Tip Towards Buyer Power

The proliferation of the internet and related technologies has certainly altered the balance of power between businesses and their customers. It is undeniable that in the current shake-out a variety of business industry structures have changed for good or are in the process. There is even reason to suggest that the larger and traditionally safer investments might now be facing the strongest challenges.

As Fred Wilson warns in a recent blog post Is There Such a Thing as a Blue Chip Stock Anymore? instead of the previous structured economy that was developed in the 19th century the new economy is “global and driven by information and technology.”

The name “blue chip” is derived from the poker chips that have the highest value. With GE and GM trading below $10 per share, just how much into perpetuity can the elite and established firm’s future dividends be assumed to reach? Just how valuable can they be assumed to be?

Of course, the situation needs to be looked at on a case-by-case basis. But it seems that in this troubling economic time, firms driven by technology are those nimble enough to take action and model themselves to a new set of criteria. In Adapting Marketing to the New Economy the authors mention technology as one of the drivers behind this new economy. With an ability to pull out a blackberry and purchase whenever and wherever, the Porter approved force of buyer power has grown across the business horizon. Customers are catching on, comparing notes on products and services, looking up housing prices, music, consumer reports, and checking movie ratings and trailers before going out (when the rated numbers are high enough and a movie is given a C, I probably won’t see it). The most enthusiastic people I know about internet technology are my grandparents who constantly use skype to make overseas calls.

There will always be a role for companies that deliver products and/or services with economies of scale and scope, and with already established access to financing and capital. These advantages are just too great for a smaller firm to directly take on.

The opportunity for a smaller firm comes in its ability to differentiate itself. A solution can be presented to a global marketplace for dirt cost; that is something hard to compete with.