Volume 1, Issue 05 - Continued Growth of Affinity Groups 1999 trend #06: Continue growth of affinity groups (e.g. Chemdex, Metalsite, Rosettanet, etc.).

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Subject: 1.05: Continued Growth of Affinity Groups

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May 31, 1999 *Over 1,600 subscribers* Volume 1, No. 05



Theme: Continued Growth of Affinity Groups trend #06: Continue growth of affinity groups (e.g. Chemdex, Metalsite, Rosettanet, etc.).

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Subject: 1.05:  Continued Growth of Affinity Groups

Let me talk a bit about this month's trend. My #6 prediction for 1999 is "Continued growth of affinity groups (e.g. Chemdex, Metalsite, Rosettanet, etc.)". The growth of affinity groups may turn out to be the hottest eCommerce trend in 1999. Anyone who attended the Net Market Makers Ground Zero Conference on May 23-25 in Berkeley, CA ( saw the incredible growth and energy in this area. Other than the horizontal approach most vendors were taking to provide solutions to this industry, all "promising" market makers were taking a vertical "affinity group" approach.

There were 380 attendees looking to share information and learn something new. The general consensus when walking the hallways and during the panel discussions were that we were at the beginning of this phenomena with 2-3 years left to capitalize on the opportunity. The players were furiously working to grab their piece of the online pie in their respective industries.

The surprising element at the conference was the lack of current industry players as drivers. They were present, but primarily as reluctant participants. After showed the world that even the rather stodgy book industry could thrive with improved Internet-based processes, one would think that by now major industry players would have gotten the message.

Internet strategy should potentially include coopetition. SABRE (, created by American Airlines ( is a good example of coopetition. MetalSite ( is a recent example where three competitors (LTV Steel, Steel Dynamics, Inc., Weirton Steel Corp) have invested in a separate Web-based company that sells excess inventory, distributes industry information, and helps establish community among its participants. The founding partners support this Web-based community through guaranteed monthly inventory sales of $25M. Also playing in this market as a market maker is E-Steel ( and as an information provider is Metal Prices (

Affinity groups have been part of the business fabric for quite some time. Two examples of consumer-based affinity groups in the physical world are Price Costco ( and Sam’s Club ( in the United States. Both companies aggregate consumers who buy everyday consumer products at low cost in a no-frills environment. In the online world, Mercata ( a Paul Allen backed startup, is attempting a similar strategy with a twist. In addition to the low-cost, fixed-price buying in a number of consumer areas, Mercata offers flexible-priced buying on select items. PowerBuys are limited-time buying opportunities that offer decreased cost of product as demand for the product increases. By using the Internet and aggregating demand, Mercata can pass the efficiencies created in the value chain on to the consumer.

A company worth looking at is Verticalnet ( With its 39 vertical markets, e.g.,,,,,,, to name a few, Verticalnet serves as the industrial channel for AltaVista and Excite. What’s exciting about Veriticalnet is its ability to compare adoption rates across industries, taking efficient Internet-based processes that worked in one industry, and introducing them into not yet adopted industries.

Interesting Net Market Makers in other markets include:

Research and Laboratory Supplies
Electronic Components
Hotel Reservations

It is clear that net markets are here to stay. According to Net Market Makers, there are currently 300 Net markets; by year’s end, there will be close to 10,000. The Gartner Group predicts that 80 percent of all businesses selling online will rely on Net markets for 80 percent of those sales by 2002. If you’re not participating in a Net Market nor are aware of what’s happening in your industry, I’d suggest you take a serious look.

I hope you enjoy this newsletter.

See you in cyberspace,

Mitchell Levy
President, <>
Publisher, <>

Mitchell Levy is President, <> and Publisher, of <> a monthly eCommerce newsletter that focuses on strategy, trends and news. Please go to their home page to sign up or send e-mail to


Here's some comments from our readers:

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I believe that the 'coopetition business model' is the way business will be done by small businesses in the future. We (small consulting firms) have been doing this for years. We may compete for one project and cooperate with a 'competing firm' for another project in order to assemble the very best skill set to complete the job for the client. I do not believe large firms will use this model, because they prefer to sell you what you are buying and deliver whatever they have (as far as consulting resources). They do not want to by-pass any revenue opportunities.


I think coopetition will increase to cross pollinate customer bases and lower acquisition costs. The challenge will be over saturation of consumers who will in turn tune out all messages.


Co-operation across company boundaries is nothing new. However, web based coopetition systems will carry this one step further: trans-contry -> trans-continental -> global.


The most compelling force driving firms toward affinity groups are customers that demand a complete solution. When the question is asked "What is best for the customer?" the answer often will be for solution providers to combine their skills and knowledge base with other organizations/companies who fill out and satisfy the customers total requirements. The drive for 'open' vs 'propriety' in digital systems is overpowering. The outcome of this drive must be cooperation between firms. Firms that fight this trend will make up the waste pile of the new millennium.


Time will come when you will have access to all the vendors at your fingertips. Comparison shopping will be the way to go... Vendors will have no choice but to be clustered together and fight for the customer. They will have to be very creative in order to differentiate themselves. Communities and affinity groups will be thriving with eCommerce.


It's all about core competencies isn't it? If what you do best is marketing and sales, then why should you waste your time making things and moving them around? If advertising is your strength, why get bogged down in order processing, picking, packing and shipping?

This is definitely a common thread for the future. The reason we needed to be vertically integrated in the past was to control the flow of goods and services. Henry Ford really did need to own rubber tree farms in South America to assure a steady supply of tires for his cars.

Today, companies have figured out how to build tight, symbiotic partnerships. What's made the difference? My ability to look into your stock-on-hand moment-to-moment and your ability to look into my work-in-progress as it happens.

Just-in-time inventory and out-tasking mean we get to focus on what we do best.


It is my belief that Affinity Groups are here to stay and are needed. There are many small suppliers that don't have the resources or technical wherewithal to play in the commerce space. These groups provide these resources. Affinity groups also offer large organizations access to these small suppliers and start-ups.


I believe that we have a lot more ground to cover in marketing and establishing relationships through affinity groups. In today's market relationships and opportunities are constantly changing, so it is best to leverage entry points and trust to new contacts via some other enterprise's expertise, as well as branding through recognizable names. "Let others do what they do best if it will help me get to and service my clients to the client's level of expectation"


Sure the web is a terrific source of information - but as more and more businesses seek to get their products out to the consumer (whether b2b or not) the need for some way in which to sort through the barrage is necessary. People will eventually align themselves with these 'affinity groups' the same way that they relied upon their favorite reps. The major bonus will be that these 'virtual reps' don't have a limited area that they cover.

It will be interesting to see how these 'virtual reps' achieve the needed loyalties of their subscribers. I would make the point to them that b2b consumers are no different than most of the web-buying public...if the site is too time consuming to use, its purpose is lost. The easiest, most efficient way to compare price, quality, and availability will win over the 'buyer' (same as it ever was, same as it ever was...).

But my bet will go to the 'affinity group' that can take into consideration the many channels business purchase orders have to go through.




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E-commerce: Old Line Moves Online
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Health Care Portal Launched
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Making Big Business Out Of Small Markets
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Purchasing Analyzer -- Instill Service Helps Spot Money-Savers
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Procurement Moves Online at New Site
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E-Commerce Tools, Standards Alleviate
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Dell unveils online dynamic pricing -- Part of premier Web sites for big customers
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Configuration Tool: opens services to resellers
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101 Best Business Sites
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Microsoft publishes draft of BizTalk
Microsoft today published a draft version of its BizTalk framework, a scheme to tie together industry-specific versions of XML, which is gaining widespread attention as a way to conduct e-commerce over the Internet.

CrossWorlds Software Announces E-Business Integration
CrossWorlds Software, Inc., today announced CrossWorlds e-Business, the extension of its enterprise application integration (EAI) solutions to support linkages between trading partners via the Internet

New Software To Combine E-Commerce, Customer Management
Siebel Systems, Oracle, Hewlett-Packard and other vendors plan to unveil products over the next few weeks that offer complete integration between customer interactions and Internet transactions.

PeopleSoft Launches E-Business App
PeopleSoft Inc. last week unveiled PeopleSoft eMarketplace, an application for business-to-business and business-to-consumer electronic commerce. to Automate Mass (Snail) Mailing
Mass mailings, the bane of small and mid-sized businesses lacking the means to outsource, just got a whole lot simpler -- and cheaper, says an Internet start-up seeking to tap into the multi-billion-dollar annual market.

Microsoft and Ariba Join Forces to Accelerate Adoption Of Business-to-Business E-Commerce Standards
Microsoft Corp. and Ariba Inc., a leading provider of intranet- and Internet-based business-to-business e-commerce solutions for operating resources, today announced plans to work together to accelerate the adoption of Extensible Markup Language (XML)-based standards for e-commerce.

Choice Of Commerce Language Still Open
Several e-commerce interfaces will emerge next week, but it remains to be seen exactly which standards or dialects vendors and users will choose.

Data Mining Is Key To Online Billing
As companies focus on business-to-business e-commerce, electronic payment systems don't always top the list of concerns. "Frequently, payment isn't the most important or inefficient piece of the process," said analyst Linda Weber, director of online bill presentment and payment at American Management Systems. "Older technologies - even writing checks - can do the job for the time being, while other needs are more pressing."

Grainger Sees E-Commerce Payoff, Adds SAP Technology
Maintenance, repair, and operating supplies provider W.W. Grainger has proved e-commerce is the way to go, posting stellar revenue growth from its online catalog, At a shareholders meeting Wednesday, the company said for the month of April, has already generated more than the $13.5 million in sales revenue for all of 1998. For the company's first quarter of the year, the site produced $10.1 million in revenue, an increase of 339 percent over last year's first quarter.

Keynote Puts Mega-Sites to the Test
A San Mateo, California, Web site analysis company is putting five large e-commerce sites under the microscope this month to promote its quality of service measurement programs.  Among others, Keynote Systems, Inc. plans to analyze fast-growing and 1-800-Flowers.

Rewards-based Shopping Portal Launched
Menlo Park, CA-based ad-backed incentive marketer launched an online shopping portal that connects consumers with online merchants and then gives them cash rebates of up to 25 percent on their purchases.Through, shoppers receive rebates on purchases from merchants such as, CDnow,, Dell Computer, and eToys, among others.



The Importance of Affinity Groups in Electronic Commerce
by Stacey Bressler and Charles E. Grantham, Ph.D.


Affinity groups have always played an important role in society. Human nature dictates that people seek the company of others with whom they share a common bond. In the past few years, affinity groups have begun to play an increasingly important role in commercial ventures as well. Today we see three basic models for affinity groups: one which bases its value primarily on offering members additional services, one which is designed to promote brand loyalty, and one which is focused on obtaining valuable information. While all of these commercially-based affinity groups exhibit some traits of each of the three models, they differ in their presentations and appeal.

The AAA Model
The Automobile Association of America has been in business for almost 100 years. For over 90 of those years, it was perceived as an "auto club" offering roadside assistance, maps, and travel advice for drivers. Within the last five years, however, AAA has expanded its services for members by offering special programs and discounts in hotels, airline tickets, cruises, tours, auto loans, mortgages, and even life insurance. The company is so serious about changing its image from auto club to affinity group that it even hired a major public relations firm (Fleishman-Hillard) to update the AAA logo! While most members are still drawn to AAA to meet their automotive needs, the company's value to members is based on offering these and related services. It is a prime example of a service-based affinity group.

The "Frequent Flyer" Model
The common wisdom of sales is that it costs a company more than five times as much to attract a new customer than to retain a current customer. This is just one reason why brand loyalty is so important to companies. Airline seats have become a commodity. While each airline may have some unique features, it really comes down to being moved from point of departure to destination. Therefore, it was close to a stroke of genius when the airlines began their affinity groups almost a decade ago. The promise of better seats, upgrades to business and first-class travel, and airport amenities, have had the desired results. Frequent flyers will go out of their way to receive the mileage credit from the airline of their choice.

The Safeway Club Card Model
Most people are reluctant to release personal information about themselves. In fact, this is one of the "barriers" consumers continually cite when asked about their resistance to online shopping. However, the growth of shopping affinity groups has shown that consumers will gladly divulge lots of personal facts when offered a suitable incentive. The Safeway Club Card is one example of a program which allows shoppers to receive special pricing and bonuses in return for giving Safeway the ability to track personal information related to grocery shopping. While the model certainly influences band loyalty, the primary value proposition to Safeway is the information it receives which can link demographics to purchases and preferences.

Affinity Groups and Electronic Commerce
Like the bricks and mortar world, Internet-based electronic commerce offers the potential for affinity groups for savvy companies. This is true not only for the consumer type examples noted above, but also for business-to-business electronic commerce. Large companies have long received special treatment from their suppliers. Distributors for manufacturers also wield tremendous power as an affinity buying group. But this power is now accessible by even small online commercial entities.

The true power of affinity groups for electronic commerce seems to be two-fold: one, an affinity group can drive the recognition of a market sector; and two, an affinity group can lead to the formation of an entirely new entity. Like the affinity groups mentioned above, the major drivers seem to be related to building image, fostering loyalty, and obtaining >reliable information. Cost savings from collective buying, which we expected to be a major driver, comes in at a distant fourth.

Affinity Groups to Build a Market Sector
The buyer-centric auction model has evolved as a major force in selling over the Internet in the past two years. There is even a website devoted to listing auction sites: While sites such as eBay and MetalExchange may not have any official linking, they have actually become an affinity group in the mind of purchasers who are seeking this type of auction experience. The market sector itself has been created and advanced by portal sites such as the one noted above.

The Power of Affinity Groups
What we are finding is that the affinity group is becoming a major power in building electronic commerce over the Internet. Not only is the buying process moving into the control of the buyer, but businesses themselves are being formed both virtually and physically by the interactions which occur when affinity groups are formed. We believe the affinity group is a model which will continue to grow in importance in electronic commerce. As more and more small to mid-sized companies reach out to electronic commerce, they will discover one another and the power they can unleash by building alliances. Dynamic groupings may become more and more commonplace as the future unfolds. The affinity group, even a temporal affinity group, is destined to be a driving force in the development of electronic commerce.

Reprint rights granted by permission of CommerceNet. Stacey Bressler serves as CommerceNet's Vice President, Business Development and Marketing. Charles E. Grantham, is a CommerceNet Consultant and Project Manager. CommerceNet ( is a global industry consortium for companies using, promoting and building electronic solutions on the Internet.




Customer service may be missing link in e-commerce
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At Your e-Service -- Will face-to-face customer relationships become a thing of the past?
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500 Locksmiths are Better Than One
At first glance, home security products for sale online doesn't sound like much of a business. It evokes images of boxes of pepper spray and motion-detector lighting landing right at your steel-reinforced door - a sales pitch suited to bedridden paranoids. But, which bills itself as "the safest place on earth," is quietly staging the latest online battle against independent merchants' megabusiness

EBay Outage
Monday a server malfunction forced eBay to temporarily suspend all auctions. The problems started around 8:30 a.m. EDT and remained unresolved by late afternoon. Star Wars junkies refused to wait for their new toys, of course

Internet Ad Revenues Double
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E-Biz Bucks Lost Under SSL Strain
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Auctions a hard sell to buyers
A recent report from market-research firm International Data Corp. contends that online auctions are becoming a critical component of the e-business environment, but just what impact these online bidding wars will have on the electronics supply chain is still uncertain.

Cameraworld Tiptoes Into Web Retailing
Selling cameras online should be a great business. There's only one problem with this picture: The people who make the cameras.



Mergers At Net Speed
Online music sellers CDNOW AND N2K last week demonstrated the new reality of "dotcom" mergers: assimilating rapidly evolving technologies, combining massive amounts of mission-critical customer data-and completing it all in a matter of weeks.

CVS buys To Speed Web Effort
Deal Lets Drug Retailer Accelerate Plans To Integrate Internet And Conventional Drugstores

Flurry Of Multimillion-Dollar Deals Signals New Effort To Be Competitive In E-Commerce
Forget concerns about channel conflicts, cannibalizing in-store sales, or the viability of Web commerce. Pressured by Internet startups that are rapidly amassing market share and loyal customers, established companies are making bold moves to build a bigger presence on the Web-fast.

VC firms target business marketplaces
While most investor attention is focused on consumer shopping online, several venture firms are placing big bets on industry marketplaces, an emerging category in business-to-business trading. These marketplaces have names like e-Steel, Shoe: The Network, Chemdex, and National Transportation Exchange. All take   fragmented markets, draw together buyers and sellers in a specific   industry, and help them do deals.

Sun-Netscape Alliance Publicizes E-Commerce Partnerships
The Sun-Netscape Alliance will publicize Monday new product and co-marketing partnerships with other companies tapping into the mother lode of e-commerce

Amazon Buys Book Site, E-Commerce Company
Online book and music seller said Monday that it would buy three Internet companies, including a rare book and music sales site, an e-commerce company, and a Web-navigation.

Amazon Takes Grocery Share (Nasdaq: AMZN) is expanding into the online grocery market with an announcement this week that it has taken a "significant minority interest" in

How NBC Finally Made Its Net Move
The Peacock network has been on a roller-coaster ride - a near miss with Lycos, and then a swift deal with Xoom. Here's how it all went down.

Healtheon and WebMD Team Up
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Datek Lands $300 Million Investment
Datek Online Holdings, the parent company of the Iselin, N.J.-based online brokerage Datek Online, has scored $300 million from three private-equity investors.

PointCast Acquired by IdeaLab
The deal, first reported by CNET last week, comes almost a full year after PointCast scrapped plans to go public, and just a month after the collapse of the company's plans to sell itself to a group of Baby Bell telephone companies.

Concur Signs DaimlerChrysler
DaimlerChrysler Corp. has deployed Concur Technologies Inc.'s Employee Desktop application to automate travel and entertainment expense reporting. Pleases the Street
Name-your-price online retailer (Nasdaq: PCLN) impressed Wall Street on Wednesday when it released its first earnings report since becoming a public company.  The company lost $17.2 million -- or 12 cents a share -- in the first quarter of 1999, but analysts had expected a loss of 13 cents a share. Meanwhile, revenue increased 160 percent in that same time period, growing to $49.4 million (US$) from $19 million...

Intuit Takes $50 Million Stake In Online Banking Pioneer
Financial software company Intuit Inc. Monday made a $50 million investment in Security First Technologies, the firm behind the nation's first Internet-based bank. The deal gives Security First Technologies access to Intuit's financial management software and financial tools, including income tax preparation software and electronic filing capabilities.

Cisco Buys Into Portal Software
Leading networking company Cisco Systems (Nasdaq: CSCO) bolstered the status of newly public Portal Software (Nasdaq: PRSF) on Wednesday, with an investment and a strategic alliance.



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13 Signs That You Have Had Too Much of the 90's

  1. You tried to enter your password on the microwave.
  2. You now think of three espressos as "getting wasted."
  3. You haven't played solitaire with a real deck of cards in years.
  4. You have a list of 15 phone numbers to reach your family of 3.
  5. You e-mail your son in his room to tell him that dinner is ready, and he e-mails you back "What's for dinner?"
  6. Your daughter sells Girl Scout Cookies via her web site.
  7. You chat several times a day with a stranger from South Africa, but you haven't spoken to your next door neighbor yet this year.
  8. You didn't give your valentine a card this year, but you posted one for your e-mail buddies via a web page.
  9. Your daughter just bought a CD of all the records your college roommate used to play.
  10. You check the ingredients on a can of chicken noodle soup to see if it contains Echinacea.
  11. You check your blow dryer to see if it's Y2K compliant.
  12. Your grandmother clogs up your e-mail Inbox, asking you to send her JPEG file of your newborn so she can create a screen saver.
  13. You pull up in your own driveway and use your cell phone to see if anyone IS home.

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