Infomediaries have a unique ability to exploit the Internet’s most salient characteristics.
There are three acknowledged facts about the Internet’s effect on commercial activity.
First, it shifts power from sellers to buyers by reducing the cost of switching suppliers (the next vendor is only a mouse-click away) and freely distributing a huge amount of price and product information.
- But buyers can feel overwhelmed by this new power in their hands. They want one-stop-shopping: information they know to be accurate, and advice they can trust. Sellers are in no position to offer disinterested advice. That opens up opportunities for a third party: an infomediary.
The second fact is that the Internet reduces transactions costs and thus stimulates economic activity.
- A banking transaction via the Internet costs one cent, compared with 27 cents at an ATM or 52 cents over the telephone. Processing an airline ticket on the Internet costs $1, compared with $8 through a travel agent. But such savings may be available only to large businesses, such as banks and airlines, that reach customers directly. Infomediaries, by linking buyers and sellers via the Internet, can achieve similar savings for both in markets where they might otherwise miss out.
The third fact is that the speed, range and accessibility of information on the Internet and the low cost of distributing and capturing it create new commercial possibilities.
- Infomediaries, sitting in the middle between buyers and sellers, are uniquely placed to collect information, add value to it and distribute it to those who will find it most useful. They can create a virtuous circle by using information to attract more buyers and sellers, and learning more about them in the course of their business transactions. For example, infomediaries such as Chemdex are trying hard to gain a dominant share of supplier listings because that is likely to attract a dominant number of buyers.