The collaborative enterprise

In the old times you would squeeze the suppliers and leverage your buyer relationship. The end result would be more profit. In the future we will be trading a lot more in information, a resource that doesn’t diminish with use. Information and knowledge gain value when used. As such, a cooperative environment can help all partners involved in a transaction. In performance marketing, I can share performance values with everybody and they will still be there, hence the start of a collaborative business model.

Of course all this sharing of information means that you will have to build up very specific knowledge within your enterprise and knowledge is not easily shared, especially when it is embedded in your processes. You need to make sure that you are very efficient and focussed on your part of the value chain of the collaborative. With the advent of Web Services, the automation capabilities rise and this automation brings swifter turn around, adaptability and scalability of the value chain. You can also hide the inner workings of your system while having the ends open and public. Knowing the eBay of Google Awords API doesn’t mean you can replace them, just that somebody else doing the exact same thing might have an option to get in, or get a small share of the value generated by being a second partner in this part of the value chain. For that to happen this company then needs to have built a similar amount of knowledge or have optimized its value chain more efficiently than the other party. This might be done by going into a specific niche and being better in that niche only. A good a robust API that can interconnect with existing cooperatives, will allow you to then take part of the system.

While the internet has been used by a lot of old economy businesses to share more information across the value chain, internet advertising has made little use of it for a long time. In the early years of the internet, we had a lot of CPM based placement, coming from the understanding of how the print market works. Prices were dictated by publishers, trying to take an as large as possible share of the value generated by advertising. A lot of buyers of advertisement have hence gone out of business or at least burnt themselves in the process, making prices drop as the advertisers learnt about the real value that online advertising brings. Publishers believed that prices will be stable or rise as more companies push into the internet advertising market. This has been a wrong assumption as prices had been overblown or at least have had to come down considerably as the Internet matured.

Internet businesses took a long time to share information and build cooperative agreements between different parties. With the rise of performance marketing this is changing. Suddenly a sustainable long term business model emerged and the market will make sure that over time, a fair market price will be found.

The performance marketing business is largely self-priming in that the higher the performance, the more of a win-win-win situation it is. If the publisher tries to increase the performance of their placements, these placements will make them more money on an eCPM basis. If the target site has a better performance, higher prices can be paid on a lead basis or less money asked for on a lead basis. If the merchants make a better conversion because of better lead quality, they can get more profit and make more on a per lead basis.

If one of the parties in performance marketing tries to maximize their gain, the inhibit the profit of the entire value chain, and therefore the possibility of a long term growth of the collaborative. This can only be the best route if it is believed by that one party that other players will emerge that pay more for what they deliver in the future, even if the current partner breaks away.

This means that a close and cooperative relationship between different players in the internet advertising value chain can lead to higher prices in the long term, as more knowledge of all parties gets embedded in the overall process. This will lead to a collaborative that is hard to break into by another player without a specific value added in a niche as they would need to build up additional knowledge beyond that in the collaborative.

This enforces again the Web 2.0 idea of focussing on one specific problem and making different parts interconnect. Welcome to the age of the long-term collaborative enterprise.