The New Infomediaries (1997)

Will they dominate the networked economy? Agents, proxies, and filters whose first allegiance will be to customers and to the information they guard Their challenge? Managing the interplay between trust and value received Received wisdom has it that there are two fundamental truths about the networked economy. First, that every networked business is ideally positioned to capture information about its customers - information that represents the main source of value in this economy. Second, that any players specializing in customer information that may emerge will naturally serve vendors, not customers. We take issue with both of these assertions. Our view is that firms established to capture customer information will serve customers rather than vendors. They will enjoy low capital costs and high ROI - the hallmarks of an emerging category of business that we call infomediaries. As its activities start to generate increasing returns, we predict this category will become more and more concentrated, with rising entry barriers excluding mature and new players alike. While infomediaries will emerge first in networked sectors of the economy, we anticipate that they will eventually expand into physical business transactions too, thereby transforming the competitive landscape for traditional as well as networked players. The scale of this transformation could be formidable. A concentration of large infomediaries in the United States could account for as much as $10 billion in revenue a decade from now, representing market capitalization of at least $40 billion. Players in this new game will find that success depends on their ability to build strong bonds of trust with their customers. While trust has always been important in business, it will become even more so in the online world, with its expanding choices and declining switching barriers. In the past, information about customers has been taken for granted; in the future, it will have to be purchased. Indeed, if firms fail to establish trust-based relationships with customers, it may not be available at any price. Few companies appreciate the scale of the challenge. Many still seem to take trust much too lightly. Witness America Online's announcement in summer 1997 that it would sell its members' telephone numbers to telemarketers - a decision that was rapidly rescinded after members protested. As consumers become more keenly aware of the value of information about their own tastes and actions, traditional players will have more difficulty gaining access to it. This will enable new entrants - infomediaries - to become customer information specialists in a new information-intensive economy. We define infomediary as follows: infomediary a business whose sole or main source of revenue derives from capturing consumer information and developing detailed profiles of individual customers for use by selected third-party vendors. The emergence of infomediaries will be driven by two key developments. In a networked economy, customers' ability to capture information about their own behavior and preferences implies that they can also choose to withhold this information from vendors that seek it. At the same time, the sheer accessibility of such information has raised a host of concerns about privacy. These two shifts in the nature of economic activity will lead, we believe, to a state of affairs in which companies will negotiate with customers to gain access to information about them.(*) This bargaining process will create a need for infomediaries that can handle negotiations and payments and add value by the way they process customer information. The business model The infomediaries we see today fall into the vendor-oriented category. In other words, they use customer information to aid vendors in targeting products, services, and promotions to consumers in competitive markets. Vendor-oriented infomediaries Two basic types of vendor-oriented intermediary have already appeared on line: Audience brokers capture information about users across multiple Web sites to help advertisers reach the most appropriate audiences. …