Beginings of Social Networking: Business Process Redesign With Vertical Net Communities


The new e-conomy is not just about having a website that provides certain customer services on the Internet. Rather it embraces a concept of Vertical Net Communities. VNCs are changing the way customers interact with data through a slew of services made possible by technologies such as electronic data exchange, secure credit card processing and sophisticated communication tools. VNCs are reshaping entire industries by providing a new level of customization of content and commerce and by engaging the users in producing information. Among others, VNCs are transforming Investment Information and Business-to-Business Trading into the mass-customized, user-driven environments.

Introduction

Vertical Net Community (VNC) is an on-line meeting area and marketplace, focused around a particular topic. VNC typically includes some focused content, relevant news, jobs, targeted-audience advertising and e-commerce/classifieds. VNCs also include chat rooms, message boards, and video-conferencing as advanced means of communication. All this is tied together in a segment-focused manner, made possible by a new breed of information systems. Thanks to the advent of the Internet technology, there were many industries in which Vertical Net Communities (VNCs) have been utilized for BPR. Radical changes in the business process resulting from VNCs are seen in:

  1. Mass customization of Content
  2. Mass customization of E-commerce
  3. Greater Interaction with Information.

Once the realm of computer specialists, VNCs are now used as means of redesigning business processes in a variety of industries. (Graves 1995) In the past the failure rate of the BPR was 68%. (Snell 1994) The case will probably not be much different in the case of VNCs. Not all industries can generate enough traffic to make a VNC sustainable. For example Paramount Service Corp. and Long Island Pool and Hot Tub Company had chat and discussion software on the web as early as April 1996. However, customer demand for this community was weak and very few people showed up to take advantage of the on-line discounts and specials, forcing the company to abandon the BPR. (Inc. 2000)

However, change necessary for survival in the new e-conomy. (Martin 1992) For those companies that can embrace this change and use new MIS to generate traffic to their site, there are many potential rewards. (Knorr, 1991) Recently Investment Information and Business-to-Business Trading industries have begun to introduce VNCs as a means of changing the business process. Introduction of VNCs has radically changed business processes in these industries focusing on
customization of content and e-commerce while changing the customer’s role in the business from consumer to active participant. (Shaw 1997) In many cases this new business model also helped in reducing the operating costs. In most cases the jury is still out on weather BPR has been successful, and these new business models will prove sufficiently viable and self-sustaining. But one thing is clear: VNCs have radically shifted the focus toward mass-customization and from passively consuming the information to actively interacting with it, transforming the companies into the mass-customized, user-driven environments.

Investment Information Industry

Investment Information Industry companies like Motley Fool, RagingBull and Silicon Investor are some of the players that are changing the business process toward greater customer involvement. They are affecting the industry-wide paradigm shifts toward mass customization of content and commerce along the lines of a virtual community. The web abounds with newsletters, services and advertising touting huge annual returns and – as it is true outside the cyberspace, some of the information is bad. (Hall 1999) Seeking advice from the professionals on how to invest money is, in some cases like “seeking advice from the Big Bad Wolf on how to get to Grandma’s house”. (Rupley 1998) Mutual fund companies are charging 3-5% of commissions regardless of performance, which historically is below the market for 75% of mutual funds (Hall 1999) The flow of investment information is always very restricted, mostly remaining the property of highly paid financial analysts and fund managers. Users are mostly treated as passive receivers of a small percentage of this information (mostly basic hold/market perform/outperform ratings), incapable of making their own financial decisions. (Gardner 1999) There is no user participation and comparison-shopping is strictly limited to visiting the individual company’s sites and painstakingly collecting meager grains of information. (Gardner 1997)

On-line investing information companies like Motley Fool and RagingBull challenge this status quo by organizing net communities focused on particular investment styles like “Wireless Internet Companies Investment”. These VNCs are filled with such vital information as “strategic plans, growth projections, competitive analysis and new products”. (Cohen 1996) This is exactly the type of information Wall Street had monopoly on because they had the money to perform the necessary research. (Harbert 1996) These VNCs have contributed to the redesign of the business process in this industry from the passive distribution of the information to the active user involvement and creation of content. Users revel in the notion that they are “in the know” – for example on the Pharmaceutical Investment boards doctors often weigh in with the opinion about the new drugs. (Cohen 1996)

These new investment information companies are making investment “fun, useful and entertaining” instead of the typical “dark, dry and serious” (Mackeigan 1999). They are embracing the new “e-conomy” and putting the customer in the driver’s seat. (Baldock 1999) Instead of searching for information and painstakingly collecting “wireless companies investment” resources all over the web, users visit Motley Fool, where they have access to the company rankings, calculators, spreadsheets and other tools vertically integrated by that particular topic. (Rupley 1998) The main paradigm shift in the industry is that the customers are “no longer treated as lemmings, the way they were treated in the past by the financial community.” (Gardner 1999) Instead, the Motley Fool site engages it’s customers drawing them into the virtual community and changes their interaction with information from passive, one way consuming to active participation, where users are encouraged to make up their own minds rather then passively following someone else’s advice. (Deck 1996)

The e-commerce on Motley Fool is also highly evolved along the vertical lines. Whereas the traditional investment manuals are covering the entire financial landscape, from bonds, retirement and growth stock investment, Motley Fool focuses their small e-commerce offerings, like the “wireless Internet companies report”, by aligning them along the industries and investment styles. (Gardner 1996) These highly focused financial industry reports are marketed to the targeted audience of users that belong to the “wireless investment community.” Thus a complete BPR is achieved via VNC: targeted content and commerce, delivered by anticipating the customer’s needs, allows Motley Fool to deliver the exact products the customer has a need for. In addition, using the same advanced information system, Passive Consumers are turned into Active Users and empowered by making them the active participant in the creation of information through forums, voting and chat. For VNC companies, generating traffic is of the utmost concern. (Web Finance, 1999) Investment Information companies like Motley Fool and RagingBull are able to drive tremendous traffic to their on-line communities and thus appear to hold a very high promise of future success for their business model. (Rafalaf 1999)

Business-to-Business Trading Industry

The traditional way of information procurement in niche markets is very difficult and inefficient. It typically involves “catalogs, trade shows, talking to the colleagues or being in user groups and professional associations”. (Cheng 1999) To make a transaction, off-line acquisition costs had to include hefty commissions to several intermediaries, accounting for as much as 40% of the purchase cost. (Girishankar 1999) Advertising fees were also very high, upwards of $10,000 a month for a one-page ad in a trade journal. In addition to high fees of using the off-line advertising, off-line journals are very selective in their content, essentially denying the customers access to the company’s whereabouts and what they make: “if it’s not an advertiser, I ain’t gonna tell you about that guy.” (Marlatt 1999) Essentially the print companies were making choices for the users.

Searching on the web can be more informative, but sometimes is very difficult. In most cases, traditional model involved customer searching for the information on the web by using Internet directories such as Yahoo and Excite or search engines like Web Crawler and Altavista. Anyone who has ever searched the web has been impressed with the “ease of searching and the difficulty of finding.” (Brock 1998) Hundreds of thousands of useless hits are typically produced, and the consumer has to sieve through it all to find less then 1% of relevant information. An actual Altavista search for “Chemical Engineering and Water Pumps” produced 187,411 hits. (Altavista 2000) First 10 hits ranged from pornography to attorneys (perhaps because they specialize in “pumping” their customer’s wallets) and individual companies making water pumps. Searching through such a list is often overwhelming and very inefficient. (Brock 1998) Interaction with information is still typically one-way only, where the content is delivered to the passive consumers, who have no control over it.

In the traditional model, the same can be said about the e-commerce and advertising: it is typically very generic, super-market like advertising. Comparison-shopping is virtually non-existent. Even if a company like Dell
Computers offers customization, Dell wisely refuses to provide prices and specs of their competitors. (Dell 2000) Consumers must search individual company’s Websites and perform comparing on their own. “Ford runs extranets for suppliers and vendors, but if you want to buy an engine, guess what they recommend.” (Shaw 1997) Customers thus have to decide whether or not to make a purchase based only the individual company’s information and advertising provided by the sales person. On-line Vertical Industry Community companies like Vertical Net, Ventro and National Trucking Exchange are redesigning this outdated process of trading and finding content through the use of VNCs. These companies are concentrating first and foremost on building the sense of the community, where visitors can find information and people with similar interests. These communities make it easy to find the information and products classified vertically along the industry lines. (Gome 1999) They also shift the focus from distributing the information to the passive consumer to making the active users part of the equation through VNCs.

The first component of the business process redesign is the content. Vertical Net hired good editors away from the trade magazines in order to create vertically integrated databases of up-to-the minute topical material. (Shaw 1997) The company then combines this great content with specific industry and product information and live forums. (Shaw 1997) They further foster the communities with news from Reuters, Business Wire, PR Wire and Wise Wire and targeted vertically segmented job lists by Headhunter.net. (Marlatt 1999) Traditional generic e-commerce and advertising is also re-designed through VNCs. These new B2B Vertical Hubs are challenging the business as usual, being far more concerned with acting as a community-building knowledge disseminators, then they are with selling Product A made by Company B to Consumer C. (Shaw 1997) The process is redesigned to engage and empower the customers, rather then force the sale and grab a fat commission.

In the field of commerce, Vertical Net build the advanced powerful information system software to focus on comparison-shopping and making sure that the customer can get all the needed product information on line, with the fewest clicks possible. The information about a product or company is typically hyperlinked with another article about it; or to a comparison article about another advertiser; or a link to a web page of the manufacturer; or a link to the EPA so you can see what the EPA commissioner just wrote on the issue. (Marlatt 1999) All of the relevant information is presented to the user who is empowered to make informed decisions. “If you [want] . . . I will show you every company that makes pinch valves . . . You can find their Websites, you can call them. I don’t block you from knowing who is or isn’t in a given business” says Mark Walsh, CEO of VN in an interview with FOLIO. (Marlatt 1999) This complete focus on being “buyer-centric”, and allowing the industry members to deal directly with each other, dramatically shortens the time it takes to generate sales leads and decreases the cost of closing the deal. (Cheng 1999)

But Vertical Net goes much further. It connects buyers and sellers and makes money on the transaction. It hosts chats and forums for a particular industry where for example, wastewater engineers can exchange ideas. For a comparatively little fee of $6,000, Vertical Net will also host a specialized company’s website for 1 year, allowing the company to update the product and advertising information hourly if needed and drive real traffic to their site that sells real products. (Marlatt 1999) This redesign of the business process decreases costs and increases efficiency of the trading process, through participation and empowerment of active, focused audiences and delivery of vertically integrated content. “These are people who care about what you care about, whether you’re a buyer or a supplier, and that sense of community is a very powerful tool.” (Marlatt 1999)

E-commerce capabilities of VNCs have a wide range. Some are just extranet catalogs with procurement capabilities; others, like Chemdex, also handle payments online and track your order status, Then there are those that provide tight integration between back-end systems, providing auctions that match suppliers and buyers. One of the later is the National Transportation Exchange, which matches buyers of truck space with some 255 fleet owners that operate 200,000 trucks. (Girishankar 1999) VNC supporting B2B companies operate on a variety of business models. Some, like Chemdex control invoicing because they charge for the whole transaction and take their cut before handing over their share of the loot to the distributors. But, for instance, PaperExchange.com does not want the hassle of invoicing and prefers to charge the seller a 3% transaction fee and lets the buyer and seller handle the transaction. (Girishankar 1999)  Overall, regardless of the industry, B2B trading hubs that have redesigned their business processes with VNCs are experiencing a surge of traffic and increased customer satisfaction and loyalty while cutting the cost of the transaction and advertising. This points to the likelihood of the eventual success of the VNCs business process redesign and the overall paradigm shift of the B2B industry toward a vertically integrated, mass-customized, user-driven environments.

Conclusion

Vertical Net Communities are utilizing the advances in information systems technologies to enable the new e-conomy – a fundamentally different way of delivering products and services over the Internet. Before the e-conomy, consumers wanting to shop for the best deal had to search the high street, make lots of phone calls or more recently, check many Websites. The flow of information has been one-way only, from the information provider to the passive consumer with little customer participation. Using VNCs, the new types of Internet-based companies are offering powerful search and vertical integration strategies to save customers both time and money. More importantly, these companies are changing the relationship between buyers and sellers toward a complete redesign which some sources call “buyer-driven approach.” (Baldock 1999) This means offering a range of vertical sales channels that work seamlessly with the focused content to support a particular customer segment, rather then operate around simple product-specific channels. This new business process shifts the focus from making a sale towards empowering the customers to make decisions with comparison-shopping while encouraging active participation in the creating of the information through on-line forums, chat and classifieds.

Business Process Redesign is a very risky venture. Letting the customers drive the process change makes it even riskier. (Costello 1999) In most cases the jury is still out on whether these newly redesigned community-centric processes will yield viable business models. It is unknown also when the businesses will be able to pay-off for the enormous investment into the new information systems making the new process possible. However, organizations that have used IT to redesign boundary-crossing customer-driven processes in the past have benefited enormously. (Devenport 1990)  Among many others, VNCs have been used in the redesign of the Investor Information and Business-to-Business Trading Hubs Industries with a great promise of future success. In these industries, VNCs were used to shift the organizational paradigm toward mass customization of content and e-commerce, building long-term customer relationships based on complete solutions that meet the needs rather then on selling stand-alone products. (Kaye 1999) These new e-conomy players put the customer in the driver’s seat – able to demand personalized offerings tailored directly to their requirements. (McKenna 1999) This process redesign also involved getting closer to the customers by actively empowering them to make informed decisions and involving them in content generation and evolution of the business as the whole. At this point more research is needed to determine which of the industries are most likely to benefit from BPR with VNCs. However, positive experience of Investor Information Companies and Business-to-Business Trading Hubs shows that VNC model can be a powerful tool for business process redesign and organizational paradigm shift. VNCs have great potential to help the companies find new profits and form valuable customer relationships in the emerging e-conomy.

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