SINGAPORE (04/05/2000) - If the key to successful real estate is location, location, location, then the key to success in the new Internet economy is relationship, relationship, relationship, according to Glover Ferguson, co-director of the e-commerce global program for Andersen Consulting Inc.
"You need to embrace and entangle your customers," he said here in his keynote at Comdex Asia. "Embracing them means finding a service which is of value to them, and entangling them means providing them with something that no other company can break into."
Online banks which provide a number of payment and financial services get entangled in their customers' lives in this way and so make it hard for them to switch banks, according to Ferguson.
Companies need to align themselves with the business model of increasing returns, which is where the digital economy is heading, Ferguson said. This model implies that the big get bigger and the losers go to the wall in a much more clear-cut way than in the pure industrial economy, he said.
"Before, we worked on a model of diminishing returns, where companies got so complex they couldn't add efficiency by growing," he said. "Now that we are pouring information into the economy, we have a model of increasing returns where there is only room for one or two players, not 15 or 20. It's a drive for size, a Pac-Man (video) game to achieve scale. You have to play to win."
Part of the relationship aspect of business in the Internet era means shifting from a product and commodity mindset to a service mindset, according to Ferguson. Commodity products can only compete on price, but services have an intangible element which enables companies to maintain profit margins, he said.
"Can you remember when mobile phones used to cost money? Now the companies give you the phone for free and then ask you to sign up for their one-year service plan," he said. "This use of products as a platform on which to sell services will be a recurring theme."
Building online communities is one simple model of building relationships. "You have to know how to throw the party and how to get the money," Ferguson said.
Other methods include buying loyalty with reward programs, saving people time in online situations through knowing their preferences and building strong brands.
Companies need to think big, start smart and scale fast if they want to succeed in the digital economy, according to Ferguson.
"Small revolutions fail. What causes revolutions is a large perceived benefit or the disastrous consequences of doing nothing," he said. "If you find your way into the model of increasing returns, you will be obliged to scale fast."