Monetizing the Middle

Regular readers know that I am focused (fixated?) on a concept I call “central market position.” I use this term to describe companies (typically media and data companies) that occupy a trusted, established and neutral position in the markets they serve. Central market position is important because it can be monetized.

Traditional data publishers collect data themselves, whether via manual or automated means. They scrub it, organize it and otherwise add value to it, then turn around and sell it This is a solid, established and successful model, but companies with central market position have a much larger opportunity.

With central market position, you have the potential to do things that nobody else can, things that would otherwise be viewed as impossible. You can, for example, ask all the companies in your industry to share their customer lists with you, their sales data, employee information, their prospect lists – practically anything. How is this possible?

Well, two conditions must exist. First, this privileged information will only be provided if it is directly used to solve a major need or problem in the marketplace. Second, the intermediary who will be handling the information has to be established, trusted and neutral. The natural intermediary is a company that has a central market position.

Consider a product called PeerMonitor, a Thomson Reuters product. PeerMonitor literally hooks into the accounting software of participating law firms and sucks out all their billing information, right down to line item detail. Why would any law firm allow this? Because the need to know the going market rate for, say, a bankruptcy attorney in Atlanta far outweighs the reflexive need to protect information like this.

Consider also a company called SQAD in the media world. Advertising agencies electronically submit their purchase orders to SQAD. Are they giving away key company secrets by doing this? Yes, but it’s worth it because the data that comes back to these agencies – namely the real prices being paid for television and radio advertising – is more than worth it. And SQAD, as discussed, is a central, trusted neutral player that normalizes, de-identifies and aggregates the data in such a way that companies can give away their secrets without giving away their secrets. It works for everyone involved. Another interesting company is MDBuyline. Here, participating hospitals submit price quotes for medical devices and other hospital equipment. MDBuyline aggregates the data so that all participating hospitals can see the true going rates for medical equipment, not the meaningless list price. Again, the benefit is sufficiently large to justify supplying confidential information to a third party.

What you need to do is recognize your central market position, and start identifying market needs you can address as the central collector and aggregator of critical industry data that would otherwise never be shared. Trust me, the opportunities are endless. 

Paradigm Lost

The operative paradigm in almost all forms of publishing is to centralize information. At one end of the spectrum are companies like Factiva that aggregate thousands of data sources for their customers to access for all kinds of uses. At the other end of the spectrum are media such as newspapers that scan a specified body of information, then curate it, bringing to their readers only the information they feel is most important and relevant. Data publishers fall somewhere in the middle of the spectrum, both aggregating and curating, with the added step of normalization.

What’s implicit in this centralization, however, is that the customer comes to the content in some central location. There are obvious advantages to this approach, the biggest of which is that all the content can be accessed via a single, consistent search interface.

But centralizing data isn’t always easy. This is particularly true with some types of product data. In some industries, manufacturers, for reasons good and bad, want broad distribution of their product data to qualified prospects but nobody else. Sometimes this is driven by regulation; sometimes it is driven by competitive fears. So how do you centralize data when the market doesn’t want it centralized?

One early innovator we liked was a company called Innovodex (now owned by Underwriters’ Laboratory). It worked with companies in the materials industries who wanted only qualified engineers and designers to have access to their new product data. Innovadex took on the job of screening and vetting new users, granting access to those meeting certain criteria. It was  effectively a giant extranet of product data from participating manufacturers.

Recently, we’ve seen another spin on this model. A new initiative in the pharmaceutical industry called Align Biopharma (sponsored by the always innovative Veeva Systems) wants to centralize login credentials for physicians. Much like LinkedIn and Facebook offer single-credential logins to third-party sites, Align Bipharma wants doctors and other healthcare professionals to be able to access any pharmaceutical company product information site with a single login.

Align Biopharma has other interesting data standards initiatives, but what jumped out to me was that in a fiercely competitive industry where manufacturers all want to do things their own way, it may make more sense to centralize the logins than to centralize the content.  And of course, the data gleaned from sitting in the middle is a worthy prize in itself.

Centralized users and distributed content. Sometimes great new ideas come not from thinking outside the box, but inverting the box. 

Reviewing an Imperfect Model

We all know that online ratings and reviews are increasingly popular, with some large and successful companies based entirely around providing them (think Yelp and TripAdvisor). Ratings and reviews are not only popular, they have become a profoundly influential tool in helping consumers decide what to buy and where.

Not surprisingly, as ratings and reviews have become more important to consumers, they have also become more important to businesses, many of whose revenues rise and fall in line with the quality of their online reviews. And the outsized importance of these reviews has attracted scammers and spammers. Some even argue that this ability to post online reviews puts too much power in the hands of consumers, many of whom exercise it thoughtlessly and mercilessly.

The most important rating and review systems are invariably operated by third parties, who provide critical market neutrality. But many of the biggest ratings providers got into this business with no idea how powerful they would become. What they did know was that they needed to amass lots of reviews quickly to build consumer adoption. Making volume their top priority drove down the quality and integrity of these reviews. But the review site operators deeply believed in the concept of the so-called “wisdom of crowds,” and that with enough volume, the honest reviews would overwhelm the false reviews and everything would ultimately work out just fine … at least in the aggregate. But that’s little comfort to an individual business that is suffering from an onslaught on underserved bad reviews. Horror stories abound for all of the major review platforms:

Where’s the law on all this? “Desperately playing catch-up” sums up the situation very well.  Interestingly, the review platforms themselves are well protected by federal law that views them essentially as innocent messengers. Individuals who post reviews can be exposed to lawsuits if their reviews contain defamatory or inaccurate information that causes financial or other harm, but it can be hard and expensive to track them down. A recent federal law makes it illegal for businesses to prohibit customers from posting reviews about them. And an increasing number of government agencies are cracking down on businesses that pay to have positive reviews about themselves posted.

In short, the law is increasingly acknowledging the importance of reviews in commerce, but the whole field still lacks adequate checks and balances. In particular, businesses still have a weak hand. But forcing review platforms to take responsibility for the accuracy of reviews would be such a complex and expensive task it would likely put many of them out of business.

Reviews are powerful. Consumers depend on them to determine where and with whom they spend their money. Businesses are impacted by reviews – for better and for worse. Yet the major review platforms, well insulated by current law and all seeking scale at the expense of vetting and customer service, come down heavily on the side of consumers. Ordinarily that would be fine (success comes from knowing and fiercely supporting your audience), but consumers have shown limited interest in paying to support the big review platforms (think Angie’s List). At the same time, businesses have shown only limited enthusiasm for supporting review sites where they can’t have significant control over what is said about them.

Bottom line: rating and review sites represent an important but imperfect business model. Those who benefit most from they don’t want to pay for them. The platforms themselves don’t want the cost and hassle of vetting reviews. And businesses don’t want to advertise in a place where they can’t control the message. We’ve seen some innovation along the lines of verified reviews, where the reviewer must be a known customer of the business being reviewed, but this is not a full solution to what ails this model.

Opportunity knocks for someone who finds a kinder, gentler but still useful spin on this important category of content.

Making Introductions, Profitably

An interesting article in the New York Times highlighted a company called Legal Services Link. As you might infer from the name, the company works to connect lawyers with those who need legal services.

Lead generation? Yes, but with a twist. In this model, buyers are actively seeking sellers and the intermediary is attracting these buyers and adding value by actually matching buyer to seller. In many cases, the buyer is asked to complete a requirements survey, which is then matched to a database of qualified sellers. The intermediary (usually a data company), identifies usually from one to three vendors best qualified to help the buyer, and puts everyone in touch.

The benefit to the buyer is that a small number of pre-screened, qualified sellers make immediate contact with the buyer – enough sellers to have some choice, but not enough to be overwhelming or annoying. You may possible be surprised to learn that a hidden value-add of these matching services, is that they monitor the sellers to make sure they get in touch with the buyer quickly. Yes, even with sellers paying sometimes hundreds of dollars for a hot lead, they still manage to drop the lead on the floor!

What’s also nice about this model from the perspective of the intermediary is that there is no chance of “leakage” – a term for when buyers or sellers circumvent the intermediary, often to avoid paying a commission.

This model works well for both B2C and B2B. It seems to work best for high-value purchases that the buyer only purchases sporadically. This irregular buying pattern is key because it means the buyer can’t keep up with what seller offers what product, or even the products themselves. Markets with rapidly changing technology are especially good.

Since the buyer fills out the requirements survey with full knowledge she will be immediately hearing from salespeople, she makes an enormously high value lead. And since the seller has a good understanding of what the buyer needs before making contact, the initial conversation is more productive and the sale tends to close faster.

This is a strong model that makes more sense than ever in a world that’s rapidly getting used to apps that speed the delivery of everything. If you see the right fundamentals in your market, it’s a model that’s well worth exploring.

Knowing More Than You Can Tell

Most of you have some familiarity with Gerson-Lehrman Group (GLG), the phenomenal success story that pioneered the idea of connecting experts on a wide variety of topics with those who needed fast, trustworthy and unbiased insights into a market, a company, a technology … whatever.

Not surprisingly, GLG found most of its clients in the financial sector, from hedge funds to private equity firms and others that needed expert insight fast to inform the often significant investment decisions they were making. These clients paid fat fees, and the experts were well paid for small chunks of their time, and it all went swimmingly for many years.

Where things got awkward is that some investors wanted more than background information: they wanted confidential information. GLG was very aggressive about policing this, understanding that it could damage its business. However, some GLG competitors didn’t have the same ethics, and differentiated themselves by playing on the often-murky line between public information and inside information. This potential to misuse the raft of expert services that now exist continues to cast a pall over another otherwise strong business model.

Enter a new start-up called Emissary. It’s an expert service, but rather than focusing on connecting experts to investors, it seeks to connect experts to salespeople. Want to know how to tailor your pitch to a particular company? Emissary can find someone who knows. Similarly, salespeople often find themselves wondering if they are dealing with a decision-maker or not at a particular company. Say hello to Emissary, whose experts may well have worked at the company in question.

Visit the Emissary website, and you’ll see a carefully crafted message: we’re just people helping other people. At one level, this is certainly true. And connecting a sales team to a recent former employee of the prospect company doesn’t seem to be rife with the same legal and ethical issues that exist for investors, but I suspect Emissary’s long-term success will depend on it also establishing an ethical line in the sand and policing it closely.

What also makes Emissary interesting is it’s a model that can be moved not only across verticals, but across functional areas as well.