Russell Holt
June 1999

the internet changes everything


A Tomorrow


The internet changes everything. That includes the relationship between consumers and businesses, businesses and businesses. The internet is not a "channel"; it is the underlying information medium for all channels of communication in the future. It is fast becoming so central to the way business does business, be it selling to consumers or to other businesses, that every business will be an internet business, or they will go away.

Power to the consumer
Consumers have faster (instant) access to more information, more services than ever before. Comparison shopping is orders of magnitude easier than ever before. Financial institutions in particular face slimming margins due to increased competition. Prices and financial products which needed to be fixed before can now float with the market, for better or for worse. This is the biggest step ever toward the frictionless economy.

The future will be one-to-one marketing because the easier it is for a business to know their customers, and the easier it is for customers to know that businesses want to give them what they want, and the easier it is for the two to transact, the more this will happen.

Less is more
The more efficient the economy gets, the more the kind of relationship between customer and business will change. Today, even with gargantuan data wharehouses, it is difficult to give a customer personalized service - to anticipate their needs and give them what they want. Instead of knowing that I'm in the market for a house and passively waiting till I see a mortgage I like, my bank must constantly bombard me with mortage information at all times - even after I've bought that house. In this age of information overload, I want less but better information: I'd like to be able to tell my bank that I am not in the housing market and don't want information on mortgages. But the greatest CRM system in the world fundamentally can not provide that unless I've purchased my mortage through this bank or they explicitly ask me.

The internet lets any web service be front-ended by another. I can write my own 20 minute delayed stock quoting service. I can write my own home banking system that supports any number of banks simply by front-ending them, and with the rising tide of XML, it will only get easier. What will this do to online advertising?

One to One...
The personalized internet is coming. Personalization is getting exactly what you want with minimal effort - for everything from news about topics you want (myYahoo) to being informed of a book signing by your favorite author in the city you happen to be visiting next month. The power shift to the consumer and the decentralized nature of the internet necessarily means that this will be beyond any single business.

...with or without financial services
This is a particularly important point for financial institutions who have spent and will spend megabucks on data wharehouses to group customers into profitability and cross-selling categories. FIs will not be the ones that bring consumers the personalized internet, because the consumer is the center, not the institution. FIs will participate- they will be part of the whole - but they cannot be the gateway.

A Possible Tomorrow

everyone is connected to everyone else. Every web site can potentially reintermediate every other web site. The number of different devices that access the internet will explode. Business will adapt to these capability, and money will flow in ways we cannot imagine today. An explanation of this diagram follows it.

This diagram looks chaotic but it shows two kinds of things: a consumer interacting with entities through a multitude of devices, and the entities interacting with each other - all through the Internet. This diagram is much simpler than in reality, as for example, the entities here really are roles rather than individual businesses - a retail sales site may also be a portal and a market.

Clockwise from the top:

intelligent user agents "User Agents" which go between the consumer and another entity on the intenet either directed by the consumer (as a web browser) or hidden from view, using one or more web services underneath. These come in the form of anything and everything from a news ticker on a web site to a PFM (Personal Finance Manager, such as Intuit Quicken, Microsoft Money) to general web-alteration like Third Voice, the Anonymizer and The Jar-Jargonizer to PDAs like the Palm VII. Provides a different, value-added user interface to the consumer while making actual information requests to another web site. Very dangerous to retailers: can remove brands, ads, rewrite HTML, etc. This is the half of the future.
aggregator Provides side-by-side product and price comparison. Up-to-the-minute prices. Product reviews.
web-only bank A bank started from the ground for the internet.
financial specialist, mortage a mortgage company for the internet
financial specialist, credit card citibank, fleet, first usa.
open finance provider sells others' financial products, eg, loans.
portal Yahoo, AOL. Value through personalization (myYahoo). Customized search & news clippings, etc.
retail affiliate Anyone with a web site can sell online retailers' products; everyone from Amazon to eToys has affiliate programs.
manufacturer Every business is on the internet, many will sell direct.
retail Amazon, etc. Will they be commoditized? How strong are internet-only brands? Nobody knows.
markets and negotiators Get a buyer and a seller together. No price will be fixed on the internet. eBay,, etc. This is the other half of the future
consumer In 1994, consumers interacted with the Internet with a web browser (geeks had many other ways since the 1960's). The WWW allowed access to non-geeks; since then, the number of devices that access the web (using the internet) has grown. Even pagers offer information like text email messages, weather, sports scores and trivia, all of which use the Internet.


Where will we go from here? Whatever happens, it will fit the current themes of the Internet:

  1. decentralization
  2. need for privacy
  3. efficient communication
  4. Easy product / price comparison; no fixed prices
  5. ever lower transaction costs
  6. high competition
  7. every business is connected to every other business
  8. the consumer can see every business
  9. growing separability of content & presentation (XML)

One possibility is a personalized eWallet.

useful references

"Frictionless" commerce
Frictionless Commerce? A Comparison of Internet and Conventional Retailers - 6/8/1999 Erik Brynjolfsson and Michael D. Smith MIT Sloan School Conference on Understanding the Digital Economy Session on Market Structure and Competition Washington, D.C.
The Myth of the Frictionless Economy frictionless? nahh...
Internet will lead to global pricing shifts - June 4, 1999 flexible pricing
Brokers struggle to compete with the Net discount brokerages like E*Trade
Making Open Finance Pay (PDF, 288K) Forester Research
High tech driving economic growth (7/13/1999)
Bank of America plans to introduce wireless banking - July 13 724 Solutions does cell & PDA banking
Amazon's Jeff Bezos: "There are going to be tens of thousands of winners." July 12, 1999 Business Week Online
7/12/99 PW Online--The New Magic Bullet for Attracting Web Visitors: Personalization July 12, 1999 Business Week Online
Have an Epinion? online destination for shoppers who want to share information about products.
Lines between Net brokers, banks blur
Phones that surf the Web are back after a false start
"Shelf-space" in automotive marketing Sounds a lot like the Internet
General Insanity
Fortune: 8.2.99 MBAs Get .com Fever "this new breed of MBA is genuinely enchanted with all things nimble and entrepreneurial, and profoundly disenchanted with lumbering, process-oriented corporate America."
Liquid Audio sizzles on trading debut