August 18, 2017

Article 8.2



Every physical distribution channel is growing a digital shadow due to the exponential growth rates of internet technologies and universal connectivity. As physical goods flow through channels, they are accompanied by bi-directional information flows. This information and more is in the process of being gathered, digitized, relationally databased, re-purposed, filtered, editorialized and re-distributed to anyone in the channel who might benefit. Information services that are only possible in cyber-space will emerge and be offered by new infomediaries if current channel players don’t see and exploit the opportunities first. Some of these services will become very profitable, channel-information, utility-company monopolies, because of the "increasing returns" of "internet economics."

The new digital marketspace will complement, control, downsize and re-shape the traditional physical distribution marketplace. The chronic excess capacity and obsolete – assumptions, structure and attitudes – within physical channels will be exacerbated by the DNCs. Financial consolidation of traditional players may buy some short term cost cutting relief, but false economies of scale for old business model thinking will still eventually lose out.

If this all seems strange, think about how the global financial markets (GFM) were derived from but now control the real world economy. The GFMs are digital and occupied by firms that make serious money. Nations and their central bankers all report to thousands of self-organizing financial traders who enforce strict free market economic policies. If a country doesn’t make the tough, right, financial decisions, then capital leaves their economies at the speed of light and shuts the country’s economy down.

Infomediary examples from other vertical industries may also help. Broadcast television created the need for TV guide and AC Neilsen ratings. Scanning at grocery checkouts allowed Neilsen to once again buy the data stream to create database, reporting services for the packaged goods manufacturers. Many grocery retailers sell groceries today at a loss, but still make a net profit due to both Neilsen and slotting allowance fees. Making money on the informational exhaust of a vertical industry will happen in all channels.

How and when will the DNC emerge in any specific channel? It will depend upon - the different types of product categories that are flowing through the channel; the wired readiness and necessities of the channel’s end-users; and the total volume of information and new value that can be created within a channel’s marketspace.

In all channels, the DNC will emerge from a melding together of different types of extranets. Producers’ selling extranets will feed into, around and back to distributors’ extranets. Large end-users will set up e-procurement, MRO extranets that will cause supply channels to recast themselves. Industry database utility companies will be set up by - associations, consortiums of complementary manufacturers or third party infomediaries like in the PC channel or SciQuest in the lab products channel. These utility companies will create de facto, XML-based standards for a given channel that will help to consolidate extranet development and data transfer costs within channels.

Merrifield Consulting Group, Inc. Article 8.2