March 9, 1998 Net marketplaces transform business an industry at a time Sometimes making money on the Internet is a lot like making money in the so-called real world. If you sell products in the real world, you can do the same thing online. To a certain extent, tried-and-true business models still work in the brave new Internet era. But the online opportunities that I find most interesting are those that are unmatched in the physical world. For companies that can exploit the Internet's unique characteristics, it will revolutionize the way they do business. For their industries, nothing will ever be the same again. On that subject, I'm in agreement with the CEOs of the world's largest companies. In a recent Price Waterhouse survey, 80 percent of these CEOs revealed that they expect Internet commerce to completely or significantly transform competition in their industries. Information marketplaces One potentially transformative Internet business model is just starting to appear: the information marketplace. These marketplaces are virtual spaces on the Internet that provide comprehensive product and market information for a particular industry, as well as the ability to purchase these products from the sellers hawking their wares there. Buyers, initially attracted by the rich stores of information, stay to make purchases, and the operators of the marketplace take a percentage of the sale. For an example of an emerging virtual marketplace, take a look at NECX Direct's Web site, at http://www.necx.com. NECX started out as a distributor of computer and semiconductor products; then, with the advent of the Web, evolved into an online computer products retailer. Now they're fast becoming a computer products marketplace. The NECX site provides vast amounts of useful, detailed product information, and makes it easy for potential consumer or corporate buyers to find what they need. Even more significantly, NECX recently began providing price quotes from their top competitors on their most popular products. By doing so, they may lose some sales to those competitors. But if their gambit succeeds, NECX will establish itself as the retail site that computer buyers visit first. That loyalty could really pay off in the long run. A fundamental shift NECX understands that in order to succeed on the Internet, information-marketplace operators need to become fundamentally aligned with the buyers' interests, instead of the sellers'. To attract buyers, the marketplace must offer them reliable information, a community space where they can interact freely with one another and with the sellers, and a commerce infrastructure that ensures they won't get ripped off. In short, the marketplace operator is offering buyers protection from the wilds of the Internet, and if that's not done in good faith, the buyers will go elsewhere. Venture capital guru William Gurley calls the companies that manage to successfully establish industry marketplaces "vortex companies," because they sit in the middle of the vortex of furious commerce activity between buyers and sellers. The first companies to establish a successful marketplace within an industry will enjoy an almost unbeatable competitive advantage, according to Gurley. As the marketplace reaches critical mass, both buyers and sellers will have fewer reasons to go anywhere else. That leads naturally to industry monopolies -- and huge profits -- for successful vortex companies. Whether or not you already know it, your future almost certainly includes an information marketplace. The question is, are you going to be a buyer, a seller, or a vortex company? Dylan Tweney edits InfoWorld's I-commerce section online and in print. Write to him at dylan@infoworld.com. Missed a column? It's easy to catch up -- just click here.