by David J. Skyrme
The red ink is certainly running for many dot.com companies and for B2B exchanges. We have commented before (see Dot.com winners and Losers, I3 UPDATE No. 41, June 2000) that three quarters may go out of business. As we write, a pioneer of cooperative buying (Letsbuyit.com) has only a week to find funding to avoid bankruptcy. With over 1,200 B2B exchanges, it seems that many of these will go the same way. The archetype of the species, Chemdex.com (part of Ventro) will cease trading on 31st March. So what does this bloodbath herald for knowledge markets, a more fragile species that are a specific type of B2B exchange, but whose products and services are more complex and intangible?
Reality Sets In
Reading about certain dot.com companies and the state of the e-commerce market in many reputable newspapers you would think that all is gloom and doom. Headlines commonly talk of "slump" in one e-commerce sector after another. Closer reading of the text, however, indicates that most such headlines, even in the most reputable papers, are frankly wrong. Typically a slump means that the projected growth of 30 per cent this year is only in the teens. Many businesses would be very pleased with such growth and would hardly view it as a slump. Similarly, most journalists do not understand their first and second differentials, so when they say declining 'sales', they often means declining 'sales growth'!
What the markets are going through is a healthy correction. Investors and backers are starting to ask - where's the payback from our investment. Although many companies are scaling back on their e-commerce investments, I am not aware of any large organizations voluntarily closing e-trading activities on their website and reverting solely to 'bricks and mortar' selling. From our analysis of these markets, four conclusions stand out.
- Knowledge markets are here to stay. The benefits are just too important compared to the conventional ways in which buyer and sellers of knowledge connect through conventional mechanisms. Market coverage is increased, more products and services can be reviewed in a given period of time and the costs of selling can be considerably reduced over face-to-face selling.
- As with other areas of e-business, there will be continuing convergence between pure dot.com businesses and traditional businesses. Internal knowledge management activities that support internal markets (e.g. via discussion groups, knowledge centres and communities of practice) will link across to external communities and markets. They will share similar tools. In future the distinction between internets, intranets and extranets will blur, the distinctions being one of bounded regions and of customized portals.
- Some online knowledge markets will undoubtedly fail, for the very same reasons that many other dot.com businesses fail. Most commonly, cash outflow is too huge compared with revenues, and a good business model, appropriate skills and good business management are needed. Online knowledge markets are still a novelty for many buyers, though the success of some players like keen.com (which is currently growing at 50 per cent a month) shows that they will soon enter mainstream consciousness. On the other hand, many markets lack a critical mass of buyers and sellers. There is still a tremendous education and awareness process to work through. But it is happening fast. Only a decade or so ago, email was a novelty, but few large corporations could survive without it today.
- Success will depend less on having a deep pocket, but more on the way that knowledge is exploited - knowledge of what makes a successful marketplace; knowledge of potential customers and their needs; and the ability to build operationally effective services for all market participants. Many market providers are likely to change their models as they learn. One noticeable trend has been a shift from providing a market service, to providing software and services for companies to build their own internal markets or create closed knowledge sharing and trading communities.
As today's successful Internet ventures have shown, you can build large and successful Internet companies through organic growth. The Internet thrives on connections. If people find a good website, they tell their friends, who in turn tell theirs. This background networking - aided by techniques like viral marketing - creates a loyal following over time. The problem with many markets, as they currently stand, is that they fail to enthuse and engage users. It's easier for many people to tweak their network for knowledge than it is to go to a marketplace. So is there any future for online knowledge marketplaces?
Strategies for Success
Fundamentally, the need for knowledge exists. There are many people who need knowledge, and many providers. Search engines are among the most heavily visited places on the Web. Most people, when the need for knowledge is pressing enough, will pay to receive the knowledge they need - though they do expect a lot of free content. The knowledge markets that survive and thrive will be those that make it easy to find knowledge and satisfy that need. They may not look like the pioneering markets we see today. Let me suggest five core strategies around which marketplaces should develop their business:
- Operational excellence - participants should have a good website experience: intuitive navigation, easy to find knowledge, straightforward transactions, high levels of customer service.
- Added-value knowledge - a marketplace could make itself an attractor site for a certain group of potential participants. It could provide news, reference information and information to help buyers and seller to maximize the opportunities they can generate in the marketplace.
- Incentives - an important success factor is building up a critical mass of buyers and sellers. Without significant advertising investment (and this often does not achieve what it's supposed to!) - there must be some obvious benefits to encourage participants to join. In the early stages this might mean free participation, reduced transaction fees and special promotional offers.
- Pro-active marketing - if your market website is attracting visitors, you need to make them active market participants, not passive browsers. As relevant requests or new offers are posted, these should be emailed as alerts. This maintain high awareness as well as depositing in a participant inbox, something very specific. This must be done such that alerts do not become routine but are highly focused and targeted. You may need to promote your capabilities in the specialist off-line media.
- Build communities - a good marketplace will build a sense of community, strengthening bonds between participants with shared interests and bringing suppliers and users closer together. Some marketplaces, arrange face-to-face network meetings for their most active participants.
Based on these considerations, the next developments in online knowledge markets are likely to occur in two main directions:
- established communities, portals and action sites expanding their capabilities by selling knowledge products and services, and effectively evolving into online knowledge markets.
- existing knowledge markets increasing their focus by speculating in a niche - either a type of market or product, or around a specific knowledge domain or need.
What is clear is that existing markets cannot simply spend their way out of a problem, nor are their backers likely to let them do so. It is those that have superior knowledge of their marketplace and market participants and can serve their needs creatively that will be the ones that readers of this article will be using routinely tomorrow, as much as they do email today.
