Research Proposal

Entrepreneurial opportunities in the infomediary industry

Infomediaries are companies who act as personal agents on behalf of consumers to allow them to find information about products they want. Infomediaries also collect personal information of consumers and provide it to marketing companies to help those companies bring relevant products to the consumer. Infomediaries rely on the principle that information about individuals are the property of that individual even if it is collected by another entity.

The infomediary concept was first publicised by John Hagel III and Jeffrey Rayport in their article “The coming Battle for Customer Information”. Since then many companies have attempted to take advantage of this new industry but few have survived. The companies that do survive are more oriented toward selling consumer data to marketing companies than with helping consumers obtaining the products they want.

This study will investigate the infomediary industry and generate a hypothesis of how to further the social benefits of the industry through the creation of a new venture.

Project Research Problem

Literature overview

Akerlof, Spence and Stiglitz has shown that the concept of information asymmetry helps to explain why the free market is failing to resolve poverty, periodic unemployment, and racial discrimination. The study of information asymmetry shows fatal flaws in the argument of Adam Smith (1776), the founder of modern economics, that free markets lead to efficient outcomes. Their research showed that the following basic “laws” of economics are either invalid or severely restricted:

• the law of supply and demand

holding that market equilibrium is typified by the market clearing model

• the law of the single price

holding that the same good sells for a single price throughout the market

• the law of the competitive price

holding that the equilibrium price equals marginal cost

• the efficient markets hypothesis

holding that in stock markets, prices convey all the relevant information from the informed to the uninformed.

Information imperfections and asymmetries of information are pervasive in every aspect of life and society. This create problems of adverse selection and moral hazard for merchants and customers which negatively impact the price and quantity of goods and services being traded.

Adverse selection: When one party prior to a deal has more accurate information than another party which then cause the breakdown of efficient price negotiation.

Moral hazard: When a party provide misleading information prior to, or change their behaviour after a deal has been signed which then leave the other party at a disadvantage.

The result is that customers may be cheated into buying lower quality products than they want while merchants are unable to sell their higher quality products and services even when there is a demand for it. (Stiglitz, 2002) (Mishra, Heide, & Cort, 1998), (Akerlof, 1970)

The advent of information technology has created an opportunity for companies to increase their access to trustworthy information and strengthen their position in price negotiations. Consumers are not in a position to operate their own information technology departments, but are left to contend with information overload and untrustworthy information which leads to ever increasing information asymmetry between consumers and merchants.

This information gap led to the emergence of infomediaries, whose activities are mainly focused on retrieving information from a variety of sources, ranking it according to its value or relevance and structuring it in a way that is most usable to the consumers of that information. (De Filippi, 2013)

Infomediaries were once widely proclaimed as the panacea of the information age. Yet many infomediary businesses failed and those that survived did so by aligning themselves to serve companies with existing information power rather than helping consumer remedy their lack of information power. (Hagel & Rayport, 1997) (Leickly, 2004) (Goldman, 2005)

Problem statement

“The present dearth of infomediaries suggests that Hagel and Singer’s concept was flawed in some fundamental way.” (Leickly, 2004) The infomediary industry was touted as a solution to many of society’s problem, yet the infomediary industry itself seem to be falling victim to the very problems it is meant to solve. As a result infomediaries are not accomplishing the social and financial benefits they are meant to accomplish and there is no alternative industry to bring about that social change. (Leickly, 2004) (Goldman, 2005)

Focus for the study

Purpose of the research project

1. Identify from existing literature why Infomediaries have failed to create the expected social value to empower consumers.
2. Apply the principles of new-venture creation to identify entrepreneurial opportunities that may bring about these social benefits through a commercial business model appropriate to the infomediary industry.

Research Questions

Due to the word limit of this project it may be prudent to exclude some of these questions.

1. What are the expected social value of infomediaries?
2. What are the prevailing infomediary business models.
3. Develop a theory on why infomediaries have failed to generate the expected social value?
4. Develop a theory on why infomediaries have succeeded or failed in becoming profitable businesses?
5. Identify entrepreneurial opportunities by recognising the patterns of failure and success in infomediaries and other related intermediaries.
6. Identify resource requirements for starting a successful infomediary.
7. Identify sources of entrepreneurial finance that may be available to the new venture.
8. Propose market research questions to gauge public interest in the proposed venture.
9. Consider the structure of the new venture.
10. How can the new venture be valued for obtaining staged entrepreneurial capital.
11. Consider harvest options and strategies.

Significance of the Project

The infomediary industry has long been heralded as an imminent disruptive force to rebalance the information power relationship between corporations and individuals. This disruption has failed to materialise and with the advent of big-data, corporations have gained ever more power from consumer’s personal information while consumers have been increasingly swamped with information overload. If successful, this project will generate a novel business model which enable the infomediary industry to accomplish its generally envisioned social purpose.

Project related literature summary

Review of some literature related to this Project

An initial inductive review of the literature leads to the following preliminary understandings.

• Infomediaries focusing on social benefit have generally failed to be financially sustainable and also failed at their social goals.
• Infomediaries that became profitable seem to align themselves with vendors and focus on specific niche markets, like Amazon, DealsDirect, Airbnb and Uber.
• Some empirical studies into the factors causing consumers to support infomediaries found that: Consumers prioritise trust in the brand of the infomediary over most other factors. One exception is when their purchases are based on product brand and the infomediary happen to have it at the lowest price point.
• Infomediaries like Amazon who replace the shop front and are successful at engendering trust in their brand is more widely accepted by consumers than infomediaries who purely refer consumers to a vendor’s store.
• New legislation require that infomediaries create portable data standards between them, allowing customer to extract personal data from one infomediary and uploading it to another infomediary.

The above understanding was obtained from superficial analysis of the following literature, which is grouped here into relevant categories. Excerpts from the literature are available in Addendum A.

Information Asymmetry

• (Akerlof, 1970)
• (Mishra et al., 1998)
• (Johnsen, 2011)
• (De Filippi, 2013)
• (Stiglitz, 2002)

Consumer harm due to loss of privacy

• (Newman, 2014a)
• (Newman, 2014b)

Expected Benefits of Infomediaries

• (Hagel & Rayport, 1997)
• (Spulber, 1996)
• (Latham, 2003)
• (Deephouse & Heugens, 2009)
• (Wujin, Beomjoon, & Mee Ryoung, 2005)
• (Reppel & Szmigin, 2010)
• (Riemer et al., 2015)

Business models of Infomediaries

• (Chung, 2013)
• (Viswanathan, Kuruzovich, Gosain, & Agarwal, 2007)
• (Kuruzovich, 2013)
• (Karl, 1996)
• (Casillas, 2008)
• (Chen, Iyer, & Padmanabhan, 2002)
• (Palvia & D'Aubeterre, 2007)
• (Goodwin, 2015)
• (Giaglis, Klein, & O'Keefe, 1999)

Concepts for the monetising of consumer data

• (Hagel & Rayport, 1999)
• (Brustein, 2012)
• (Tanakinjal, Deans, & Gray, 2007)
• (Moschtaghi, 2002)
• (Tsai, Egelman, Cranor, & Acquisti, 2011)

Consumer adoption of Infomediaries

• (Goldman, 2005)
• (Leickly, 2004)
• (Jai-Yeol, Kim, & Riggins, 2006)
• (Jayawardhena, Kuckertz, Karjaluoto, & Kautonen, 2009)
• (Morando, Iemma, & Raiteri, 2014)
• (Bodorik & Jutla, 2003)

Infomediaries acting badly

• (Hofmann & Nell, 2011)
• (Kuempel, 2016)

Infomediary related legislation

• (European Parliament, 2016)

Planned research methodology

Method

This project is an exploratory study into the existence and impact of infomediaries on society, searching for patterns that may lead to the identification of an entrepreneurial opportunity for a new class of infomediary venture.

A qualitative research methodology will be followed to interpret the existing body of knowledge regarding the Infomediary industry and related social context.

The research will be based on a literature study to collect secondary data about companies in the infomediary industry namely which ones: started, failed, are still surviving and why.

The data will be analysed through an inductive approach to understand the nature of the problem in the infomediary industry. This will lead to the formulation of a theory and conceptual framework of why infomediaries have failed in their expected purpose and what success factors could be identified that lead to infomediaries becoming successful businesses.

The success factors will be combined to define a hypothetical business model that may lead to infomediaries successfully generating their expected social value. (Saunders, Lewis, & Thornhill, 2012)

After this project, the hypothesised business model will be applied as an actual business to test the theory and its application.

Ethical considerations

On this project the requirements for ethical conduct of research will be followed as detailed in the study materials for this subject. This project is a literature study only and are based on existing studies and business journals and has a “no risk” rating according to the Australian national research risk categories because there is no foreseeable risk of harm or discomfort to anyone.

References

Akerlof, G. A. (1970). THE MARKET FOR "LEMONS": QUALITY UNCERTAINTY AND THE MARKET MECHANISM. Quarterly Journal of Economics, 84(3), 488-500.

Bodorik, P., & Jutla, D. (2003). Architecture for user-controlled e-privacy. Paper presented at the Proceedings of the 2003 ACM symposium on Applied computing, Melbourne, Florida.

Brustein, J. (2012). Start-Ups Seek to Help Users Put a Price on Their Personal Data: New york times.

Burton, C., De Boel, L., Kuner, C., Pateraki, A., Cadiot, S., & Hoffman, S. (2016). The Final European Union General Data Protection Regulation. Retrieved from http://www.bna.com/final-european-union-n57982067329/

Casillas, J. (2008). the rise of the bank infomediary in health care. hfm (Healthcare Financial Management), 62(8), 86-90.

Chen, Y., Iyer, G., & Padmanabhan, V. (2002). Referral Infomediaries. Marketing Science, 21(4), 412-434.

Chung, S. (2013). The role of online informediaries for consumers: A dual perspective about price comparison and information mediation. Internet Research, 23(3), 338-354. doi:doi:10.1108/10662241311331763

De Filippi, P. (2013). Growing information asymmetries as the cloud spreads. Internet Policy Review. Internet Policy Review journal.

Deephouse, D., & Heugens, P. (2009). Linking Social Issues to Organizational Impact: The Role of Infomediaries and the Infomediary Process. Journal of Business Ethics, 86(4), 541-553. doi:10.1007/s10551-008-9864-3

European Parliament. (2016). General Data Protection Regulation (EU) 2016/679. Official Journal of the European Union, L119/59. doi:citeulike-article-id:14071352

Giaglis, G. M., Klein, S., & O'Keefe, R. M. (1999). Disintermediation, Reintermediation, or Cybermediation? The Future of Intermediaries in Electronic Marketplaces. Global Networked Organizations, Proceedings 12 th Electronic Commerce Conference, Moderna organizacija.

Goldman, E. (2005). Infomediaries–where are they? Retrieved from http://blog.ericgoldman.org/archives/2005/03/infomediarieswh.htm

Goodwin, T. (2015). The Battle Is For The Customer Interface. Retrieved from https://techcrunch.com/2015/03/03/in-the-age-of-disintermediation-the-battle-is-all-for-the-customer-interface/

Hagel, J. I., & Rayport, J. F. (1997). The new infomediaries. McKinsey Quarterly(4), 54-70.

Hagel, J. I., & Rayport, J. F. (1999). The coming battle for customer information Creating value in the network economy (pp. 159-171): Harvard Business School Press.

Hofmann, A., & Nell, M. (2011). INFORMATION COST, BROKER COMPENSATION, AND COLLUSION IN INSURANCE MARKETS. Schmalenbach Business Review (SBR), 63(3), 287-307.

Jai-Yeol, S., Kim, S. S., & Riggins, F. J. (2006). Consumer Adoption of Net-Enabled Infomediaries: Theoretical Explanations and an Empirical Test. Journal of the Association for Information Systems, 7(7), 473-508.

Jayawardhena, C., Kuckertz, A., Karjaluoto, H., & Kautonen, T. (2009). Antecedents to permission based mobile marketing: an initial examination. European Journal of Marketing, 43(3/4), 473-499. doi:10.1108/03090560910935541

Johnsen, B. (2011). Information Asymmetry. Region Focus, 14(4), 10-10.

Karl, E. (1996). A new service of information brokers: Online consulting. Information Services & Use, 16(2), 149.

Kuempel, A. (2016). The Invisible Middlemen: A Critique and Call for Reform of the Data Broker Industry. Northwestern Journal of International Law & Business, 36(1), 207-234.

Kuruzovich, J. (2013). Sales Technologies, Sales Force Management, and Online Infomediaries. Journal of Personal Selling & Sales Management, 33(2), 211-224.

Latham, M. (2003). Democracy and Infomediaries. Corporate Governance: An International Review, 11(2), 91-101. doi:10.1111/1467-8683.00010

Leickly, B. L. (2004). Intermediaries in Information Economies. Self-published. Faculty of the Graduate School of Arts and Sciences of Georgetown University. Retrieved from http://www.extrafancy.net/bethany/

Mishra, D. P., Heide, J. B., & Cort, S. G. (1998). Information Asymmetry and Levels of Agency Relationships. Journal of Marketing Research (JMR), 35(3), 277-295.

Morando, F., Iemma, R., & Raiteri, E. (2014). Privacy evaluation: what empirical research on users’ valuation of personal data tells us.: Internet Policy Review.

Moschtaghi, A.-R. (2002). Permission Marketing of Informediaries in M-Commerce Advertising: Erstausgabe.

Newman, N. (2014a). Search, Antitrust, and the Economics of the Control of User Data.

Newman, N. (2014b). The Costs of Lost Privacy: Consumer Harm and Rising Economic Inequality in the Age of Google. William Mitchell Law Review, 40(2), 849-889. doi:citeulike-article-id:13556236

Palvia, P. C., & D'Aubeterre, F. (2007). Examination of infomediary roles in B2C e-commerce. Journal of Electronic Commerce Research, 8(4), 207.

Reppel, A. E., & Szmigin, I. (2010). Consumer-managed profiling: a contemporary interpretation of privacy in buyer-seller interactions. Journal of Marketing Management, 26(3-4), 321-342. doi:10.1080/02672570903566383

Riemer, K., Gal, U., Hamann, J., Gilchriest, B., Teixeira, M., & Systems, D. o. B. I. (2015). Digital Disruptive Intermediaries: Finding new digital opportunities by disrupting existing business models: University of Sydney, Business School and Capgemini.

Saunders, M., Lewis, P., & Thornhill, A. (2012). Research methods for business students, 7 th edn: Pearson Education Limited, Harlow.

Spulber, D. F. (1996). Market Microstructure and Intermediation. Journal of Economic Perspectives, 10(3), 135-152.

Stiglitz, J. E. (2002). Information and the Change in the Paradigm in Economics. American Economic Review, 92(3), 460-501. doi:doi: 10.1257/00028280260136363

Tanakinjal, G. H., Deans, K. R., & Gray, B. (2007). Management of Permission-Based Mobile Marketing Diffusion: A Conceptual Model. International Journal of Business and Management, 2(6), 52-59.

Tsai, J. Y., Egelman, S., Cranor, L., & Acquisti, A. (2011). The Effect of Online Privacy Information on Purchasing Behavior: An Experimental Study. Information Systems Research, 22(2), 254-268.

Viswanathan, S., Kuruzovich, J., Gosain, S., & Agarwal, R. (2007). Online Infomediaries and Price Discrimination: Evidence from the Automotive Retailing Sector. Journal of Marketing, 71(3), 89-107.

Wujin, C., Beomjoon, C., & Mee Ryoung, S. (2005). The Role of On-line Retailer Brand and Infomediary Reputation in Increasing Consumer Purchase Intention. International Journal of Electronic Commerce, 9(3), 115-127.

Addendum A: Literature Extracts

The following extracts provide an overview of the available literature grouped by relevant categories.

Information Asymmetry

Akerlof, 1970, The Market for Lemons Quality Uncertainty and the Market Mechanism

“In our picture the important skill of the merchant is identifying the quality of merchandise; those who can identify used cars in our example and can guarantee the quality may profit by as much as the difference be- tween type two traders' buying price and type one traders' selling price. These people are the merchants. In production these skills are equally necessary -both to be able to identify the quality of inputs and to certify the quality of outputs.” (Akerlof, 1970)

Mishra, 1998, Information Asymmetry and Levels of Agency Relationships

“Many marketing exchanges are characterized by an information asymmetry between suppliers and customers. Specifically, customers are faced with both adverse selection and moral hazard problems that involve, respectively, uncertainty about supplier characteristics and the risk of quality cheating. Drawing on prior research, the authors propose that agency problems in a customer relationship can be resolved by means of customer bonds and price premiums, which serve as signals and supplier incentives, respectively. The authors also propose that adverse selection and moral hazard problems exist in relationships between suppliers and their employees. Similar to the customer relationship, these problems can be addressed with signals and incentives of various kinds. The authors present hypotheses regarding the agency problems in both of these relationships and test them empirically in the context of automotive service purchases. Data obtained from 287 service managers support the hypotheses. The data also suggest that institutional differences across service outlets (e.g., ownership structure and size) influence how the two types of agency problems are managed.” (Mishra et al., 1998)

Johnsen, 2011, Information Asymmetry

“The article offers information related to information asymmetry which was popularized by George Akerlof in his paper "The Market for Lemons" in 1970. It says that information asymmetry is used when a consumer weights the opportunity cost versus cost associated with the product. Several examples on various transactions in which information asymmetry is used, such as on home mortgage, car repair, and course selection in college, are also presented.” (Johnsen, 2011)

De Filippi, 2013, Growing information asymmetries as the cloud spreads

“To the extent that they provide content or information to the public, many cloud operators can be regarded as infomediaries - information intermediaries between users looking for information and the supplier of that information. As a general rule, 'infomediaries' are considered to be neutral providers of information. People often believe that the information they provide is unbiased, as they do not act on behalf of any third-party supplier or vendor, nor do they try to promote any type of information over the other. However, this situation is seldom true in the context of cloud computing, as many cloud operators have the discretionary power to decide exactly what kind of information is made available to the public and how that information is presented. While there are many ways in which this could affect the experience (and satisfaction) of end-users, this article analyses how hierarchies of information curation and distribution fundamentally challenge the user’s right to access to information.” (De Filippi, 2013)

Stiglitz, 2002, Information and The Change in The Paradigm in Economics

“The reining paradigm of the twentieth century, the neoclassical model, ignored the warnings of the nineteenth century and earlier masters on how information concerns might alter the analyses, perhaps because they could not see how to embrace them in their seemingly precise models, perhaps because doing so would have led to uncomfortable conclusions about the efficiency of markets. “

“It was thus clear that the notion that had underlay much of traditional competitive equilibrium analysis – that markets had to clear – was simply not true if information were imperfect.”

“We as academics have the good fortune to be further protected by our academic freedom. With freedom comes responsibility: the responsibility to use that freedom to do what we can to ensure that the world of the future be one in which there is not only greater economic prosperity, but also more social justice.” (Stiglitz, 2002)

Consumer harm due to loss of privacy

Newman, 2014b, The Costs of Lost Privacy: Consumer Harm and Rising Economic Inequality in the Age of Google

“This article emphasizes the broad consumer harm from the extraction of personal user data deployed by Google and many other online companies for the benefit of their advertisers. With firms knowing far more about consumers than those consumers know about their options in the marketplace, rising information asymmetry in markets like search advertising is translating into rising overall economic inequality in the economy as well.

The lack of competition in search means users of Google in particular have little chance of receiving the full economic value of the personal data they provide Google. Without viable alternatives to Google, you therefore end up with a stunted "market" for valuing user privacy, so Google feels less and less compunction about violating personal privacy to benefit its advertising customers. More broadly, the deeper harm to consumers from Google’s power in the market — and one that is at the heart of the increasing economic equality in our society — is the way profiling by Google of its users for advertisers allows the kind of price discrimination and predatory marketing we saw in the subprime housing bubble globally and in a range of other sectors.” (Newman, 2014b)

Newman, 2014a, Search, Antitrust and the Economics of the Control of User Data

“This article is a case for reorienting many antitrust investigations -- and more generally regulatory approaches -- to focus on how control of personal data by corporations can entrench monopoly power in an economy shaped increasingly by the power of "big data." The core source of value being delivered to advertisers by a company like Google (as with many "new media" companies) is the ability to target users with ads because of its dominant control of databases of user personal data.

As section II of this article will argue, what is largely missed in analyses defending Google from antitrust action is how that ever expanding control of user personal data and its critical value to online advertisers creates an insurmountable barrier to entry for new competition. And, contra the idea that Google just inherited that business advantage through its innovation in search engine technology, section III of this article will detail how Google has aggressively expanded its control of user data through expanding into new product sectors to collect additional user data with the intent to use its presence in those other markets to reinforce its core search advertising monopoly. Beyond the general expansion into tied markets for user data, Google’s "bad acts" have included multiple violations of the law through invading user privacy in pursuit of control of user data.

In section IV, the article proposes remedies that can address Google’s dominance in three major ways, separately and in combination: (1) reduce Google’s control of overall user data, (2) create a real market for user data by empowering users, and (3) impose public interest obligations on Google to restrain damage to consumer welfare. In section V, the article concludes by noting how issues raised by the article present some fundamental challenges to the Chicago School approach, including highlighting how the lock-in of monopoly in online markets calls for earlier intervention in technology markets and a much broader recognition of how expanding information asymmetry due to data mining undermines the hope that the market itself will curb monopoly abuses in the economy.” (Newman, 2014a)

Expected Benefits of Infomediaries

Hagel, 1997, The new infomediaries

“Received wisdom has it that there are two fundamental truths about the networked economy. First, that every networked business is ideally positioned to capture information about its customers - information that represents the main source of value in this economy. Second, that any players specializing in customer information that may emerge will naturally serve vendors, not customers. We take issue with both of these assertions.

Our view is that firms established to capture customer information will serve customers rather than vendors. They will enjoy low capital costs and high ROI - the hallmarks of an emerging category of business that we call infomediaries. As its activities start to generate increasing returns, we predict this category will become more and more concentrated, with rising entry barriers excluding mature and new players alike. While infomediaries will emerge first in networked sectors of the economy, we anticipate that they will eventually expand into physical business transactions too, thereby transforming the competitive landscape for traditional as well as networked players.

The scale of this transformation could be formidable. A concentration of large infomediaries in the United States could account for as much as $10 billion in revenue a decade from now, representing market capitalization of at least $40 billion.” (Hagel & Rayport, 1997)

Spulber, 1996, Market Microstructure and Intermediation

“An intermediary is an economic agent that purchases from suppliers for resale to buyers or that helps buyers and sellers meet and transact. Intermediaries seek out suppliers, find and encourage buyers, select buy and sell prices, define the terms of transactions, manage the payments and record keeping for transactions, and hold inventories to provide liquidity or availability of goods and services.

Intermediaries improve welfare by reducing or eliminating the uncertainty associated with the need to match buyers and suppliers. He further points out that monitoring trading partners is costly, thereby leading to potential moral hazard problems if the other party does not act in the best interest of the first party. Therefore, intermediaries add value to the market by reducing uncertainty when they monitor the performance of suppliers.” (Spulber, 1996)

Latham, 2003, Democracy and Infomediaries

“We can improve our political and economic systems by redesigning our use of informational intermediaries (infomediaries). Examples of infomediaries are political parties, the news media, proxy voting advisory firms and auditors. An infomediary’s source of funding influences the information it produces – “follow the money”. Political campaign finance reform is one approach to redesigning our infomediary systems. This paper proposes another approach: starting a few companies with a new corporate bylaw structure designed to enhance management accountability to shareowners. Shareowners would vote annually to hire an infomediary (paid with corporate funds) to advise them on proxy voting. If this system proves effective, it can spread to existing corporations and then to the political arena.” (Latham, 2003)

Deephouse, 2009, Linking Social Issues to Organizational Impact: The Role of Infomediaries and the Infomediary Process

“When do organizations decide to ‘adopt’ a given social issue such that they come to acknowledge it in their patterns of action and communication? Traditional answers to this question have focused either on the characteristics of the issue itself, or on the traits of the focal organization. In many cases, however, a firm’s decision to adopt or ignore an issue is not a straight for-ward function of firm or issue characteristics. Instead, we view issue adoption as a socially constructed process of information exchange between parties that are involved in the emergence and evolution of the issue, mediated by third-party organizations. We refer to this process as the infomediary process and these latter organizations as ‘infomediaries’, after the information mediation and brokerage roles they play in the social processes linking social issues to organizational impact.

We present a concise theoretical model of how infomediaries establish credible linkages between focal organizations and social issues. The thrust of the model is that the infomediation process, rather than the issue or firm characteristics, is what really drives firm-level issue adoption decisions.” (Deephouse & Heugens, 2009)

Wujin, 2005, The Role of On-line Retailer Brand and Infomediary Reputation in Increasing Consumer Purchase Intention

“Lower search costs are one of the major benefits of on-line shopping. In the past, when search costs were relatively high, consumers relied on extrinsic cues like brand and price. The lowering of search costs with the advent of the Internet has changed the way consumers use external cues. In addition, the emergence of the on-line “infomediary” has spawned complex interactions among infomediary reputation, manufacturer brand, and retailer brand. This paper shows the main effects of these factors and explores t wo-way interaction effects. It demonstrates that a well-known on-line retailer brand increases purchase intention for a weak manufacturer brand more than for a strong one, and by contrast, that a reputable infomediary increases purchase intention for a strong manufac-turer brand more than for a weak one.” (Wujin et al., 2005)

Reppel, 2010, Consumer-managed profiling: a contemporary interpretation of privacy in buyer-seller interactions

“The rapid commercial evolution of the World Wide Web has resulted in an environment where consumers engage directly with businesses in a variety of ways and levels of interactivity. This has resulted in a conflict between the need for identifying individual consumers in buyer-seller interactions through the use of personal data and their desire to protect this personal data. This paper contributes to the discussion of new developments in online marketing by investigating the potential for a profiling system managed by individual consumers with a view to allowing role-specific privacy. Challenging the accepted notion of organisations being the sole managers of data about individuals, the research starts from the hypothetical point where individual consumers manage and distribute their own data. Using the means-end approach, an initial survey was followed by in-depth interviews and a self- completion questionnaire. These were analysed according to a variation of the laddering interview technique. Benefits and concerns raised by respondents are discussed and a consumer-managed profiling system is introduced that could overcome the conflict between the need for consumers to participate in contemporary societies and their desire to seek projection from the unnecessary collection of their personal data” (Reppel & Szmigin, 2010)

Riemer, 2015, Digital Disruptive Intermediaries: Finding new digital opportunities by disrupting existing business models

“Driven by the convergence of technology trends, such as the digitisation of content, Web 2.0, mobile devices and the app economy, cloud computing and data analytics, Digital Disruptive Intermediaries are “information first” companies. Whereas incumbents derive competitiveness from the ownership of physical or other assets, DDIs get their edge from the superior utilization of information. For example, disruptors such as Uber or Airbnb do not own the physical assets that deliver the primary service; they are disruptive and successful because they reorganize the allocation of supply and demand through the gathering and exploitation of information, often aided by sophisticated analytics. In this way they can achieve scale, and cause disruption, extremely quickly.” (Riemer et al., 2015)

Business models of Infomediaries

Chung, 2013, The role of online informediaries for consumers: A dual perspective about price comparison and information mediation

“The purpose of this study is to find the role of online informediaries on the perspective of price comparison and information aggregator. Specifically, the author wants to explain how the level of product involvement moderates the effect of price dispersion and product information quality on attitude toward product in online informediaries.

Design/methodology/approach – The data for this study are obtained from a three‐way factorial experimental research design. Data were collected from 258 college students who have an experience with an online informediary. Combining ANCOVA and regression analysis enables the study of attitude formation and yields encouraging results.

Findings – The study finds that high‐involvement consumers focus on systematic cues (e.g. product attributes) in evaluating product quality. However, when they feel that their initial search yields insufficient results, causing them to perceive more product performance risk, they search for additional cues (e.g. price dispersion). Low‐involvement consumers are mainly affected by price dispersion, which is a heuristic cue, and they evaluate the product more favorably under a high (vs low) level of price dispersion.

Originality/value – This paper is one of the first to consider and empirically test a heuristic‐systematic model for attitude toward product in online informediaries. It also uniquely tests the level of price dispersion to discern the important motivating factors.” (Chung, 2013)

Viswanathan, 2007, Online Infomediaries and Price Discrimination: Evidence from the Automotive Retailing Sector

“This article focuses on a novel mechanism for market segmentation and price discrimination based on consumers’ use of online infomediaries. Using the automotive retailing context as the setting for the study, the authors address the following question: Can online infomediaries serve as a viable mechanism for market segmentation and price discrimination? They draw on a unique and extensive data set of consumers who report on the information they found when using online buying services (OBS) as part of their new vehicle purchase process. The analysis of the data set shows that consumers who obtain price information pay lower prices (for the same product), whereas consumers who obtain product information pay higher prices. Although this points to the existence of distinct consumer segments, this knowledge is of limited value without a viable mechanism that enables firms to identify and target these customer segments specifically. On the basis of consumer usage patterns of OBS, the authors uncover distinct OBS clusters and empirically demonstrate that the use of these different clusters is associated with predicted differences in consumer outcomes. They also show that the differential use of OBS clusters is systematically related to underlying consumer characteristics. They discuss the relevance of the findings for automobile dealers and manufacturers and for other industries in which online infomediaries have established a significant presence” (Viswanathan et al., 2007)

Kuruzovich, 2013, Sales Technologies, Sales Force Management, and Online Infomediaries

“An information intermediary (or infomediary) is an online firm that plays an important role in the information component of a transaction but not in the logistics component. Infomediary sales channels in which leads that originate online are converted to sales by an offline sales force are particularly important in areas such as automobile retailing, real estate, insurance, mortgages, and many other contexts. This research examines the role of sales technologies and the organization of the sales force in creating value for infomediary sales channels, formally examining channel outcomes using an analytical model and empirically examining channel outcomes using a survey of 678 automobile dealerships. The analyses indicate that adoption of sales technologies for lead management and channel-specific salespeople influence leads purchased (from infomediaries) and infomediary channel sales for the retailer. These findings integrate important technologies from outside the organization (infomediaries) and technologies and management structures inside the organization (sales technologies for lead management and channel-specific salespeople) into an understanding of retailer use of infomediary channels. These findings also suggest that it is in the best interest of infomediaries to offer sales technology and services to retailers, bundling information products with technologies for channel management.” (Kuruzovich, 2013)

Karl, 1996, A new service of information brokers: Online consulting

“The Internet is converting to a second virtual layer of the material world. Mirroring the real world electronically, this world can be brought to any computer monitor. Due to its electronic form, computing power meets communication and opens a wide range of capabilities that the matter-bound world cannot provide. To navigate and to exploit this computerised reflection of the world, information brokers with their Internet competence can provide valuable consulting services beyond information retrieval.” (Karl, 1996)

Casillas, 2008, The rise of the bank infomediary in health care

“The article offers information on the role of banks in health care. It states that as data privacy and security emerged, banks are mandated to play an active role in the data management of several health care industries. This role of bank is called medical banking which is defined as the latent integration of bank technology, infrastructure, and credit with healthcare administrative operations. It likewise creates a bank infomediary or the rescoping of bank's operations from funds disbursement to value-added data processing that directly links stakeholders. This bank infomediary comprises the efficiency of administrative processing, medical internet and health information broker.” (Casillas, 2008)

Chen, 2002, Referral Infomediaries

“An interesting phenomenon has been the emergence of "infomediaries" in the form of Internet referral services in many markets. These services offer consumers the opportunity to get price quotes from enrolled brick-and-mortar retailers and direct consumer traffic to particular retailers who join them. This paper analyzes the effect of referral info-mediaries on retail markets and examines the contractual arrangements that they should use in selling their services. We identify the conditions necessary for the infomediary to exist and explain how they would evolve with the growth of the Internet. The role of an info-mediary as a price discrimination mechanism leads to lower online prices. Perhaps the most interesting result is that the referral infomediary can unravel (i.e., no retailer can get any net profit gain from joining) when its reach becomes too large. The analysis also shows why referral infomediaries would prefer to offer geographical exclusivity to joining re-tailers.” (Chen et al., 2002)

Palvia & D'aubeterre, 2007, Examination Of Infomediary Roles In B2c E-Commerce

“This article provides a parsimonious research model that assists in the study of infomediary roles in B2C E-Commerce, their level of integration and sophistication, and their impact on infomediary performance and customers’ satisfaction. After an extensive literature review, discovery, facilitation, and support roles were identified as the main roles that infomediaries perform in the B2C e-commerce arena. Based on a sample of 150 infomediaries from three industries namely automobile, retail, and travel, four hypotheses related to the research model were tested. Results suggest that infomediaries with high integration and sophistication level are found in the retail industry. In addition, not all infomediary roles exhibit the same level of integration and sophistication across the three selected industries.” (Palvia & D'Aubeterre, 2007)

Goodwin, 2015, The Battle Is For The Customer Interface

“Uber, the world’s largest taxi company, owns no vehicles. Facebook, the world’s most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world’s largest accommodation provider, owns no real estate. Something interesting is happening.” (Goodwin, 2015)

Giaglis, 1999, Disintermediation, Reintermediation, or Cybermediation

“Early researchers seemed to agree on the prediction that decreased transaction costs in electronic market-places would lead to the reduction, or even extinction, of traditional intermediaries from electronic value chains. Despite some validity in these claims, a careful examination of the way that electronic commerce restructures traditional market functions reveals three equally plausible scenarios for the future. Traditional intermediaries will either be driven out of the market (disintermediation) or be forced to differentiate and re-emerge in the electronic marketplace (reintermediation), while wholly new markets for intermediaries will also be created (cybermediation). In this paper, we use a model of market functioning to establish areas where each of these three scenarios are expected to dominate” (Giaglis et al., 1999)

Concepts for the monetising of consumer data

Hagel & Rayport, 1999, The-coming-battle-for-customer-information

“Companies have good reason to collect information about customers. It enables them to target their most valuable prospects more effectively, tailor their offerings to individual needs, improve customer satisfaction and retention, and identify opportunities for new products or services. But even as more and more managers begin to build strategies based on capturing information about their customers, a major change is under way that may undermine their efforts. We believe that consumers are going to take ownership of information about themselves and demand value in exchange for it.

It is no secret that consumers are becoming increasingly edgy about the amount and depth of information businesses collect about them. The popular press regularly chronicles the public’s growing concern about privacy in an information-rich era. More specifically, people are starting to realize that the information they have divulged so freely through their daily commercial transactions, financial arrangements, and survey responses has value and that they get very little in exchange for that value. Why? Because the balance of power currently rests with companies, not consumers.” (Hagel & Rayport, 1999)

Brustein, 2012, Start-Ups Seek to Help Users Put a Price on Their Personal Data

“People have been willing to give away their data while the companies make money. But there is some momentum for the idea that personal data could function as a kind of online currency, to be cashed in directly or exchanged for other items of value. A number of start-ups allow people to take control - and perhaps profit from - the digital trails that they leave on the Internet. That marketplace does not exist right now, because consumers are not in on the game,” said Shane Green, who founded a company called Personal in 2009.” (Brustein, 2012)

Tanakinjal, Deans, & Gray, 2007, Management of Permission-Based Mobile Marketing Diffusion: A Conceptual Model

“Service providers operating in the permission-based mobile marketing industry must first acquire customers’ trust by assuring them that the services being offered are safe, that privacy will be protected, and that information will be relevant. The authors propose an adaptation of the classical technology innovation-decision process model (Rogers, 1983) to include an “assurance” stage that addresses important issues that need to be addressed in order to win customers’ trust. The model should help guide future research into the diffusion of mobile marketing and other permission-based marketing services.” (Tanakinjal et al., 2007)

Moschtaghi, 2002, Permission Marketing of Infomediaries in M-Commerce Advertising

“More than any other marketing medium, the mobile device makes one-to-one marketing reality. It gives marketers an unprecedented communication channel to deliver promotions, coupons, value-added information and other services that are uniquely personalized to the customers needs. But only if all marketing activities can incorporate the theme of permission marketing the future of Mobile-Commerce advertising will be prosperous. It will become of greater importance in M-Commerce to have a precise idea of customer s needs and preferences. New Business Models that have the ability to capture information about mobile users and use this data for commercial purposes like M-Advertising are necessary. Information Intermediaries (Infomediaries) are such a business model.” (Moschtaghi, 2002)

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Tsai et al., 2011, The effect of online privacy information on purchasing behavior: an experimental study

“Although online retailers detail their privacy practices in online privacy policies, this information often remains invisible to consumers, who seldom make the effort to read and understand those policies. This paper reports on research undertaken to determine whether a more prominent display of privacy information will cause consumers to incorporate privacy considerations into their online purchasing decisions. We designed an experiment in which a shopping search engine interface clearly and compactly displays privacy policy information. When such information is made available, consumers tend to purchase from online retailers who better protect their privacy. In fact, our study indicates that when privacy information is made more salient and accessible, some consumers are willing to pay a premium to purchase from privacy protective websites. This result suggests that businesses may be able to leverage privacy protection as a selling point” (Tsai et al., 2011)

Consumer adoption of Infomediaries

Infomediaries–where are they?

“…infomediaries would substantially improve social welfare. Consumers get what they want—relevant and trustworthy marketing without sacrificing privacy; marketers get what they want—a cost effective source of interested consumers; and infomediaries profit by taking cuts of the deal. Society wins due to lowered transaction/search costs and fewer marketing mismatches between consumers who don’t want the marketing and marketers who cannot target granularly enough. Compare this with our current marketing environment, where consumers lack an easy one stop way to disclose their preferences (and many consumers refuse to do so due to privacy fears). More regulated solutions of marketing communications have high transaction costs (for marketers, and sometimes for consumers too) and a high risk of Type I and Type II errors (i.e., relevant marketing is squashed; unwanted marketing is unregulated).” (Goldman, 2005)

Leickly, 2004, Intermediaries in Information Economies”

“Notwithstanding the myriad uncertainties in the digital age, infomediaries built along the lines of Hagel and Singer's model have yet to succeed. The NASDAQ crash of 2000 and the subsequent withdraw of investments from e-commerce contributed to the demise of Lumeria and AllAdvantage. But equally, if not more, important was the fact that a large majority of businesses and consumers rejected these privacy-based infomediary business models (Bodorik & Jutla, 2003). As we have seen in chapter four, a successful infomediary must follow seven rules for success. Hagel and Singer's model followed two of these rules: it took advantage of information commodities and helped organize and bundle large amounts of information, and it attempted to offer consumers advice on e-commerce purchases in specialized industries. As described below, by neglecting five of the seven rules, infomediaries failed to reduce uncertainties for consumers and businesses.” (Leickly, 2004)

Jai-Yeol, Kim, & Riggins, 2006, Consumer Adoption of Net-Enabled Infomediaries: Theoretical Explanations and an Empirical Test

“The emergence of infomediaries — which allow online consumers to search for, and provide comparisons among, many online retailers — is a prominent trend in e-commerce. However, little research has been done on consumer reactions to this new e-commerce tool.”

“Little is understood about (1) critical factors that drive consumer adoption of infomediaries and (2) the types of consumers who react more favorably to the services offered by infomediaries. With insights obtained from literatures on the technology acceptance model (TAM), the economics of intermediation, and transaction cost analysis (TCA), this study sheds light on the two issues that seem essential for a deeper understanding of individuals’ adoption and use of infomediaries. First, we show that potential adopters look for an infomediary to help them reduce search costs (i.e., higher efficiency) and to make more informed decisions (i.e., higher effectiveness). Second, our findings suggest that consumers who do not have a favorite online retailer (i.e., lower asset specificity) and who feel that online retailers in general are opportunistic (i.e., higher uncertainty) tend to appreciate the benefits of using an infomediary. We believe that the proposed model will serve as a useful conceptual tool for analyzing consumer reactions to an e-commerce application. It is our hope that researchers will find our conceptual model useful in their investigations into the areas of infomediaries in particular and net-enabled commerce applications in general.”

“In particular, this accuracy-effort theory asserts that individuals tend to use a “quick and dirty” heuristic strategy to save cognitive effort that needs to be allocated to important tasks. Because much purchase-related information provided by an infomediary in the task of online shopping conflicts with this heuristic technique, consumers committed to a particular online retailer did not see much value in using the infomediary.” (Jai-Yeol et al., 2006)

Jayawardhena, Kuckertz, Karjaluoto, & Kautonen, 2009, Antecedents to Permission Based Mobile Marketing: An Initial Examination

“Purpose: A conceptual model is developed to examine the influence of four antecedent factors (personal trust, institutional trust, perceived control and experience) on consumers’ willingness to participate in permission-based mobile marketing. We empirically test our model across three European countries and gender.

Methodology/Approach: Data is collected from surveys of consumers in Finland, Germany and the UK. The Partial Least Squares (PLS) approach is utilised to test the model fit.

Findings: The main factor affecting the consumers’ decision to participate in mobile marketing is institutional trust, which is a significant factor in all three countries and across gender. The influence of other antecedent factors are less pronounced. On the whole, we find that the more experienced consumers become with mobile marketing, the less influence of perceived control will have on permission. There are notable variations across gender, with perceived control being an important determinant of permission for men, while it is not so for women.” (Jayawardhena et al., 2009)

Morando, 2014, Privacy evaluation: what empirical research on users’ valuation of personal data tells us

“In this article, we review recent literature documenting experiments to assess users’ valuation of personal data, with the purpose to provide policy-oriented remarks. In particular, contextual aspects, conflicts between declared and revealed preferences, as well as the suggestion that personal data is not conceivable as a single good, but instead as a bundle, are taken into account, also discussing potential shortcomings and pitfalls in the surveyed experiments. Data portability is supposed to increase consumer empowerment; still, several technological preconditions need to apply to make this right actually enforceable.” (Morando et al., 2014)

Bodorik, 2003, Architecture for user-controlled e-privacy

“Empowering users to make informed decision-making over online release of private data is a challenge in today's society. A large majority of users has rejected many e-privacy business models including Lumeria's, Zero-Knowledge's, and Microsoft's PassPort. In detailing privacy requirements for an architecture for user-controlled e-privacy, we provide some key reasons, mainly centered around user's perception of control, behind the apparent dismissal of business models for privacy based on trusted third parties. We describe an architecture, based on the P3P platform, that supports privacy requirements for enhanced user control of privacy. Privacy management issues that are addressed include the identification of data repositories and their purposes, user agents and their roles and interactions, and the separation of persona profile information from user preference information.” (Bodorik & Jutla, 2003)

Infomediaries acting badly

Hofmann, 2011, Information cost, broker compensation, and collusion in insurance markets

“We examine the impact of intermediation on insurance market transparency and performance. in a differentiated insurance market under imperfect information, consumers can gain information about product suitability by consulting an intermediary. We analyze current broker compensation methods: commissions and fees. although insurers’ equilibrium profits are equivalent under both systems, social welfare is always higher under a fee-for-advice system than under a commission system. Both systems offer the opportunity to increase profits via collusion. under a commission system, collusion enables insurers to separate consumers into groups purchasing different contracts. insurers may then extract additional rents from some consumers. this advantage can explain why brokers tend to be compensated by insurers.” (Hofmann & Nell, 2011)

Kuempel, 2016, The Invisible Middlemen: A Critique and Call for Reform of the Data Broker Industry.

“We live in the era of Big Data, which seeks to commoditize our personal preferences for pecuniary gain. In this changing landscape, data brokers, or information reselling companies, compile information about individuals from a wide range of sources and subsequently sell this information to businesses worldwide. Such practices, however, mostly take place in the shadows without consumers' knowledge or consent, compromising their individual rights to privacy. Further, data brokers often aggregate raw pieces of individual information in a discriminatory manner, leaving consumers vulnerable to predatory and unsavory marketing practices. A 2014 Federal Trade Commission (FTC) Report, Data Brokers: A Call for Transparency and Accountability, specifically addressed such concerns raised by the data broker industry. This Comment analyzes the FTC's findings and demonstrates that the FTC's recommendations, while a step in the right direction, missed the mark on adequate data privacy reform. Rather than taking a piecemeal approach to data privacy in the United States, comprehensive legislation similar to the EU's Data Privacy Directive is necessary to ameliorate the privacy and discrimination concerns facing American consumers today.” (Kuempel, 2016)

Infomediary related legislation

European Parliament, 2016, General Data Protection Regulation (EU) 2016/679

“The GDPR creates a new right to data portability. This right further strengthens the individuals' control over their own personal data by allowing them to export personal data from one controller to another, without hindrance from the first controller. Controllers must make the data available in a structured, commonly used, machine-readable and interoperable format that allows the individual to transfer the data to another controller (Article 18 (1) and Recital 55). This right applies even where the data processing is based on consent or the performance of a contract and carried out by automated means (Article 18 (2) (a) and (b)). The right to data portability is a strong signal to controllers to create and promote interoperable formats when handling personal data. This provision reaches beyond the scope of data portability between two controllers as stipulated in Article 18. It is also a vehicle for an EU policy decision to favor interoperable systems.” (Burton et al., 2016) citing (European Parliament, 2016)