Net worth
Markets adapt to consumer command
Description
Big businesses have traditionally dominated consumer data collection, profiting by selling it to marketers, leaving consumers uncompensated and overwhelmed with ads.
The Internet introduces infomediaries, agents for consumers, to manage and monetize their personal data. This shift empowers consumers, allowing them to earn from their information and gain bargaining power for better deals.
Infomediaries also enable targeted marketing based on consumer preferences, ensuring relevant and timely ads. Importantly, they safeguard personal privacy while doing so.
Table of contents
01Infomediary business prospects
In our modern economy, which heavily relies on information, understanding the specific preferences and anticipated needs of consumers has become invaluable. This is especially true as consumer databases continue to grow. However, consumers still prioritize privacy and are hesitant to engage with businesses that may profit from sharing their sensitive information. This presents a unique business opportunity for an entity known as an infomediary. An infomediary acts as a mediator, compiling extensive consumer data and leveraging it to generate income from companies eager to customize their offerings for distinct market segments. In essence, an infomediary collects and organizes consumer data, markets it to the highest bidder, and compensates consumers for their input.
Currently, many companies analyze their existing customer base to understand purchasing patterns and attract potential customers. Often, when companies collect such data, they sell it to third parties, earning revenue for themselves but not for the consumers who provided the data. The infomediary business model reverses this approach. Its fundamental components include acting as a trusted third-party agent for the consumer, aggregating similar data from many consumers, maintaining data confidentiality, and ensuring that profits from the sale of this aggregated data (minus a commission) are returned to the consumers who provided it.
For consumers, the benefits are numerous. They receive compensation for sharing their information, their privacy is safeguarded, they gain access to detailed information about products and services that interest them (reducing research and purchasing costs), they are informed of where to purchase these products and services at competitive prices without charge, and they are protected from direct marketing intrusions without missing out on new product or service alerts.
Vendors also stand to gain significantly. They acquire unparalleled access to consumers likely to do business with them, which greatly reduces customer acquisition costs. They can easily segment broader markets into focused niches and gain access to detailed market research that aids in developing new products and services.
An infomediary can be compared to a talent agent for actors, who understands their clients' skills and seeks suitable employment opportunities for them, earning a commission for the value they create. Similarly, an infomediary acts as an agent for consumers in their purchasing roles. They pool information about desires, needs, preferences, disposable income, and more from a large group of consumers and then approach the best vendors with a pool of qualified prospects. This enables the infomediary to negotiate favorable bulk prices with preferred vendors on behalf of the entire group.
02Evolution stages of infomediary
The establishment of an infomediary enterprise is a complex endeavor that necessitates a meticulously planned, three-phase sequential strategy.
The potential financial rewards for successfully launching such a business are substantial. Economic projections indicate that each household contributing a profile to the infomediary's database could reap annual benefits of approximately $1,400.
It is estimated that by the fifth year, an infomediary could be generating revenues in the vicinity of $700 million, with the potential for this figure to balloon to over $4.8 billion by the tenth year. A company with annual revenues of $4.8 billion could command a market valuation significantly exceeding $20 billion. However, to amass the critical mass of approximately 16 million household profiles, it is anticipated that an initial investment exceeding $200 million will be necessary.
The primary challenge in the initial stage is the creation of a comprehensive database containing detailed consumer profiles. This database should encompass four fundamental categories of information: demographic and contact details, historical transaction data, consumer preferences regarding media and product or service features, and information on imminent key events that could influence future purchases.
It is imperative to recognize that consumers will only provide such sensitive information if they have confidence in the infomediary's commitment to confidentiality and the prospective economic advantages that may accrue in the future.
As the database of customer profiles expands, a virtuous cycle commences, propelling the infomediary's growth. This cycle is driven by the network effect, where the value of the entire database is augmented as more customers participate. Additionally, the amortization effect comes into play, spreading fixed costs over a larger customer base, thereby reducing the cost per customer. Furthermore, the learning effect leads to reduced operational costs as the company becomes more adept at attracting new clients efficiently.
Early entrants in the infomediary market are likely to maintain a competitive edge over later entrants, particularly if they can leverage an existing database of client profiles and pursue an aggressive growth strategy. This advantage could create significant barriers for new market entrants, favoring established companies over startups. The key managerial challenge at this juncture is to cultivate trust. A nascent infomediary, lacking a substantial customer base and track record, will face difficulties in convincing consumers to entrust them with confidential information. If the infomediary is formed through an alliance with an established company, some degree of trust may be transferred, but ultimately, trust must be earned over time.
03Wider implications for businesses
The advent of the infomediary, along with other elements of the seamless economy, is poised to exert a transformative impact, one that promises to reshape market landscapes with an even greater magnitude than the introduction of the personal computer has done to modern commerce.
This shift will primarily benefit consumers, as they will possess a more unified and potent representation of their interests, which in turn will empower them to derive additional value from these market changes. Infomediaries and their financial supporters are also set to gain from this evolution. Moreover, those vendors who are quick to recognize and adapt to these shifts will find themselves at an advantage. Conversely, the only potential losers in this market reconfiguration are those vendors who cling to traditional business practices.
Delving into the essence of most companies, we find that they are essentially composed of three distinct operational spheres:
1. The customer relationship business, which is tasked with attracting and nurturing customer relationships, understanding their needs, and customizing a suite of products and services to fulfill those needs. 2. The product innovation and commercialization business, which is dedicated to the creation and market introduction of new offerings. 3. The infrastructure management business, which oversees the logistical and operational aspects of daily business functions.
Over the past five years, the primary managerial focus has been on reengineering these core business activities to capitalize on the operational efficiencies that new information technologies provide.
The emergence of the infomediary marks the first time companies can delegate one of their core businesses to a specialist. It is also anticipated that the infrastructure management business will be outsourced to an aggregator capable of leveraging economies of scale. Consequently, companies will have the unprecedented opportunity to channel all their efforts and resources into product innovation and commercialization.
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