such as cosmetics, fit this description; so do agricultural products and supplies. Because there are no dominant players, these markets are ripe pickings for more efficient, virtual exchanges that allow buyers and sellers to aggregate demand, improve margins and squeeze out the middleman. The recent announcement by Ford, GM and DaimlerChrysler to use the Internet to buy raw materials for cars sent shockwaves through the parts-supplier industry.
Is the product you deal with based on information? In Being Digital, Nicholas Negroponte famously described the Internet Economy as the movement of activities from the world of atoms to the world of bits. The change is even faster, though, when the activity starts out as bits.
The music industry is particularly vulnerable to sudden change because the product starts and ends as information. There is no inherent reason why recorded music ever has to take a physical form. Yet all of the industry's assets are tied up in the manufacture, packaging and distribution of the physical media. Technology that eliminates the need for the media puts all of those assets suddenly at risk. A similar revolution is further along in the software business, where physical distribution is rapidly disappearing.
Other entertainment products (movies, books and magazines) are just waiting for the right technologies for delivery. But there is information content, to varying degrees, in every industry. For example, much of what happens in financial services is bit-based from the beginning (money is a kind of information, and most of it never takes a physical form), which is the reason banking, insurance and mortgages have been early e-business targets.
Are the customers in your industry poorly organized? Markets with many buyers and a few powerful sellers develop when buyers have difficulty aggregating demand to get price leverage over sellers. Power may reside with manufacturers, or more likely with a complex web of distributors, agents and brokers. This is the case in the automobile, real estate, insurance and even funeral markets. Cartels in these industries worked out rules of engagement long ago that minimize competition, so chances are slim they will use technology to innovate.
The technologies likely to disrupt these markets are those that will easily and efficiently allow consumers to self-organize; the squeeze will probably come in pressure on the middlemen to justify and deliver the value they're currently extracting from the price. Consumers may form buying clubs, for example, as Cendant (CD) did early on with its Netmarket offering.
Consumers may also find ways to buy direct from the manufacturers and avoid the expensive network of regional and local sales offices, warehouses and retail outlets. Producers and consumers already are forming coalitions to break the current industry structures in each of the markets mentioned above, largely because the intermediaries are resisting the efficiencies of new electronic markets.
It's interesting to note that the "industries" called "Europe," "Asia" and "South America" meet almost all these criteria.
If you work in an industry where these warning signs are present - or maybe you want to disrupt one - you need an aggressive and dramatic e-business strategy. You must move pre-emptively and in a variety of ways - aid and abet the assassins (maybe even invest in them), launch your own killer apps, and learn to manage the inevitable channel conflicts and organizational stress and strain that will accompany the transformation of your business.
Above all, maintain an early-warning radar system. If you wait for the sky to light up, you've waited too long.
Warning Signs
Do Web upstarts pose a threat to your industry? These questions can help you find out.
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Larry Downes is coauthor of Unleashing the Killer App: Digital Strategies for Market Dominance, published this month in paperback by Harvard Business School Press.
