Natural market forces that lead to consolidation and the law of twos happen even faster on the Internet. The "best" products are anointed, information is rapidly distributed, and customers (who face no geographic limits) seek out these "hot" places. Moreover, as brands become familiar, consumers increasingly seek them out because they have credibility.



Unique to the Web is something which may be called a "hub-and-spoke strategy" . This also facilitates the law of twos: A hub-and-spoke strategy is the increasingly common arrangement where a major retailer establishes relationships with other Web sites, promising them a percentage of any sales (generally 5 to 15 percent) that result from any traffic sent to the retailer by these "affiliates." It's not uncommon for a major affiliate program to have over 10,000 participating members, all of whom refer traffic to the central site. What's even more interesting is the extent to which this type of business model is proliferating:

The Internet is already taking its place as a central tool in everyday business life. Each aspect of commerce is changing in light of the new capabilities available. The coming changes are so powerful that it is both terrifying and exciting. The first phase of Internet business has principally focused on the creation of new types of businesses: The next phase will involve the impact of these developments on brick-and-mortar businesses and on the economy as a whole.

The new capabilities that the Internet makes available for business-to-business commerce and for business-to-consumer sales will transform many industries from top to bottom. Winning companies will understand that in the emerging era success now requires new rules for action and the mastery by the organization of different types of skills.

Questions may arise on what the future will look like: "Will my business be helped or hurt?" "What should I do to survive?" Until recently, the pace of change has been so great that attempts at answering these questions were often unsatisfying.

Elements that will play a central role in how the Internet economy evolves. These elements have the potential to greatly harm our economy or to power us into prosperity for the twenty-first century. The best way to discuss these ideas is to provide two contrasting visions of the future: The Potential Downside of Internet Growth More than any other aspect of the Internet, shopping "bots," software that searches the entire Internet for products and services based on predefined criteria (price being the most popular), have the capacity to offer great benefit to consumers while potentially bringing great harm to businesses. Today the major Internet portals, include Google , Yahoo and MSN , all have shopping initiatives with participating retailers that are, at least in part, powered by bots (also called "intelligent software shopping agents"). A visit to will reveal that there are already over many easy-to-use bots that are available for businesses and consumers. Each bot typically has a specialized function, ranging from financial bots that perform stock-related functions to news-gathering bots to auction-related bots.

The more businesses and consumers rely on price as the sole criterion for purchase, the more price pressure every manufacturer and retailer will feel. Bots that search for the best price have the potential to trigger ruinous price wars. At some point, price wars can ruin industries or set back their development by several years through lack of funds for investment in new and better services. To me, this is the frightening downside of a world where customers can buy from anywhere and essentially name their price.

The Internet is already demonstrating some of this behavior. At this time, we are witnessing deep discounting on the part of large Internet retailers to attract customers. For ongoing businesses, this type of discounting is unlikely to be sustainable.

The pace of change in the past year has been so incredible that a growing population—from executives to retirees—feel they have more than passing familiarity with the Internet. However, this newly claimed "knowledge" of Web sites and portals and e-mail techniques belies the fact that the Internet is still so new that there are no rules for "play."

Internet services, including comparison services, software agents such as bots, and new digital middlemen, enable easier access to information and, as a result, fundamentally change the competitive battleground.

Stores that pitted themselves against each other generally rose to the occasion and even employed "comparison shoppers," who cruised the aisles of competitors, reporting on pricing so that the store owner could price competitively. And signs touting "We'll Beat Anyone's Prices" covered any store that wanted to preserve business no matter what.

The Internet radically changes this dynamic. Not only can consumers move easily from one Web site to another, checking out the products and services at each, but many Internet services are specifically designed to promote comparisons among products or services within a category, and another growing class of businesses—digital age middlemen—are actively working to create bidding situations among several suppliers that lead to lower prices for consumers and businesses. These new classes of Web sites raise the stakes throughout an industry. Competition takes two forms: between manufacturers or service providers —for the product or service to be purchased—and between "stores" as the place to purchase.

Companies now operate in a world where comparison shop- ping is almost effortless, geographic boundaries are eliminated, and the pace of activity is far faster.

WHAT happens in the marketplace ? In the online environment, anyone offering a particular product competes with everyone else offering that product or something similar. On any given day, a customer may be able to locate several — or several hundred—online stores selling what he or she wants, and the customer can then determine from which vendor to purchase the item. A recent search using a comparison service such as Froogle identified that a specific HP All-In-One Multifunction printer was available from 57 different stores from $57 to $170.

Bots, the comparison services, and the new digital age middlemen can all work in a variety of ways. Some comparison services are operated by retailers; the site generally posts information on how specific products sold by the store compare in price and quality with the competition. Other services are stand-alone Web-based businesses offering comparisons among a variety of manufacturers.

Bots (Intelligent Software Shopping Agents) are now today 's product finder, along with hundreds of other "bot" services that are now on the Web, is still in its infancy. However, it has already stimulated the creation of sites that feature comparison shopping facts, and I guarantee that these bots will play a role in changing the future of commerce.

Sites offering price comparison are now web wide. On the Web, competition for customers is fierce. Because bots can shop the Web for a customer, companies have been forced to design their Web sites with comparison shopping in mind. The Net has facilitated explosive growth of comparison services that stretch across the full spectrum of products and services. It's impossible to even estimate how many exist today and new services—for unserved categories or with better features in categories that already have such services—are constantly popping up: New digital age middlemen only intensify the competition . Digital Age Middlemen

An additional factor in the spread of Hyper Wars is the emergence of a new kind of business, "digital age middlemen This broad range of entities may share one or more of the following characteristics: First, they create a "more perfect market" for buyers and sellers by improving the information available to both sides regarding the demand and supply of products.

Second, they generally serve as electronic gathering places where buyers meet potential sellers for specific industries or types of products. In this sense, successful digital age middlemen are typically vertically focused and aim to serve a very specific market, such as buyers of specific financial products, or specific kinds of engineers or electronics firms. Occasionally this leads to selling the same products at different prices . Third, the digital age middlemen defy traditional boundaries. Location, company size, the time required to get competing bids from many potential suppliers, and the time involved in searching for potential new suppliers are all factors that have traditionally created "competitive advantages" for specific companies in specific situations; these services work to eliminate these constraints.

Fourth, they all provide a buying mechanism of some type. Often, digital age middlemen pit potential sellers against each other, and generally the one with the lowest price earns the business. For buyers, the effect of digital age middlemen is to make goods and services available at lower prices.

Direct sales are rapidly expanding this controlling the marketplace . Experience to date strongly suggests that the Internet will accelerate the shift to direct sales by manufacturers, thereby creating a major change in the way both businesses and consumers shop. and services available at lower prices.

For buyers, of course, the downward pressure on prices is a welcome benefit of the Web. For sellers, however, digital age middlemen are a central factor in the emergence of Hyper Wars. By creating a "more perfect market" with full information, fewer geographic boundaries, and more potential suppliers, the level of price competition reaches a new degree of intensity, making it harder to generate profitable revenues. As these online middlemen proliferate, each transaction will feel to the seller even more like a battle in a war that is waged in hyperspace. DIRECT SALES ARE EXPANDING, TRANSFORMING THE MARKETPLACE Experience to date strongly suggests that the Internet will accelerate the shift to direct sales by manufacturers, thereby creating a major change in the way both businesses and consumers shop.

Over time, the percentage of all products sold directly from manufacturers or service providers to end users has been increasing, and the cost of having a middleman is being eliminated. This phenomenon has accelerated whenever the development of new technologies or new media has provided ways to overcome what are generally perceived as the four barriers to direct sales.