For Maurice. tele.com. Fixed Price: Going Once ...
by David Ticoll. David Ticoll is managing director and
CEO of the Alliance for Converging Technologies
(Toronto), a research and consulting firm that specializes
in innovative business strategies for the digital economy.
He can be reached at dticoll@actnet.com.
Is fixed pricing on its way out? We're starting to see signs that
this might be happening in both business and retail
transactions, even in markets where fixed price has never been
entirely dominant. Consider these online businesses:
* Priceline lets consumers "name their price" for air travel,
hotel rooms, cars and mortgages. In exchange for these deals,
buyers give up specific control over choice of supplier (which
airline, for example) and other conditions of the deal (they can
pick the date of travel, say, but not the number of stops).
* Onsale has a healthy auction business in overstocked and
slightly obsolete electronics and other products. Many of these
products were traditionally sold at discount; now they've
shifted to a more lucrative auction model.
* Bill Hambrecht--lately of the investment firm Hambrecht &
Quist, which he founded--is launching a new business. It will
use a Dutch auction format (which begins at a "high" price and
moves downward) to price and allocate shares of initial public
offerings (IPOs). Hambrecht's approach takes pricing power
away from investment banks and will be a lot cheaper for
issuing companies. And anyone will be able to vie for access
to new issues, not just the underwriters' favorite clients.
* A new startup called FreeMarkets is challenging the way
businesses conduct competitive procurement. The traditional
"sealed bid" approach gives vendors a modicum of price
protection, but FreeMarkets has developed a new process for
setting up and running real-time bidder auctions. Buyers like
Caterpillar and Siemens claim to have saved 20 percent or
more over the old way of doing things.
These new "open market" models are certainly in the interest
of customers, who gain in choice and often in price. But,
surprisingly, they often benefit sellers as well. Onsale's
suppliers are getting rid of more stuff--faster and for better
prices. Hambrecht's issuers will save on road shows (which
will be done over the Net) and will likely get prices much
closer to the skyrocketing first-day values now enjoyed by
"flippers."
Why is this happening? Open markets prevail where the
"transaction costs" associated with real-time price negotiation
are lower than the variable range of price uncertainty. It's not
worth a consumer's while to negotiate the price of a bottle of
milk every time she goes to the supermarket. But if she could
force several supermarkets to compete over discounts in
exchange for her long-term business, it might be worth it. The
Internet makes such things possible: It reduces the costs
associated with time, distance and demand aggregation that
have restricted mass-market price negotiation.
All this will apply to a variety of telecom businesses. We will
see the emergence of a new class of companies that aggregate
customer demand segments and force suppliers to aggressively
compete for long-term (and even short-term) commitments.
Price discovery mechanisms, which subtly define the
advantages and disadvantages of various players, are also
going through a period of change. Priceline has even
convinced the U.S. government that its price discovery model
is worthy of a patent. The Securities and Exchange
Commission has accelerated its battles with NASDAQ, the
American Stock Exchange and others in order to level the
price discovery playing field in the securities industry.
Telecom companies need to prepare for the opening up of this
new frontier and identify the opportunities and threats that it
represents. It might be a good idea to talk to some of your
folks who learned the auction game at the feet of the Federal
Communications Commission about how to apply their
knowledge to the emerging price discovery markets for
telecom companies and their customers.
Questions or comments on this column?
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