Futures, When Old Partners Become New Competitors
by Jim Carroll

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Instead, this money has gone to the airline that I`ve bought the ticket from. In so doing, I`m part of one of the most significant challenges to  occur with the emergence of e-commerce: I`m participating in what I`ve come to call "channel-partner competition."

Many product suppliers are now choosing to directly compete with their sales channel, at the same time that they continue to offer product through that channel. Consider airlines: they`re working hard to sell tickets directly through their Web sites, offering extra frequent flyer points or other inducements. At the same time, they continue to sell through their travel agency representatives. In so doing, they are causing upheaval and concern throughout the industry.

Of course, many of us are familiar with the direct-to-consumer scenario presented by the Internet. "Disintermediation," the buzzword-du-jour, has been used with abandon to talk about a world in which product suppliers lessen the role of the middleman in a sales transaction. What has been missing in all of this talk is the fact that companies aren`t seeking to eliminate their middlemen, rather they`re choosing to compete with them. This makes for a rather weird, stressful and strange state of affairs.

Companies are taking an attitude of "we`ll disintermediate you at the same time that we value you." Consider the travel industry, one area that is particularly feeling the severity of channel-partner competition. Throughout the industry-airlines, hotels, car rental groups and cruise companies-a multitude of suppliers have decided to use the Internet to directly reach the consumer, while still maintaining a relationship with the travel agent.They`re hedging their bets, seeking to get a new distribution channel, while gently placating those who have long represented them.

Whether a company should compete with its sales channel is a vexing question. Recently executives in the property/casualty insurance industry have been wrestling with this question. Clearly, they are examining with trepidation the business model established by companies such as InsureMarket (www.insuremarket.com) and Health Axis (www.healthaxis.com), Web sites that provide for the direct sale of insurance products to consumers. It`s clear that such initiatives mean that they too must get involved in direct-to-consumer sales. Yet they know that if they do, they might see many of the traditional insurance agents who represent them bolt from the pack and start selling products from their competitors. They`re caught between a virtual rock and a hard place.

The complexity of the challenge has meant that some companies have taken longer to wrestle with the decision to compete against their distribution channel than others. For a long time, senior executives of financial giant Merrill Lynch dismissed the Internet and the concept of online trading, equating it to a form of sophisticated gambling. In refusing to set up an online trading site, they were implicitly protecting their sales channel: the Merrill Lynch broker.

They then sat back in exasperation, as customers flocked to online trading competitors. The execs finally recanted several months ago, vowing to set up their own online brokerage. Yet in a futile attempt to keep its sales channel placated, Merrill promises to implement its direct brokerage in such a way so as to keep the broker involved! I doubt that such efforts will have much luck.

The concept of channel-partner competition is causing some retailers to fight back against their suppliers. Home Depot, for example, wrote to many of its key suppliers several months ago, advising them that it would view any attempt to sell direct-to-consumer in a very negative way. It implicitly threatened suppliers-such as toolmaker Black & Decker-that it might drop their products from its stores if they chose to sell directly through the Web.

Of course, it`s difficult to judge the overall impact of channel-partner competition. Clearly in the travel industry, it`s having a serious impact. Yet, others haven`t been as successful. Consider the case with Levi Strauss. Long a pioneer in the world of e-commerce, it invested heavily to create a sophisticated online store. It forbade several of its sales-channel partners from selling Levi`s jeans on their own Web site. It advised JCPenney, for example, that it would not be permitted to sell Levi`s online. But just a few weeks ago, Levi announced that its effort to sell blue jeans through the Internet was not quite successful, and that it was shutting down its online venture.

Clearly, with the emergence of the Internet and e-commerce, channel-partner competition is one of the most challenging concepts to impact the world of business. Every executive, whether a supplier or a seller, should take the time to examine how their industry is wrestling with the issue, as part of the process of determining how to respond.

This article is Copyright © 1999 Jim Carroll. All rights reserved. Jim Carroll is the Ontario based author of over 25 books related to the Internet and e-commerce. For more information on Jim Carroll`s expertise and availability contact Speakers Platform: Speakers@speaking.com or (805) 892-2386.