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Wrestling with middlemen

Wrestling with middlemen

Although nobody is questioning the Internet will change the role of the middleman in the retail world, exactly what shape resellers will take online is still the subject of great debate.

Out of the five companies participating in what was billed as "The Business Design Debate: Reshaping the Way We Do Business in the 21st Century" held recently in London, each company had its own vision of how the Internet would affect its business model.

But they all agreed on one thing - resellers who traditionally lie between the company and the end user may face the greatest changes in the Internet economy.

"Banks in the US are offering free PCs to stay in banking, and retail companies are losing money to get online, so what is the right strategy for leadership in this business model?" asked Andrew Lees, director of emerging markets for Microsoft's UK branch, which sponsored the event.

Microsoft, for example, has a history of reaching customers through resellers, but the Internet is forcing companies to come up with innovative models for new business.

Companies such as letsbuyit.com have based their business model around the potential disappearance of the brick and mortar middleman.

Letsbuyit.com puts products online for users to purchase, and as more users agree to purchase the item, the price drops because of the quantity involved.

"With the Internet, a rug seller in Afghanistan could sell rugs directly to the consumer, completely cutting out the middleman," Soames Hines, global marketing director for letsbuyit.com, said.

However, before this scenario becomes common, certain fundamental technology and societal changes need to occur, according to John Molyneux, chief executive of online business directory Scoot (UK).

"At the moment, it's doubtful that the seller in Afghanistan would even have a PC, never mind an ISDN line," he said.

"But eventually, it will happen, and the customer will be king."

Even companies on the cutting edge of the Internet retail revolution face a rough road into the future. For example, though letsbuyit.com represents a potentially more efficient and lower-priced reseller model than consumer bricks-and-mortar retail chains, it has found it difficult to woo some manufacturers into its business model.

US shoe company Nike, for example, won't do business through the site, because it wants complete control over the way the product is presented.

Other manufacturers have problems with the letsbuyit.com model because the volume discounts it offers may drive end users away from traditional resellers.

"About half our manufacturers are very nervous about doing business with us," Hines said. Some resellers have even threatened to stop buying from manufacturers that do business with letsbuyit.com.

US-based direct sales giant Dell Computer would also "politely turn down" an offer from letsbuyit.com, but for different reasons.

"We want to have control of the things offered on top of the hardware, such as service agreements," said Julian Phillips, head of alliance partner strategy for Dell.

Online companies also have a problem presenting an identity to end users, who view them as faceless giants. "The best CRM (customer relationship management) tool of the last 100 years was the corner shop," Phillips said.

"They know exactly when you came last, what you bought, and more than likely, what you are going to buy the next time." If companies can learn about their customers and make the visit enjoyable, they can be successful, he added.

One thing all the executives did agree on is that a big challenge for online businesses is knowing when to embrace new technology.


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