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  •   .COM LIVE
    Hosted by Leslie Walker
    Washington Post Columnist
    Thursday, February 11, 1999
    Leslie Walker
    ".com" columnist Leslie Walker.

    Welcome to ".com Live." I'm your host Leslie Walker. Every other Thursday, I'm online from 1 to 2 p.m. Eastern to give you an opportunity to talk directly with entrepreneurs, visionaries and online business people on the way the Internet is changing the world of commerce.

    Read my .com column on the next big Web battle the one for our highly-valued consumer-preferences data and then the transcript (below) of a live discussion with John Hagel III.

    McKinsey & Co. executive John Hagel believes this will be the defining battle of the Information Age and says that we, the consumers, will win but we can't do it alone.

    In his new book, "Net Worth," Hagel says the chaos on the Internet is a breeding ground for "infomediaries," automated consumer advocates that with our permission will take control of our personal World Wide Web profiles and bargain on our behalf with online merchants.

    The transcript follows:

    Leslie Walker: Welcome, John. Why don't we go right to the questions. Can you start perhaps with telling us why you believe these "infomediary" agents will spring into existence?

    John Hagel: Infomediary agents will spring into existence because the Internet for the first time provides us with the tools both to develop rich profiles of our activities and to deny access to these profiles to third parties unless we choose to provide this information - this creates a bargaining situation where we need to receive tangible value before we release information vs. physical markets where a lot of info is available to vendors simply because we purchase products with a credit card

    Kansas City: I don't understand how these agents would work? How would they know how to conduct a negotiation on my behalf?

    John Hagel: At the beginning, you would have to help "train" the agent by providing information that would help the agent make the search more focused but, over time, the agent would watch the selections you make and be more insightful about what really is important to you so you would have to provide less and less information to get the value of the agent.

    Washington dc: I do not want my personal information out at all. I therefore lie. My address is an empty lot and I was born in 1901. If everybody does this won't it skew their information so bad they will quit asking for it

    John Hagel: The choice about what information to provide to whom is an intensely personal one. When there is real value that we receive in return most of us will provide at least some information about ourselves. One example is frequent flyer programs where we will insist that airlines take information about ourselves because we receive very tangible value in return. The infomediary helps to ensure that we receive more value in return for the info we provide while at the same time leaving it to the discretion of each individual whether or not to provide the info.

    Leslie Walker: Quite a few shopping "bots" have popped up on the Web, comparing prices across many different sites. Can you envision the companies who created these intelligent shopping agents becoming the consumer "infomediaries"?

    John Hagel: Certainly the shopping "bots" are important elements in the infomediary tool kits and could provide the basis for an infomediary business. The key question is how explicitly the owner of the shopping bot services is using them to develop profiles of the people who use them and how explicit the owner is in working on behalf of the customer to use these profiles to extract more value from vendors while at the same time protecting the profiles from unauthorized access when the customers want the profiles protected.

    Washington, D.C.: It seemed to me that in "Net Worth" (which I just finished) you were backing off some of your positions in your previous book, "Net Gain" -- such as the idea that a business can best gain credibility, customer loyalty and eventually, profitability, through a virtual community, and that the entrepreneurial-type virtual community is best equipped to function in an age where online consumers will have the power (through the reverse market). Now it seems you're saying it's more important to have already-established clout with customers (like Coca Cola) and supreme marketing capability to act as one of these infomediaries. Between the first and second book, what developments have changed your thinking?

    John Hagel: I hope I'm not contradicting what I wrote in Net Gain. I actually indicated in Net Gain that virtual communities were likely to evolve into infomediaries over time given the trust they build with their members and the rich profiles they accumulate. Net Worth simply indicates there are other potential candidates for the infomediary role and that, for any candidate, the key will be to rapidly mobilize a large customer base to exert negotiating power with vendors which is why this may be an interesting opportunity for certain large companies with a large customer base already in place. The key is whether these companies have developed enough trust with customers to play this role.

    Leslie Walker: I think it might help if you could give an example of a couple things a consumer-oriented infomediary might do that none of today's online services can provide for consumers.

    John Hagel: Some of the things that infomediaries could do would be to cloak the customer in anonymity when they go to visit other web sites and also to "track" where customers go when they visit other web sites. So the infomediary builds a profile of the customer not just when they are on the infomediary web site but when they are on other web sites and at the same time provides the tools to deny access to this information to others unless the customer explicitly authorizes release of the information.

    Leslie Walker: We are more than halfway through our conversation with John Hagel, who is answering your questions from his office in Palo Alto, California. But please keep your questions and comments coming. I will be online until 2 p.m.

    Bethesda MD: What do you think of all these mega-mergers happening online today--and are companies like USA/Lycos or Yahoo going to wind up doing many of the things you write about in your book?

    John Hagel: I have long believed that the Internet would drive very high degree of concentration among businesses - the myth about a level playing field where the smallest company competes on an equal footing with the very largest companies is just that - a myth. So I am not surprised about the mega mergers. Most of them are still driven by the battle to drive traffic or eyeballs - I think the battle is rapidly shifting to the battle for profiles - some very different people might win this battle.

    Hyattsville, MD: John, I like your ideas, but I think we're in for a long wait. Let's get real. Technologically speaking, how long till this really, truly occurs?

    John Hagel: As William Gibson said, the future is already here it's just unevenly distributed. Clearly all the technology is not in place yet to deliver the full range of potential infomediary services. But enough is available (e.g. shopping bots, anonymizer tools) to get started and deliver real value to customers. I think those who wait for all the technology to be in place will be too late.

    Leslie Walker: You write that the Internet represents a historic shift in economic bargaining power from merchants to consumers. A lot of my colleagues are skeptical of this notion. What is it about the new medium that makes you think the changes are so powerful?

    John Hagel: It really has to do with the systematic and extreme effect that Internet technologies have in reducing interaction costs - the amount to time and expense required to search for appropriate vendors, negotiate the best deals and ensure that the value is delivered. In physical markets, for most customers too much time and effort is required to do all of this so we make conscious choices to limit our search, not to bargain as aggressively as we might and to be more lax in enforcing deals when we don't get the value promised. With the Internet, customers can search very easily across a much broader range of vendors, get a lot more information about those vendors and their products and negotiate to get more value. In the end, information is power and customers will have a lot more information to extract more value in the purchases they make

    Leslie Walker: We are more than halfway through our conversation with John Hagel, who is answering your questions from his office in Palo Alto, California. But please keep your questions and comments coming. I will be online until 2 p.m.

    Washington, D.C.: Is it me, or is the idea of "Net Worth" very much referring to relationship marketing, where a company uses incentives and general customer care to gather as much information as possible about its individual customers, and then uses the information to forge a better business relationship with them? What are the differences between concepts?

    John Hagel: The ideas in Net Worth are certainly related to relationship marketing but they go beyond it. Relationship marketing talks about individual vendors developing deeper relationships with individual customers. The infomediary concept suggests that someone can come in between the vendor and the customer, take the customer side and help to ensure that the customer gets as much value as possible from the vendors they deal with and can switch much more readily from vendors that fail to deliver value. Obviously those who take relationship marketing seriously will be in a better position to succeed in an infomediated world.

    Newport News VA: I have read a lot about how Web sites put "cookies" on my computer's hard drives and that worries me a lot. Are they able to use those to track what I do everywhere online? How would these "infomediaries" handle cookies?

    John Hagel: Cookies are files that a specific web site leaves in a visitor's browsers so that the web site can recognize you when you come back - they know that you have visited in the past and some of what you did when you visited. They are specific to individual web sites so one web site cannot use cookies to find out what other web sites you visited or what you did on those web sites. Infomediaries would help customers to block these cookie files when the customers do not want this information to be available.

    Seattle: So you're saying I leave little cyber breadcrumbs at sites I visit, and my identity is protected by the assignment of some number to me. Fine. Won't, in fact, I be assigned several numbers, based on which personae I carry when I surf? I have Internet access through school, two work accounts and Hotmail. Hence, I'll probably have four or more numbers assigned to me, right?

    John Hagel: You might choose to have several identities but an infomediary could help you to establish one consistent identity as long as you establish the infomediary toolkit software on all the computers that you use.

    Mt. Rainier MD: Why should we trust the infomediary agent with our personal data, any more than another commercial entity? I am definitely NOT sold on giving out data about my soc. sec. number, salary, interests, etc. I get too many calls and junk letters as is. And I am more concerned about illegal use of this data.

    John Hagel: This is the key challenge for all infomediaries is to convince you that you should trust them. That's why building an infomediary business is not easy, but also why it could be very profitable once that trust is established. One key requirement will be that the infomediary jealously guards information about you so that you don't get calls or junk letters.

    I'm afraid I'm going to have to sign off now but it has been great to see the interest in the infomediary concept. I'm convinced this will be one of the most significant business opportunities to emerge on the Internet and that it in turn is going to affect virtually all other businesses - especially those who just automatically assume that they will be able to use the Internet to capture more information about their customers as a "free good". Good luck to all of you.

    Leslie Walker: That's all John Hagel has time for today. Sorry he couldn't get to all of your questions. Thanks a lot, John, for joining us and answering so many interesting questions. While you go off to talk to clients about how the Internet is transforming their businesses, we'll be online for a while more. So keep your comments and questions rolling in!

    Rockville, MD: Leslie, what do you think of the new USA/Lycos company? Is is going to be one of the big Internet portals or just another second-rate television property?

    Leslie Walker: The Lycos deal took many analysts by surprise, since Lycos had spent so much time talking to the broadcast networks. But CEO Bob Davis was quite pointed in saying that the only thing a CBS or NBC brought to table was promotional firepower. Davis wanted more than that, because he wants to take Lycos into direct commerce in a big way.

    And if Hagel is right about the power of the Internet, it will be a powerful vehicle for targeted marketing. Barry Diller's Home Shopping Network gives the new USA/Lycos more ability to do direct e-commerce than most of the other large Internet gateways have so far. The biggest challenge, of course, will be whether the little Internet startup can manage the bigger media company it just morphed into.

    We'll see.

    Ft. Myer Heights, VA: Leslie -- do you think Yahoo will merge with a media company?

    Leslie Walker: Yahoo is now the largest online company that lacks an alliance with an offline media company to give it promotional oomph from TV. It may wind up making such an alliance--or just as likely, it could gobble up more online properties. One thing's for sure, with its high market valuation, it will be gobbling again soon!

    I'm not sure, though, that the lack of a TV partner is Yahoo's biggest weakness. Arguable, Yahoo and Amazon have built the two most recognizable online brand names in a few short years. Both did it with little help from traditional media. They are testaments to the promotional power of new media--that word of mouse thing.

    Vienna, Va. : I read a review of your book that talked about how the modern company would "unravel" because of the Internet. Can you explain how and why?

    Leslie Walker: John Hagel has gone, but I read his book and can tell you his thesis about the modern corporation is this:

    Hagel believes the "unbundling" of business will occur because companies today typically merge three functions that Hagel doesn't believe work well together in the Information Age: customer acquisition (think marketing and sales);
    product innovation and development (think creative work), and infrastructure management (think back-end office, tools, and utilities.)

    Hagel foresees most traditional companies literally unraveling as they are forced to spin off these three pieces--or risk becoming economic laggards. He says "infomediaries" will be the customer acquisition champs of the future. That's why he thinks companies that develop these roles will become so valuable.

    Rosslyn, va: Leslie -- shouldn't the washington post spin off its Web subsidiary so its long-suffering editorial employees (and former editors in chief, of course) can get rich like their AOL buddies?

    Leslie Walker: There's a lot of joking among my newspaper colleagues these days about how our employers should spin off their online subsidiaries and sell shares to the public. And it's only partly in jest. CBS executives have said they are weighing a spin-off of their online properties, as have others.

    But there are disadvantages, too. One down side is that if the parent company retains a majority stake in the new media venture, they have to include the money-losing Net company's operating income statement as part of their own. All that red ink hurts traditional companies, which are valued VERY differently in the stock market than Internet firms.

    That's why we saw companies like Disney and NBC take minority positions in Infoseek and SNAP, with options to increase their stake later if the Net ventures take off.

    College Park, MD: Each day, it seems, there is a huge new deal involving unfathomable amounts of money. It's amazing how it makes me feel like I just don't get it. I know this is a big paradigm shift, but in the middle of this tempest, it's hard to put meaning on it all ...

    Leslie Walker: I think John said it well earlier when he talked about the "myth" that the Internet levels the playing field. He and others believe the law of increasing returns pays increasing dividends to companies as they scale, or grow bigger, in the online world. It makes it increasingly hard for the smaller players to keep up. This flips the traditional economic theory of diminishing returns. And it is what the merger fever in Internetland is about today.

    Leslie Walker: That's all for today, folks. Thanks for stopping by and sending in so many thoughtful questions. Thanks, too, to John Hagel for joining us from California. We'll be back in two weeks for another edition of .com - Live. Cheers to you all!

    © Copyright 1999 The Washington Post Company

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