The Rise of the AgoraTransparency can help your customers better understand your value propositionby Don Tapscott Transparency is a powerful new force in business. Customers, employees, partners, shareholders, and other stakeholders increasingly can find pertinent information about corporations, inform others, and even self-organize. When it comes to customers, transparency not only helps buyers know more about sellers and their goods and services, find the best deal, and aggregate their purchasing power, but also changes the way prices are determined. In Digital Capital: Harnessing the Power of Business Webs (Harvard Business School Press, 2000), my coauthors and I discussed how new communications media, especially the Internet, facilitate price discovery, whereby buyers and sellers cooperate and compete to arrive at a mutually acceptable deal. In the book, our discussion isn't restricted to online transactions but rather embraces business models that may transcend the physical and digital worlds. An Idea RebornIn ancient Greece, an agora was originally a gathering place for assemblies; the word later evolved to mean the marketplace at a city's center. Today the term applies to markets where buyers and sellers meet to freely negotiate and, by doing so, "discover" a price for goods. Agoras are enabled by, and in turn facilitate, transparency; they work best when buyers and sellers know more about each other and the goods and services to be transacted. As such, agoras have the power to increase seller liquidity (the ease of converting assets into cash) by matching buyers and sellers and helping them discover a mutually acceptable price. Historically, agoras served a special distribution function for goods of uncertain or volatile value. These were typically unique, distressed, or perishable items and commodities for which supply and demand fluctuated continually. Unsuited to traditional fixed-price models (there is no list price), the value of these goods had to be resolved — or discovered — through direct negotiation between producers and consumers. With the exception of commodity exchanges and stock markets, most traditional agoras have been limited by time and space. In an Industrial-Age economy of scarcity, buyers and sellers often preferred the predictability of fixed prices. Pre-Internet, large-scale auctions or exchanges were impractical. Success required a critical mass of buyers and sellers who wished to exchange the same good during the same time period and who used the same mechanism to communicate and conduct price discovery. The only working examples were commodity and stock exchanges or limited auction events. But today the scope of variable pricing is expanding dramatically. Because of transparency, negotiated transactions between buyers and sellers are challenging pricing habits and value allocation models in one industry after another. Follow the LeaderUsually one company (or consortium) acts as a market maker and sets broad rules. It governs the nature of the playing field, its boundaries, player eligibility, and the processes of competition. After that, participants make their own decisions without interference. Because of their multifaceted and dynamic nature, agoras present nearly unlimited opportunities for innovation in price discovery. Some agora operators, such as OnSale Inc. or uBid Inc., simply bring auctions to traditional retail goods. FX Alliance LLC (FXall) describes itself as a multibank portal, but it really provides the beginnings of an open market for foreign exchange and now accounts for $9 billion in trading daily. Author and consultant Mohan Sahwney argues that openness can strengthen relationships rather than commoditize them — but only if the sellers focus on value, rather than just the lowest price. "Transparency is only the enemy of profit if customers are ignorant about the value you provide," he says. He encourages you to consider whether you're better or worse off with an informed customer. If you think you're worse off, you either have inferior products and prices or you don't understand the power of transparency. To profit from transparency, Sahwney says companies need to understand two important principles about customer decision-making. First, customers never buy solely on price, even though companies might think they do. Second, prices may be transparent to customers, but value often remains opaque. By making their value propositions visible to customers, companies can benefit from the democratization of information. One strategy is to develop flexible market offerings that let customers choose the services they value and pay for only the ones they use. Then, "communicate your value proposition" to ensure that nonprice variables are fully quantified. Not all agoras are based on the notion of increased customer knowledge. Priceline.com deliberately keeps the customer in the dark as to price and product. Users submit bids on hotels in downtown Chicago, for example. Computers then look for a match. If the buyer's bid is high enough, Priceline confirms the booking. But customers won't ever know if they could have bid lower or which other hotels were vying for their business. If the bid is too low, customers aren't allowed to rebid, preventing them from trying to discern the floor price. Not all consumers tolerate Priceline's opacity strategy. A group of its customers come together to swap intelligence at www.biddingfortravel.com The conclusion? You can be actively transparent or have transparency done to you. The latter means you'll become a naked corporation — usually not a pretty thing. Don Tapscott [don@tapscott.com] is coauthor (with David Ticoll) of The Naked Corporation: How the Age of Transparency Will Revolutionize the Firm (Free Press, 2003).
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