experience. You can obtain the demographic
characteristics and interests of the user shopping in your marketspace.
We recommend that you use that knowledge to create a service
that's personalized as possible. For example, XYZ has created
a shopping service that greets you by name, with your favorite
color schemes and your selected look and feel. Then it displays
types of items similar to what you have purchased in the past
and provides you with the latest product reviews in your favorite
categories. The trick is not only to personalize the experience
for the user (a male shopper should not have to scroll through
women's apparel to get to where he wants), but to let the user
know in a subtle way that you are making the effort to personalize
the shopping experience for them (for example, XYZ's shopping
platform announces, 'You have entered the XYZ mall created
especially for you, Mr. Smith.').
Customize your products and services. Because the marketspace
easily allows consumers to state their product preferences directly
to you, this will enable you to more easily tailor your products
to fit individual customer needs. For example, reports and software
delivered through the marketspace should be tailored to fit the
customer's needs. Physical goods such as jeans obviously require
very advanced manufacturing facilities to fulfill customized ordering.
Provide value-added services. There are many things you can do
in the marketspace that add a lot of value for the customer and
will keep them coming back. For example, a grocery-shopping environment
should allow customers to arrange products in many different ways:
by grams of fat per serving, calorie per serving, cost per ounce,
or most popular item.
Suggestion #17. The best way to attract consumers into a marketspace
shopping environment is to offer them value-added services that
they cannot get in the traditional marketplace. Look for things
that can be uniquely done in the marketspace (go back to the
four unique things about the marketspace).
Provide trial. The marketspace makes it easy to provide trial
of information-based products such as reports and software. For
example, you should enable customers to see the summary of a $100
report before you ask them to purchase the report. Similarly,
software vendors can easily provide demos of their software.
For 'hard' goods providers, offer services similar
to what catalog shopping services offer, such as excellent product
return policies and extended warranties.
Provide referral services. If you have no products that can easily
be cross-sold with a purchased item, cross-sell somebody else's
product instead and charge that company an advertising fee for
Use as a physical distribution channel. The marketspace can be
a great medium to offer goods such as coupons, special offers,
or concert tickets.
The marketspace will soon make it possible and simple for small-
and medium-size businesses to buy products online either through
a shopping metaphor or through an EDI metaphor because open systems
such as the Internet will make online purchasing available to
a much broader set of companies at lower costs and with broadly-accepted
Suggestion #19. Small and medium-size businesses should investigate
the possibility of using the marketspace to buy their products.
Work with your key suppliers to build awareness and understanding
of the benefits of such an arrangement.
There are many books you can read on purchasing online and we
will not try to cover this subject in detail in this paper. However,
we would like to elaborate on the key value levers associated
with online buying to help you decide which ones are of interest
to you: Lowering your ordering costs by reducing the amount of
paper and people required to process and track orders.
Aggregating fragmented purchasing practices throughout your company
to gain added buying power with suppliers. Capturing value from
suppliers by creating a more efficient market for your purchases
through real-time comparison shopping.
Lowering inventory-carrying costs through an automatic reordering
Working more closely with key suppliers to help reduce the total
business process costs from raw materials (in their shop) all
the way to finished products (in your shop).
Creating more efficient bidding processes for large contracts.
Disintermediating your buying process value chain.
Suggestion #20. Try to create a 'comparison shopping'
environment for your non-critical purchases by signing up many
competing suppliers to your marketspace purchasing system. That
way, you can compare prices very easily (even automatically) from
suppliers around the world and drive the price of your supplies
down. You could even create a flexible buying system where you
have no long-term contracts with any supplier and always pick
from the supplier with the best price on any given day. This
type of system is most applicable to non-critical supplies.
Suggestion #21. For critical supplies, use online buying to create
closer working ties with your suppliers and work together to remove
costs in the total business process.
Suggestion #22. An online purchasing system can do much more
than just help you buy supplies. It should help you track usage,
calculate optimal order quantities, track inventory, reorder supplies
automatically, and interact with your accounting and billing systems.
It is up to you to decide the level of value added (and associated
cost of course) you require.
Reengineering key processes
Use of the marketspace will also allow you to easily and inexpensively
reengineer key business processes. Of course, this capability
is not unique to the marketspace because you can also use closed-systems
solutions or even outsource some of your computing needs to reengineer
some key business processes. However, these solutions can have
significant drawbacks such as high cost, high technology risk,
and low portability. Using an open system such as the Internet
can alleviate these drawbacks.
How can you reengineer key processes?
The idea of reengineering is simple: You streamline communications,
coordination, and work processes to cut costs, improve quality,
and/or improve timeliness. The marketspace will allow you to easily
and inexpensively create new communications, coordination, and
work processes, in at least three ways:
Enhance your internal communications. For medium-sized companies
and loose organizations of people (a charitable organization,
community action group, or university) communications and coordination
can be a problem, because of high cost or lack of central coordination.
Using the emerging marketspace, these types of communities of
people will be able to replicate the sophisticated communications
structure of larger organizations cheaply and easily. Think of
this as simply creating communities of interest inside your organization
and creating an infrastructure--a 'virtual organization'--
that allows them to meet in the marketspace.
For example, how can a university cheaply and effectively connect
students, professors, alumni, staff, and all of its information
into one virtual organization? This is a difficult challenge
because students are constantly changing and alumni are spread
across the world. An elegant solution to link all these people
together would be to use the Web as a communication platform.
The Web is a global network that can easily be customized to
fit the university's needs. It can include private areas available
to certain people as well as public areas available to everyone.
The potential savings to the university of having students apply
online, register online, apply for jobs online, receive newsletters
online, and donate money online can be significant. This virtual
organization metaphor can allow the university to reengineer every
process it performs into one open platform. This would add a
lot of value for students and drastically reduce costs for the
university. Furthermore, a large portion of the costs of this
type of system could be shouldered by the individuals (students
and alumni) and not the university.
Suggestion #23. Organizations can leverage the marketspace to
create a virtual organization cheaply and effectively. This is
useful for organizations that: Can't afford or don't need dedicated
closed systems solutions.
Want to push the cost of access of the virtual organization to
the individual users.
Already have a marketspace presence and want to extend it (for
very little additional cost) to help them run their business better.
Tap the world's resources. The marketspace will allow organizations
(big and small, loosely or tightly coordinated) to extend their
internal networks to be able to tap the power of the world's resources.
There are three main Levers of Value associated with this: Provide
the organization with broader access to information, competitors,
consumers, and business partners.
Unify the different information feeds to and from the company
under one platform, replacing dedicated hardware and software
from each information vendor. This unification would reduce training
and support costs and increase information compatibility across
Allow the world to come to you.
Going back to the university example: Now that every student
and professor (and most alumni) are connected through the marketspace,
it allows them to access all of the marketspace through the same
platform and same interface. Without having to learn anything
new, the university community can do research online, publish
papers around the world, and access all sorts of different information
providers that until now required separate dedicated systems.
One of the key value-added aspects of the marketspace is the fact
that you can leverage it to reengineer your internal business
processes and use it to allow the world to tap into those resources
at the same time. For example, not only can the university use
the marketspace to provide information about its courses to students,
but it can also provide access to this information (at a different
level of detail and/or functionality if it so chooses) to anyone
in the world. The ability to leverage content both internally
and externally through one platform can allow your company to
easily publish information intended for audiences ranging from
one person (say, the CEO's information platform) to many millions
(your home page) using the same process.
In effect, the marketspace allows you to leverage content to any
level of customization you choose.
Create your own world of resources. The marketspace allows you
to tap into the world's resources--and create your own world of
resources. You can do this by standardizing and customizing those
resources. Standardization can allow people in your organizations
to easily communicate ideas, requests, and information across
functions and geographic boundaries while customization can allow
your company to create information tailored to the needs of every
person inside and outside of your organization.
For example, standardization of your marketspace would be an area
available to all your employees with standard document formats
for major business purposes (such as hiring requests, new business
proposals, break-even analyses, and project tracking and updating);
an area for your customers with standard feedback forms, service
requests, billing inquiries; and an area for the press with standard
question forms. Of course, these forms would automatically be
sent to the right people. Instead of having to ask who to talk
with to accomplish this task, people would simply have to define
what they want to accomplish and the standardization would take
care of it for them. The idea here is to quickly direct all of
the communities of interest you interact with to the right areas
for any communication, coordination, and business process issues.
The value added is that formats in which people can easily communicate
reduce organizational confusion and the paper trail.
With the level of customization possible in the marketspace, you
can easily create editorialized guides for each type of job in
your organization, and for key individuals and communities of
interest inside and outside your organization. For example, you
could have one home page (and a set of subsequent pages) for your
salespeople, one for your accountants, one for your PR people,
and one for your CEO. Each set of pages would contain the Web
services used most often by these people as well as easy-to-use
graphical front-ends to corporate information services.
What tools are available?
There are many communication vehicles you can leverage in the
marketspace: Electronic mail allows you to easily communicate
with individuals or groups of people. Rich format e-mail, such
as the one supported by the Microsoft Network, allows you to easily
transfer complex files and direct people to specific areas of
the marketspace through 'links.' Think of links
as the best word-of-mouth advertising vehicle ever. Make the
'link' to your marketspace cross the world and
do the work for you!
Bulk e-mail will become the cheapest source ever of one-to-many
broadcasting. Learning how to leverage this well will be a crucial
part of your success in the marketspace. Here are a set of rules
you should follow:
Add as many names as possible to your different lists of communities
Learn as much as you can about each person in those lists, as
unobtrusively as you can.
Send e-mail only to people who want it (ask for people's consent
before you send them e-mail and give users the option of not receiving
any more e-mail from you).
Add value to your communities of interest: bulk e-mail should
be customized to people's interest, the offer in your e-mail
should be irresistible and not available elsewhere, and people
should thank you for receiving your e-mail. Remember, whenever
you send what a customer will consider junk e-mail, you have just
lost that customer forever.
List servers allow you to send information to a large number
of people without manual intervention. They are ideal for dissemination
of newsletters and automatic responses to users' requests.
Electronic forms are ideal for collecting information about customers,
fulfilling specific requests, and standardizing processes. Chat
rooms can be used for private meetings, brainstorming sessions,
or large community meetings.
Published environments created by the latest Internet publishing
tools allow you to leverage the multimedia aspect of the marketspace.
While these environments can require more costly and time-consuming
development and upkeep, they are ideal if you want to leverage
or create a strong brand equity in the marketspace. Bulletin Board
Systems (BBS) are areas where individuals can leave posted messages
on a more permanent basis. They are an ideal medium to organize
and store information, create threaded conversations to collect
many people's feedback on a topic, and offer products and services
in a non-intrusive way. How can you enhance productivity?
The World Wide Web can help your managers, salespeople, and staff
significantly increase their effectiveness and efficiency.
Imagine a service that offers your managers a home page for the
day. It offers up-to-date news on your company, competitors,
industry, and area of expertise. This service would be integrated
with all your other computer tools and will use intelligent agent
technology to automatically provide relevant information about
your work without you spending a lot of time looking up information
for the daily updates.
Customized home page for your day. Every business day, you would
receive a summary of all the headlines for your company, industry,
and area of expertise organized according to your interests and
based on the activities of your day. Not only will you receive
the latest news on your company, the industry in general, and
marketing--or whatever your job is--but you will also receive
stories related to the activities you have listed in your computer
schedule. For example, if you have a trip to Houston, you will
receive the 5-day weather forecast for the Houston area and flight
options should you have to make a last-minute change. If you
are meeting with a company, you will receive a list of recent
articles about that company and a chart of the stock price. Naturally,
there will be a host of hot links to related articles, services,
Web sites, forums, online events, and so on. The key point is
that you will not have to spend a lot of time looking up the information
most relevant to you.
Integration with your desktop. Imagine the ability to select
a word in your favorite word processor, highlight it with a right-mouse
button and automatically send a query to the Web for several types
of information options on the selected text. The types of queries
could include articles, weather, flights, stock price, and so
forth. This information could then be static or programmatic.
For example, in your favorite spreadsheet program, there could
be an option to create a hot link to the latest stock quote so
the spreadsheet has the latest price whenever it is updated.
Improved communication and coordination. You can use the Web
as a central depository of corporate information, employee discussions
and opinions, and customer information. The inherent advantages
of doing this are that employees only have to be trained on one
technology, and finding information on an 'intranet'
is much easier than on a corporate WAN.
There are many potential examples of Web-based tools that can
be used or developed to streamline business processes. These
tools can be applied to the three Targets of Value by reengineering
key customer development and relationship processes, streamlining
purchasing or paying functions, and creating improved efficiencies
and team work internally.
There are two main opportunities to capture value from these reengineering
possibilities: Facilitate them. The biggest opportunities right
now on the Internet are for business-to-business products and
services. Furthermore, businesses tend to be much earlier adopters
of new technologies than individual consumers. The companies
that build useful business technologies for the Web will capture
Exploit them. Use the Web to reengineer your key business
processes to save money and run your business better. For instance,
consider adding an advertising tracking system, a consumer behavior
system, and a management information system to your existing Web
At a fundamental level, we are suggesting that you will be able
to use the Web as your internal information and communication
infrastructure. This will help reduce your IT costs, enhance
productivity, and ensure you are always on the cutting edge of
technology because your corporate network will evolve as the Internet
When you are creating your marketspace strategy, do not restrict
yourself to a revenue generation model. The Web is indeed a great
revenue-generation tool but it is much more than that: The Web
can and will fundamentally alter your internal business processes,
your cost structure, and your business partnerships. Go back
to the three Targets of Value and make sure you are evaluating
all the possible ways to create value.
Restructuring the game
The value of market efficiencies. Using the marketspace, you
can create more efficient markets, therefore lowering costs in
the value chain. There are many opportunities to restructure
industries that are fragmented, information intensive, and transact
standardizable products or services.
The value of a super-packager. The marketspace can allow anyone
to easily become a super-packager or to create what some people
call a 'virtual mall.' The key value potential
of the super-packager is to create a strong brand equity and to
leverage it to gain passive income by capturing value largely
through other people's efforts. The key to success as a super-packager
is to provide added value to your tenants as well as to your customers.
The value you can provide to your tenants includes: attracting
a large community of interest to your marketspace because of your
brand name; helping tenants with their technical, design, or business
issues; linking tenants together and/or with other key communities
of interest (for example, their suppliers) in a value-added way;
and using the aggregated group to gain market power with access
providers, marketspace reviewers, and other key marketspace communities.
The downside of super-packaging is that it can be a tough sell
to get tenants on your site. Indeed, most branded content providers
will resist the subjugation of their brand to yours, unless you
can create enough momentum behind your marketspace to attract
them. Use three methods to build a large group of tenants:
Go after the smaller, non-branded content providers to create
momentum behind your site.
Actively market your site to end customers to create a large
Consider offering strategic content providers the 'anchor'
positions in your mall (free advertising, prominent positions,
or better income-sharing deals).
The economic model for super-packagers is not yet well-defined.
Should super-packagers charge a large flat monthly fee or get
most of their value-added through a variable revenue model (%
of sales online for example) or a combination of both? If you
are considering being a super-packager, consider three questions
to help you make this decision: What is your cost structure
and how can you best cover it with the least risk?
What value do you provide and is it mostly 'fixed'
value (such as consulting advice) or 'variable'
value (such as transaction processing)? How much would content
providers have to pay to replicate the value-added you are offering
them?The value of the information enabler. The marketspace has
well over one million separate areas of interest and this number
is growing every month. Someone can create a lot of value by
offering a series of produced guides for common requests and interests,
or intelligent search agents. The key lever of value to be created
here is advertising.
The owner of the most popular information enabler will be able
to collect high-level user usage information across all the different
areas of the marketspace (who uses what areas of the marketspace,
when?) and therefore gain a solid understanding of users' overall
marketspace experience (contrast that to the information content
providers will have, which will be limited to understanding usage
in their own area of the marketspace).
Furthermore, the information enabler will become the 'front
door' to the marketspace. This has tremendous value
for that enabler because it allows the enabler to charge the largest
possible advertising rates in the marketspace and to be able to
shape, by the power of suggestion, the user's total marketspace
experience and usage pattern.
The value of comparison. One great way to add value for the consumer
is to provide comparison shopping. For example, XYZ could provide
its consumers with a list of competing products for every item
that it sells to facilitate the user's total shopping experience.
Why would XYZ ever want to do that? It would make sense to do
so if the advertising revenues XYZ derives from its competitors
are superior to the lost revenue from its own sales.
An important point about comparison shopping is that it will create
more efficient markets, because consumers will become more educated
which might lead to increased price competition and value destruction
in many industries. Therefore, most branded product, services,
and information providers may not offer such services.
However, it is important to note that this type of service, which
adds so much value to consumers, will certainly emerge from third
parties. Branded product, service, and content providers might
therefore be better off preempting third parties from providing
comparison shopping services because the provider of the service
will create significant market power for itself and will be able
to negotiate from a position of power.
Suggestion #24. Comparison shopping services will probably emerge
in the marketspace. These types of services will make it easier
for consumers to compare prices and might lead to price erosions
in many industries. At the same time, the provider of the service
will hold significant market power compared to the providers of
branded products on the service. Your company should carefully
consider whether it wants to become a provider of such service
itself, or sign up as a provider on such a service.
An example might be useful here. Imagine an online service where
you could, in five minutes, compare all the available cars from
all the dealers in your area in your price range and category.
The service would simply prompt you to enter your price range,
car category (sports, family, or luxury), and preferred model
and would quickly offer a range of possibilities and pick the
lowest possible prices for each model.
This type of service would drastically reduce shopping time and
increase one's ability to comparison shop for car buyers. The
implication is that consumers would become much more savvy about
buying cars. Indeed, this service, if implemented on a wide scale,
could easily create a lot of pressure on car dealers to reduce
In summary, we hope you now have a good sense for what kind of
value you can create with the emerging marketspace. It is important
to note that some of these levers cannot yet be utilized because
of technical or technological barriers. You of course need to
be aware of this and implement your efforts accordingly. Our
goal in this section is to help you systematize your value thinking
and expose you to as many potentially viable ideas as possible
so you can start planning ahead.
The marketspace can provide value to you in many ways: selling
products/information/services, selling advertising, selling subscriptions,
disintermediating your product sales and purchases, cutting costs,
reengineering, and restructuring. What is going to be your value-creation
Back to top
3. What are some practical guidelines to follow?
Ask all your managers to devise a marketspace strategy for their
function. Make sure they examine every target of value and every
lever of value. To facilitate this process, ask them to start
by filling out the matrix below:
Leveraging communities of interest
Buy And Sell Products
Buy And Sell Advertising
5. Marketspace value creation matrix
Carefully prioritize your marketspace initiatives. Because the
marketspace is gaining such popularity with the media, many businesses
are rushing to implement marketspace solutions. Probably the
most important role you can play as a senior manager is to help
your organization prioritize and stage its entry into the marketspace.
Two tools should help you do this: first, the Levers of Value
pyramid which suggests a staged approach beginning with leveraging
communities of interest. Second, the prioritization matrix below
which should help you compare the list of marketspace proposals
your company is considering.
When considering the difficulty and risk of a project, consider
the required investment, time to payback, competitive intensity,
threat from substitutes, and technological risk. On the value
side, consider the economic upside potential net of cannibalization
(both short term and long term) as well as the potential strategic
value (in terms of competing well and creating network externalities)
of the proposals.
6. Prioritizing your marketspace efforts
Consider using a staged approach. Most companies make large,
intermittent investments in technology. Consider a different
approach for your marketspace incursion: make smaller investments,
more often. This will benefit your company because it will both
minimize the initial risk of your marketspace venture and ensure
you keep pace in a medium that will change more rapidly than any
other before. If you think computer technology moves rapidly,
wait until you see the innovation rate in the marketspace!
7. A staged investment approach Learn more about the Internet
as it changes. Read as many articles and books (online and offline)
as you can about the marketspace. This medium is in its infancy
and no one person or group of people has all the answers.
Learn netiquette! Knowing customary courtesies and communication
traditions can help you more effectively communicate your message
to your target audience.
Consider outsourcing for some Web services. Consider outsourcing
your technical and design needs so you can concentrate on your
core competency: creating value using the marketspace. If you
already have the required skills in your organization, consider
bringing them together into one marketspace consulting division.
Participate in the marketspace community. Get involved in the
marketspace community and help to shape its future. Share ideas
with other cyberbusinesspeople. Observe other successful cyberbusinesses.
Carefully investigate and learn from companies doing good work
in the marketspace.
Just as there are no magical recipes to make money in the real
world, there are no such recipes for the Internet. Our goal is
not to create recipes for you but to help you think about what
the right ingredients for success are. We hope this paper was
useful to you.