In a book I wrote 20 years ago, I identified an opportunity that has yet to be addressed, but is becoming more and more attractive. Sometimes when you’re on the edge, it takes a little more time than you thought for opportunities to emerge in practice.
The book is Net Worth: Shaping Markets When Customers Make the Rules and I wrote it with my friend and collaborator, Marc Singer. In that book, we suggested that a new type of business – an infomediary – could address significant unmet customer needs.
What is an infomediary? It was a new word that we made up, short for “information intermediary.” The notion was that we as customers will increasingly need a trusted third party or personal agent to act on our behalf to help us get more value from data about ourselves. Among other services, the infomediary would act as custodian of our personal data and negotiate with various third parties to provide limited access to the data in return for significant value received.
Forces shaping the infomediary opportunity There were a variety of forces coming together to make this a promising business opportunity back at the turn of the century. First, we as customers were gaining power as we gained visibility into more and more options and we were becoming more demanding in terms of services received from vendors. We as customers wanted more personalized value at much lower cost, but to get that personalized value we would need to share information about ourselves.
Second, digital technology was making it far easier to capture and share information about ourselves. A growing number of third parties were capturing this information without our permission and there was an increasing concern about how that information might be used, hence an erosion of trust in the third parties capturing this information.
Third, we as customers were facing more and more choices in terms of products and services that were rapidly evolving. We would increasingly value someone who knew us extremely well as an individual and whom we could trust to connect us with the resources that would be most valuable to us given our aspirations.
These three forces have continued to accelerate over the past 20 years, creating even more opportunity for the emergence of very large and profitable infomediaries. So, what happened? Why haven’t infomediaries taken off? From my perspective, the key reason is a failure to understand the real unmet need of customers.
Efforts to build infomediary businesses The book Net Worth actually catalyzed two waves of new business startups seeking to target the infomediary opportunity. The first wave of startups focused on the issue of privacy – their goal was to help people hide information about themselves and limit their visibility online. None of these startups scaled. Their failure stemmed from a misunderstanding of the real need we have as customers.
Based on our research at the time we wrote the book, I believe that a very small number of us really want to be invisible. On the contrary, I believe we are very ready and willing to share information about ourselves if we receive tangible value in return. The concerns about privacy today largely involve lack of trust that our data is being used for our benefit, rather than for the benefit of others.
So, that led to a second wave of infomediary startups. This second wave focused on providing users with payments in return for access to their data. They met with the same lack of success as the first wave. Once again, they misunderstood the real opportunity. It turns out that the payments one might receive for access to data about ourselves are trivial. Either we are very wealthy and the payments are small relative to our total income or we are much less wealthy and the amount that vendors would be willing to pay diminishes significantly because we don’t represent a significant selling opportunity.
In Net Worth, when we focused on the value that could be created by the infomediary, we were not talking about monetary value in the form of payments in return for access to data. We were focused on the broader value we would receive by connecting in a timely fashion with resources that really mattered to us. This assumed that the infomediary would be a trusted advisor who would be proactive in connecting us to relevant resources based on deep insight into our individual needs and aspirations. Very few, if any, of these trusted advisor infomediaries have yet to emerge, although there are some early signals of the potential.
A big barrier for incumbents to enter the infomediary business One of the reasons that so few trusted advisor infomediaries have yet to emerge is that addressing this opportunity requires a very different business model relative to the ones that we see around us today. The rise of the big Internet businesses over the past twenty years has been driven by two business models – advertising and commission-based models. The key assumption is that customers are unwilling to pay for value received and someone else needs to foot the bill.
But, here’s the problem. If someone else is paying the bill, do we really trust the business to be loyal to us and to serve our needs? On the contrary, the fact that someone else is paying the bills is a key factor in the erosion of trust that we are witnessing on the Internet, especially when we realize how much data about us is becoming available to Internet-based businesses. Who knows what they’re going to use this data for and who will have access to the data?
To truly build a trusted relationship with customers, infomediaries will need to be paid by the customers themselves, rather than accepting payments from third parties. The good news is that digital technology is making the cost of providing infomediary services less and less expensive, so the infomediary can provide a rich set of services at a very low price. But this represents a challenge for large, established companies who have become hooked on advertising and commission revenue – it’s very painful for them to walk away from these established revenue services and target a different, and more speculative, revenue source.
That creates a window of opportunity for new entrants who can target a growing unmet need of customers without worrying about intense competition from large incumbents. The key is to pick the right entry point and to build trust and scale as rapidly as possible.
Entering the infomediary business Rather than focusing on data management as the primary value to the customer at the outset, my advice to aspiring infomediaries is to start by concentrating on building trust through advice that is valuable to the customer. As I’ve explored elsewhere, building trust is an incremental process that involves asking some targeted questions at the outset and providing tangible value in return to customer based on the answers provided. That sets the stage for the ability to ask some more questions and provide even more value in return, rapidly building trust that increases the willingness of the customers to share more and more data about themselves.
It’s also important to start in a relatively narrowly defined arena that is meaningful to customers. One area that is emerging as a potential launchpad for trusted advisors/infomediaries is the wellness domain, addressing a growing interest in finding ways to maintain or improve wellness. Other, largely untapped, areas would involve needs like raising small children, pursuing lifelong learning, or remaining productive and fulfilled post-retirement.
Expanding opportunity to scale infomediary businesses As these aspiring trusted advisor/infomediaries build trust that they in fact are committed to helping customers achieve more of their potential, they will create an opportunity to gain access to more and more of the data of the customers they are serving. This creates an opportunity on three fronts.
First, these businesses will be able to scale by leveraging powerful economies of scope. The more they know about an individual customer across more and more domains, the more helpful they can be to those customers in terms of providing them with advice and connecting them with the resources that matter the most to them. And the more customers they serve, the more helpful they can be to each customer, because they can start to see patterns, and become more proactive by suggesting things to a customer based on an observation that other people like them have derived significant value from some resource that the customer has not even asked about. In a world where significant parts of the economy will experience business fragmentation, the trusted advisor/infomediary businesses in contrast have potential to become very large and concentrated over time, as we explored in this research report.
Second, as the trusted advisor/infomediaries scale, they also have the potential to provide additional value to customers by bargaining for volume discounts given the amount of business they could potentially bring. Of course, this involves a balancing act to make sure that the infomediaries are connecting their customers with the products and services that are most relevant to them, even if they cannot obtain a deeper discount.
Third, these businesses will be able to provide additional services regarding management of the customer’s data, ensuring that vendors will only get access to data required to provide a product or service and managing restrictions on the use of that data by the vendors who are given access to it. They will help to ensure that the data is accessible in ways that benefit the customer but not abused in ways that might hurt the customer.
Growing unmet need As mentioned before, the forces that were shaping the opportunity for infomediary businesses to emerge have continued to gather strength over the past twenty years. One element that is worth emphasizing is the growing ability of digital technology to capture information about ourselves even when we’re not on the Internet. With sensors and other Internet of Things technologies being deployed everywhere, virtually all our activities are becoming visible, regardless of where we are, and not just when we are online. That becomes very scary at one level but, at another level, it increases the ability of the trusted advisor/infomediary to provide more value to each of us as customers because the business will have much more visibility into our activities in physical space as well as virtual space.
The bottom line As concern grows over the increasing amount of information that is being captured about us and our activities, and as trust in existing institutions continues to erode, there is an expanding opportunity for a new form of business to emerge and address our unmet needs. It will require a very different business model that will make it challenging for incumbents to address this opportunity, leaving a significant white space for new entrants to address. Those who understand the real opportunity and move quickly to address it will reap very substantial rewards. This is not an opportunity that will be accessible to fast followers. On the other side, addressing this opportunity can be done through small moves that, if smartly made, can set big things in motion.
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