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Fortnightly Magazine - January 15 1999

cyber-warehouse. The scope of the changes resulting from the business models was driven further home in late 1998 when he received an order from Amazon's competitor, Barnes and Noble. To his astonishment, the author discovered that the unsold books that lay in his attic had somehow been listed in a second worldwide catalog, this time without his having done a thing to list the book there.

Like Darwin staring at fossilized fishes 12,000 feet above the blue Pacific, I was struck by a colossal discontinuity. Today, in the new distribution/marketing business, the availability of cheap, well-organized information is replacing cheap green suburban fields. Evanescent electrons begin to substitute for a concrete pad, steel beams and a parking lot - not to mention tires, gasoline and a few fast food joints.

Creating a Well-Lit Marketplace

First-generation cyber-merchants such as Amazon continue to buy goods from suppliers and resell them at retail to consumers. Other businesses, however, are pushing the model one step further.

eBay, for example, has created what might be termed a "pure auction" business. eBay never owns the goods at any point in the transaction. Instead, it serves merely as the humble meeting place for the buyers and sellers to get together - something like the role played by New York, Paris, Rome and London. The auction business tries to provide a convenient, well-lit marketplace. It enforces a few basic ground rules for buyers and sellers, earning commissions on each transaction. These are fees that might have been called "rent" under the older business model.

A variant - or rather, a complement - of both the cyber-merchant and cyber-auction models is the electronic comparison business model. Here, the service provider merely offers an electronic tool for comparing prices and terms set elsewhere. Already evident is a variety of such services, including CompareNet ( and others. In its simplest form, this variant is merely a service that surveys publicly available prices and presents them in a side-by-side comparison. These sites serve a market-policing function, enabling buyers and sellers to learn what prices are available in other transactions. These sites may grow into purchasing cooperatives as well, as appears to be a goal of such companies as and

Importantly, an auction house such as eBay has every reason to design and operate a fair and efficient marketplace. Since the auctioneer makes money from successful listings, it has every incentive to encourage buyers and sellers to return time and again to its marketplace. Obviously, that means first and foremost maintaining the integrity of the marketplace. Honesty is the only successful policy for a web-based merchant, since violations (both actual and suspected) are sanctioned in a New York nanosecond with a click of the mouse.

Righting Mistakes of the Past

Which of these merchant/auction models would work best for natural gas or electricity? The short answer, of course, is that no one knows, least of all the FERC. What we do know is that given the freedom to innovate, software designers and entrepreneurs have proven able in just a few short