John Hagel and Marc Singer's new book, "Net Worth: Shaping Markets When Customers Make the Rules" (HBS Press, 1999), outlines a major $20 billion business opportunity driven by the rise of the Internet. "Infomediaries" -- companies that gather consumer information and find willing buyers for it -- will capture consumer behaviors and preferences, act as consumers' agent, protect them, and share their data with vendors.

Banks, brokers, trust companies, and credit bureaus are potential infomediaries. However, because large economies of scale are required, few companies will succeed. Nonetheless, all firms marketing to consumers will be affected.

Hagel and Singer's thesis is that today's consumer marketers are in trouble. Consumers crave privacy in commercial activities and cannot get it. "Relationship marketing" is a sham, pursued mostly for corporations' own benefit.

Infomediaries will challenge corporations' control over consumer data, doing so in several ways, including:

Acting as an agent for consumers, helping them find the right products and services and, in the process, capturing their consumption and preference data. This would lower consumers' interaction costs and increase their privacy.

Keeping consumers' data private unless they specifically agree to share it with merchants.

Profiling their preferences and needs and gathering those preferences for merchants. For example, customers might agree to be paid for letting their data be shared. This would be beneficial to both sides and accepted as long as trust is maintained.

Providing targeted marketing services and/or qualified lead generation more cost-effectively than vendors can do on their own.

Conducting more-effective market research using voluntarily submitted consumer data.

The authors argue that few financial services firms on the Internet are true infomediaries. Some may help consumers find what they want, but they do not let consumers remain anonymous.

Successful infomediaries need three key attributes:

The ability to build and maintain trust with the consumer as trustee and guardian of comprehensive inquiry, activity, purchase, and preference data.

Access to information, especially consumer profiles and transaction data bases.

Marketing skills to segment consumers and to handle constant communication with 100 million households.

Because of the high investment costs approaching $350 million pure startups won't suffice.

Retail banks have two potentially valuable characteristics as infomediaries: They are, in general, trusted, and they already have large amounts of customer data. However, there are also disadvantages.

Banks are considered protectors, not purveyors, of transaction activity. They have always closely held deposit and transaction data. In general, banks have never used check payee data to create profiles or customer lists. Nor have asset managers used investment data.

The recent settlement by U.S. Bancorp with Minnesota's attorney general for allegedly letting telemarketer MemberWorks use account numbers and account activity illustrates the high standards to which banks are held. The pending Federal Financial Services Act would restrict data-sharing even further.

Credit bureaus and other consumer data base firms are skilled at gathering and managing high volumes of consumer data. Credit bureaus in particular are neutral depositories that fulfill a public trust, and they are also regulated. They already act as intermediaries for fixing erroneous credit data, and they let consumers remove their names from direct-mail lists. They impose credit reporting standards and can punish corporate violators.

The net result is that no type of player appears to have the inside track. Opportunities for the infomediary business are open.

Hagel and Singer estimate that an aggressive infomediary could grow to about $5 billion of revenues over 10 years. About half of this revenue would result from agent services and most of the rest from advertising and targeted marketing. Pretax cash flow would turn positive in the eighth year.

The authors envision an economic web, in which certain companies are the leaders and others influence and follow standards. The roles outlined include web shaper, adapter, influencer, hedger, disciple, and key player. Web shapers will set the standards for capturing and transmitting consumer data. Influencers are firms that naturally hold voluminous consumer data but are not themselves web shapers. Financial services firms might fit in this category.

Banks' role as payment system operator puts them in prime position to contribute data to infomediaries with the approval of consumers. Deposit and credit card accounts contain more raw transaction data on consumer spending than most other sources. The value of this data could triple through the addition of payee data directly from bill presentment and bill payment systems.

Hagel and Singer argue that infomediaries will force the unbundling of traditional organizational structures into three distinct businesses:

Customer relationship businesses

Product innovation businesses

Infrastructure management businesses

The key success factors in each are different, making integrated operation difficult.

Infomediaries by definition are in the customer business. Much of the access to information about -- and control of the consumer's thinking about -- financial products will ultimately revert to the infomediary, not the traditional account processor.

The bottom line is that financial institutions should re-examine their approach to handling customer relationships. Most virtually all have done this in a very proprietary way, thinking only about their own data, their own transactions, and how they can best "lock up" their customers and their data.

They should spend more time looking for entrepreneurial partners involved in the infomediary business. Combinations such as America Online, the data base company Axciom, and American Express would be potentially powerful competition, the authors say.

The infomediary concept makes the strong point that forces at work will dictate the rise of a new consumer business that transcends individual institutions. That trend will work to the benefit of the consumer, not the vendor, whether bookseller or bank. The wild card for banks, of course, is their role as financial data sources. They can both gain and lose as infomediaries prosper. But they cannot ignore it.

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