Businesses that have the means to process
transactions and fulfill orders over the web are e-commerce businesses.
E-commerce is not a new trend. Businesses have long performed
transactions electronically using Electronic Data Exchange (EDI)
mechanisms. However, the potential of Internet, most notably the WWW, as
a medium to carry out e-commerce has just begun to be realized. For
once, even SME's stand a chance to compete with giant corporations.
Specifically, e-commerce replaces the manual business processes with
their automated electronic equivalents to accelerate ordering, delivery
and payment procedures. This electronic paradigm has saved businesses
billions in operational and inventory costs. For consumers, web acts as
a cost-effective information arbiter. Much like the traditional business
environment characterized by industries and markets, e-commerce also
comes in various flavors or models: auctions, storefront, horizontal and
vertical portals, bartering, online trading, entertainment and
automotive sales, click-and-mortar businesses. If we look closely at
each of these models we realize that e-commerce has brought buyers and
sellers closer by directly connecting them and, in the process,
bypassing intermediaries such as distribution outlets, brokers, dealers
and agents. Since e-commerce over the Internet is a relatively newer
phenomenon, there are still some misunderstandings as to its role. One
such misunderstanding is the role of the traditional intermediary or
middleman in presence of e-commerce.
The role of an intermediary or the middleman has been
well defined in a traditional business environment. An intermediary, for
our purposes, is any person or agency that acts on behalf of both the
buyers and the sellers (manufacturer) so that the collective benefits of
all the parties are maximized. As such, real estate agents, travel
agents, wholesalers, retailers are all intermediaries. Take the example
of a retail outlet. Retail outlets are the last stage in the
distribution channel. Their functions were well defined and ranged from
providing information to concluding transactions. However, with the
advent of WWW as a global platform for pursuing business activities and
consequently the emergence of e-commerce has provided the customers a
cheaper alternative to retail outlets and other forms of intermediaries.
Customers have discovered that an online purchase is often more
lucrative to their wallets and fits well within their monthly budget.
Furthermore, the Internet fulfills the consumers' need for reliable and
timely access to information in a more cost-effective manner than a
middleman does; the cost of obtaining information using middlemen is one
of the reasons for a product's high price. With this scenario in mind,
are we about to witness an end to the traditional intermediary? The
answer would be an equivocal NO!
Most of the newbies mistake e-commerce as a virtual
marketplace. However, we need to think of it in terms of a tool that
aids in streamlining business processes to reduce transaction costs
benefits of which are ultimately passed on to the consumers. The purpose
is to improve productivity, rather than replace the traditional forms of
agents. There are various reasons for this:
A) LIMITED HUMAN CONTACT
Traditional intermediaries survive by maintaining
close relationships with their customers. They know that competing
agents — because of the relatively homogeneous nature of the product
that most of them offer — can easily out-compete them. For example,
all travel agencies provide a similar product; it is most often the
quality of the customer service that determines the bottom line.
Electronic commerce, on the other hand, has
substantially removed the human component. This has two implications.
First, it is no longer possible to form personal relationships with the
consumers. Second, the psychological impact of not knowing the other
party involved in the transaction is enough to make even the most ardent
supporter of e-commerce think twice before actually placing an order.
B) SECURITY AND PRIVACY
Buyers generally do not trust content from parties
that they do not know. And neither should they. Internet has been
successfully used as a gateway to propagate malicious viruses and to
sabotage online systems. A credit card number sent over the wire can
easily be intercepted before it reaches the intended party. The Internet
has simplified impersonation and provided an easier and, often less
risky, means of conning buyers. Identity fraud is all too common on the
Internet. The legitimacy of a traditional intermediary, on the other
hand, can be questioned and verified.
C) NO CENTRALIZED CONTROL OVER THE INTERNET
The Internet is publicly owned. Anybody with $35 can
purchase a domain name and setup a commercial web site without having to
worry about proving credentials. This has become even easier with the
emergence of escrow services that make it possible to avoid the
cumbersome process of obtaining a merchant account for electronic
transactions. From the perspective of small to medium sized enterprises
(SME's), this is a clear advantage. However, this advantage has also
been abused to con unsuspecting buyers. According to US FBI, 80 percent
of the computer crime that it investigates involves the Internet .
Even though bodies do exist to monitor Internet and
countries have amended their consumer rights protection legislation (US
has amended its consumer protection rights act to adjust to transactions
on the Internet) to safeguard the buyers' interests on the Internet,
authorities often find it hard to enforce such laws. The root cause for
this is not the negligence of law enforcement but the difficulty in
imposing such provisions over the Internet, over which no particular
country, market, business or agency has sole jurisdiction. In absence of
a 100 percent enforceable law to protect consumers in the cyberspace,
intermediaries would be responsible for providing the consumers access
to genuine online merchants.
D) COSTS REDUCED BUT FOR WHOM?
The minimization of the inventory requirements,
paper-less transactions, and automated records keeping are some of the
benefits that e-commerce touts of. However, these are all benefits to
the businesses. The costs to the consumers, on the other hand, have just
changed facets. The cost of purchasing internet connection hours and
spending time online in search of information are two of the most
consequential examples of both implicit and explicit costs to the
consumers. Such costs are highly immaterial in developed countries where
access to the Internet is virtually free. However, in Pakistan and the
rest of the third-world countries, these expenses go heavy on the wallet
— an unlimited connection sells for around Rs. 1000-1200, while only
5.1 percent of the urban population earns over Rs.10,000 in a month (SBP
FY 2000 statistics). A simple mathematical calculation should prove my
E) WEB CANNOT REPLICATE SOME OF THE INTERMEDIARY
Web may be a great venue for commercial activities
and a source for reaching to the highest number of customers.
Nonetheless, there are some functions that simply cannot be performed
over the WWW. Take the example of an automobile purchase. Before a buyer
actually buys an automobile, he or she needs to test drive it. There are
other formalities such as insurance and registration requirements that
are much too complex for the average consumer to figure out and should
only be handled by trained professionals. Such functions, obviously,
cannot be performed online.
F) INTERNET, ITSELF, WOULD REQUIRE TECHNICAL
The Internet is a vast array of computers, networks
and nodes interconnected using devices such as routers, bridges and
gateways. In a nutshell, it is quite complex to manage. As we travel
down further into the digital age, intermediaries would also be required
to take on the task of providing technical assistance to the consumers.
Additionally, WWW is just a web of sites, some of which are genuine
while others are just attempts by con artists to make a quick buck.
Thus, eventually there would be a need for technical intermediaries to
filter out the junk and provide the consumers with access to online
merchants that can be trusted. Attempts by IT pioneers in the form of
third-party digital certificates and signatures for e-commerce is a step
in that direction.
It is quite evident that the existence of
intermediaries is not threatened by e-commerce. In fact, most of the
virtual malls on the web are a form of intermediary anyway: Amazon.com (www.amazon.com)
is a reseller that integrates with several publishers to offer its
customers the best deals possible. Rather, it is the present role of the
intermediaries, which is up for a major makeover. The intermediary of
the future would be an infomediary who would supply the customers with
reliable and timely information. We can think of an infomediary as being
a traditional intermediary's electronic counterpart. The infomediary
would operate by forming numerous partnerships and providing value-added
services to its customers. It is the value addition that would actually
determine the existence of intermediaries, and not the emergence of
e-commerce itself. Infomediaries have already started to make their
mark: Yahoo! (www.yahoo.com) and Travelocity (www.travelocity.com) are
examples of the two largest infomediaries on the web today.
The intermediaries of the future would also have to
switch from advocating for both the buyers and the sellers to watching
out more for the customer. As the web matures into a more viable venue
for commercial ventures, intermediaries would have to take on the job of
cyber patrolling to make the web a safer place. Currently, organizations
such as Internet Engineering Task Force (IETF) and ICANN carry out
verification of merchants using procedures that are quite inadequate.
The intermediaries, in their new role as an infomediary, would have to
assume such responsibilities so that trust can be maintained with the
customers. Intermediaries would also have to mimic what consumer rights
groups and activists have done for the non-wired consumer; they would
have to force the governments to adopt new legislation to curb cyber
crimes and protect the innocent.
The preference of the consumer is probably the best
friend of a traditional intermediary. For example, Priceline (www.priceline.com)
is an online travel site that promises to offer its customers the best
air ticket deal that their money can buy. However, studies by research
firms such as the Gartner Group and IDC have shown that most consumers
still prefer to deal with a travel agent (an intermediary) rather than
to negotiate directly with other travel related entities, such as hotel
bookings, car rental and so on.
Much of the power of an intermediary comes from the
fact that they are closer to the customer than any other entity of the
distribution channel. They are aware of the needs and wants of their
customers. Thus, most of the times they can accurately forecast the
future demand. They are also aware of the customer's buying behavior,
preferences and spending patterns. At present, while such information
gathering remains the sole domain of market research firms, the future
would demand infomediaries to also provide such information to the
In the end, it is necessary to emphasize that
e-commerce would have a significant impact on the nature of the
intermediaries. As I have already discussed, there would always be a
need for intermediaries. It is just their functions that are up for
change. A phenomenon that can cause change at such a rapid pace is
seldom insignificant. As such, only the intermediaries who can
successfully tap into the opportunities provided by e-commerce would
survive and become infomediaries of the future.