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Chapter 5 E-business strategy 279

product development and introduce alternative business and revenue models with shorter
cycle times than previously. This again emphasizes the need for continual environment
scanning. See the section on business and revenue models in Chapter 2 for examples of
strategies that can be adopted in response to this threat. Case Study 2.3 about Zopa shows
how a new peer-to-peer lending model has changed the loans market.
Sell-side threats

1 Customer power and knowledge
This is perhaps the single biggest threat posed by electronic trading. The bargaining power of
customers is greatly increased when they are using the Internet to evaluate products and
compare prices. This is particularly true for standardized products for which offers can be
compared for different suppliers through price comparison engines provided by intermedi-
aries such as Kelkoo (www.kelkoo.com) or PriceRunner (www.pricerunner.com). For
commodities, auctions on business-to-business exchanges can also have a similar effect of
driving down price. Purchase of some products that have not traditionally been thought of as
Commoditization commodities may become more price-sensitive. This process is known as ‘commoditization’.
The process whereby Examples of goods that are becoming commoditized are electrical goods and cars. The issue
product selection
becomes more of online pricing is discussed in Chapter 8.
dependent on price than In the business-to-business arena, a further issue is that the ease of use of the Internet
differentiating features, channel makes it potentially easier for customers to swap between suppliers – switching
benefits and value-added
services. costs are lower. With the Internet, which offers a more standard method for purchase
through web browsers, the barriers to swapping to another supplier will be lower. With a
Soft lock-in
specific EDI (electronic data interchange) link that has to be set up between one company
Electronic linkages
between supplier and and another, there may be reluctance to change this arrangement (soft lock-in due to
customer increase switching costs). Commentators often glibly say ‘online, your competitor is only a mouse
switching costs.
click away’, but it should be remembered that soft lock-in still exists on the web – there are
still barriers and costs to switching between suppliers since once a customer has invested
time in understanding how to use a web site to select and purchase a particular type of
product, they may not want to learn another service.
2 Power of intermediaries
A significant downstream channel threat is the potential loss of partners or distributors if
there is a channel conflict resulting from disintermediation (Chapter 2, p. 65). A good example
of the tensions between intermediaries, and in particular aggregators and strategies to resolve
them is shown by the public discussion between direct insurer DirectLine

(www.directline.com) and aggregator MoneySupermarket (www.moneysupermarket.com)
highlighted in Box 5.2.

Box 5.2 The balance of power between brands and aggregator sites

Guardian (2007) reported on an ongoing spat which saw Direct Line disparaging
comparison engines like MoneySupermarket, Confused.com and Go Compare in a
multi-million TV campaign. It reported Roger Ramsden, strategy director for Royal
Bank of Scotland Insurance, which owns Direct Line as saying:
‘Direct Line has never been available through a middleman of any sort and never will
be, and that’s what these [comparison] sites are. They are commercial operations
rather than a public service, and the [advertising] campaign is responding to our
customers who tell us they are unaware of this and find the sites confusing.’
His assertion is partially true in that although Moneysupermarket covers approximately
80% of the motor insurance market, it does not list quotes from some large insurers