book.chapter Infomediary 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. In the early 1990s, there was a surge in the development of software agents designed to scour the Internet for the best prices on specific products, functioning as automatic comparison shoppers. However, due to a lack of universal standards, these software agents could only compare prices and not how additional features impacted value. They could identify the cheapest option but not necessarily the best value. Infomediaries fulfill three broad roles for their clients: providing robust privacy mechanisms, offering detailed profiling tools, and delivering a suite of services to maximize the commercial value of gathered information. This may include filtering out unwanted marketing, assisting in product purchases, selling consumer willingness to receive advertisements, acting as an anonymous online purchaser, and selling vendor information. The value created by infomediaries may be partly distributed as cash payments to consumers, but a larger portion will be realized through a broader selection, better prices, and reduced transaction costs. The most promising markets for infomediary businesses are characterized by inefficiencies that lead to unnecessary costs for both consumers and vendors, high search and distribution costs, difficulty in determining actual market prices, significant variability in the profitability of new clients to vendors, a high information content in products and services, and the feasibility of remote purchasing via the Internet. The largest potential markets for infomediary businesses include housing, transportation, health care, financial services, lifestyle, and travel and entertainment. The main challenges in establishing an infomediary business are building trust and credibility with consumers, starting with an existing set of customer relationships and profiles, and possessing sophisticated marketing skills to develop cost-effective marketing programs. Infomediaries are likely to emerge from strategic alliances between traditional companies with existing customer databases and funding, and Internet companies capable of managing risks and quickly adapting to changing requirements. In conclusion, infomediaries should not be mistaken for other businesses that trade in customer information. Unlike traditional direct-marketing companies or credit bureaus, infomediaries act as custodians or agents for their clients, representing their interests to help them optimize the value they receive from vendors. Working with an infomediary benefits both vendors and consumers, creating a virtuous cycle where the value delivered by vendors encourages infomediaries' clients to grant more access, which allows vendors to deliver even more value. Building an infomediary business requires strong leadership, a willingness to take risks, sustained vigilance, agility, and a capacity for rapid innovation. These qualities will attract other businesses to join the networks organized by infomediaries and influence the perception of risk by participants. Bold, fast-moving, and innovative infomediaries will reduce perceived risk and amplify the economic incentives they create. Vendors will also benefit from the information profiles assembled by infomediaries, enabling marketers to answer critical questions about consumers in a cost-effective manner. With the current information, even skilled marketers achieve a meager response rate to their direct-mail or telemarketing efforts, resulting in customer acquisition costs that are significantly higher than necessary. Most marketers lack the information they need about target customers until after a purchase is made, and the customer information they do have is often inaccurate. The arrival of a frictionless economy, free of interaction costs, has been long anticipated by technology visionaries. While interaction costs are indeed decreasing, consumers have not fully reaped the benefits. In some markets, consumers have enjoyed lower prices due to reduced margins in the distribution channel, but few intermediaries have focused on reducing the costs consumers incur while searching for and purchasing products.