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The Electronic B@zaar: Part 2 - the four hinges
Robin Bloor is one of Europe's leading technology visionaries. His latest book - 'The Electronic Bazaar' - has just been published and is this week being serialised exclusively on silicon.com. In the second of five extracts, Bloor considers the four essential facets of the electronic economy.

By editorial@silicon.com

Published: Wednesday 28 June 2000

**The four hinges**

"In order to understand a door, it is only necessary to understand the hinges," as the saying goes. In analyzing the electronic economy, we have identified four hinges - the four fundamental mechanisms that are making the whole thing work and that need to be understood in order to gain a complete picture. These hinges open the door to the future for the businessperson and the entrepreneur.

* The hockey stick curve *

The first hinge is a new model of market growth. The growth and saturation of markets have long been objects of study. They have been roughly represented by many commentators as a normal distribution, the familiar bell-shaped curve.

However, this curve does not provide a valid model for the growth of internet markets and internet companies. Because of this, various internet growth patterns are modeled using a different curve that has slightly different characteristics. This is the "hockey stick curve," so called because it is roughly shaped like a hockey stick, the length of the hockey stick corresponding to a phase of massive growth.

The hockey stick curve can be observed as the growth model for a whole series of internet businesses, including well-known names such as Amazon and eBay. Once the bend in the hockey stick has passed, the business accelerates like a rocket, leading to unprecedented growth statistics. Take, for example, the fact that on its website, online stockbroker Charles Schwab experienced an increase in traffic of a factor of six in a period of a year from the first quarter of 1998 to the first quarter of 1999. In the same period, its level of trading rose from roughly $2 billion per week to about $2 billion per day (on weekdays).

* Publish-subscribe *

The second hinge is a series of mechanisms (email, the website, the multi-user domain (MUD) or community, and the search engine) by which electronic interaction occurs in the electronic economy.

In the bricks-and-mortar economy, customers and companies interact in a particular and well-defined way. However, the modes of interaction in the electronic economy are slightly different, and the consequences of this are profound. The fundamental difference is that in the bricks-and-mortar world the individual relates in a one-to-one manner in many situations, and organizations tend to relate in a one-to-thousands manner. In the electronic economy, the customer is suddenly given the power to relate in a one-to-many manner and the organization can respond in a more refined one-to-many manner. This arrangement is described as publish-subscribe, where one party publishes information and the other subscribes, if he or she wishes to do so.

In respect of email, joke-of-the-day.com is an advertising business that simply emails a joke to subscribers every day. There are literally millions of examples of websites with varying degrees of sophistication, from Amazon with its single-click purchase to Boo.com with its three-dimensional dressing room for clothes buyers. Perhaps the best example of a community-based website is The Well as it was, in the early days of the web, a very influential site where many individuals floated ideas and exchanged views. However, there are also sites, such as the health site WebMD.com, which use the community mechanisms (the bulletin board or MUD) as a business mechanism. Finally, websites like AltaVista and Ask Jeeves are based entirely on the search engine, a mechanism that allows an individual to identify multiple sources of information at once.

* The force of automation *

The third hinge, the force of automation, is a fundamental force of change and is very important within the electronic economy.

A simple example is provided by the recent innovation of soft drink machines in Finland selling Coca-Cola. You can buy a can of drink in one of two ways. Either you put money in, or you can dial a telephone number displayed on the machine using a mobile phone. The number dialed is answered by a computer, which contacts the drinks machine over the internet telling a local embedded chip to release the selected can of drink. The computer then automatically sends a bill for the drinks can to the mobile phone service, which adds the charge to your mobile phone bill.

This is a very slick idea that will work well in areas such as Scandinavia, Hong Kong, or Italy where mobile phone penetration among the population is very high. For the idea to work, various new technologies had to have come into usage: embedded chips that are able to communicate, mobile phones, and the internet. This is the force of automation in action, creating new business opportunities by virtue of the deployment of new technology.

* The trading model *

The final hinge, and one that offers a background for all the others, is a simple model of a market, the pattern of the buy/sell transaction. One of the main areas of change that the net introduces is that it alters the way in which markets behave. The trading model provides us with the capability to understand how the net changes the picture, because it charts the information flows between all the players in a market. Think of the internet as a large market, an electronic b@zaar with many stallholders selling a range of similar or even identical goods, and a large number of buyers haggling with the sellers to agree a reasonable price.

It cannot have escaped many people's notice that auctioning, which is a fairly marginal activity for selling goods in the bricks-and-mortar economy, is a massive and very popular way of selling goods on the internet. There are now businesses worth billions of dollars, such as Priceline and eBay, that handle the auctioning of hundreds of thousands of items every day. Some manufacturers are also using auctions as a selling mechanism, occasionally just to dispose of unwanted inventory but sometimes as a genuine channel to market.

We could ask why this is-and we might come up with many justifications, such as taking part in auctions is fun, auctions nearly always ensure that goods get sold, people can get bargains, and so on. In reality, these are just details. Auctions work very well on the web because the internet allows information to flow efficiently between sellers and buyers and it can connect together millions of people at once. The popularity of auctions and other forms of market making become far easier to understand if you understand the trading model.

All of the world's economies are being quickly pulled into the electronic b@zaar. The very nature of buying and selling is changing dramatically and every one of us will have to adjust to it at every level - as an employee or businessperson and as a consumer and a citizen of the planet. We are all, whether we like it or not, becoming part of the electronic b@zaar.

** Extracted from 'The Electronic B@zaar: From the Silk Road to the e-Road' by Robin Bloor published by Nicholas Brealey Publishing, £19.99.