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E-Commerce Gets Personal

In a New Business Model, Online Firms Recommend Goods, Services Based on Consumers' Preferences


Way back when Internet hype was young, perhaps three years ago, many believed that the global computer network would wipe out middlemen, those presumably costly handlers of merchandise and services who are generally scorned as little more than necessary evils.

Following the mantra that "the rules have changed," the hype promised that manufacturers would deal directly with customers, without distributors and retailers taking their cuts. Politicians would talk directly to the people, without the media interpreting and distorting their remarks. Musicians and actors would play to audiences without paying record companies and agents a percentage.

But the promise wasn't worth its weight in bits, and retailers, stockbrokers and media outlets soon ventured onto the Net, performing online functions that are similar to those they provide offline.

At the same time, however, new types of intermediaries have developed to offer services that complement, rather than replace, both the real world and the cyberspace middlemen. These intermediaries, still in their infancy, promise to provide individualized services previously affordable only to the wealthy in the form of personal shoppers and private bankers.

"Back in the old days, only the wealthy could afford to have someone shop for them," said Hal Varian, dean of the School of Information Management Systems at UC Berkeley. "Now everyone does."

The combination of sophisticated new data-processing tools with the information-distribution power of the Internet has given rise to the "personal agent" business model. Instead of reducing the layers between producers and consumers, we have more, without increasing prices.

And if Internet economics has its way, many more are to come.

Companies such as Irvine-based and RealSelect in Westlake Village are early forms of personal agents, focusing on the two biggest-ticket items a person is likely to buy, a car and a house. Extension into the recommending of services such as auto repair, landscaping and roofing may not be far off. and others have already demonstrated their interest in stretching beyond merely selling products to recommending them. In August, the Seattle-based online bookstore acquired Junglee, which developed an online comparison-shopping tool that allows people to find the lowest price on a specific product by immediately surveying dozens of online stores.

Meanwhile, personalization technologies have become more sophisticated, blending a variety of tools into one instead of relying on any single method. Last month, for example, two San Francisco-based firms, Andromedia and LikeMinds, merged to integrate their technologies--one that monitors the movements of people through Web sites and another that recommends products based on a person's expressed preferences. Together, the companies said, they will have a more powerful personalization platform.

While personal agent businesses promise to address a broad range of goods and services, for now they are confined to specific niches.

A potential car buyer might visit auto-referral services such as, Microsoft's CarPoint and to gather information about cars and request price quotes on vehicles. The agencies, which collect fees from car dealers in exchange for access to the Web site visitors, will relay the requests to a dealer in the customer's area, who would quote a nonnegotiable price to the customer.

Both Microsoft's HomeAdvisor and RealSelect's, which was developed with the National Assn. of Realtors, will sort through home listings according to potential buyers' preferences, then guide them to real estate agents and mortgage lenders.

Neither the home-buying nor the auto-referral services replace Realtors or car dealers, but they do take away their role as the guardians of information such as home listings and car invoice prices.

And the profits of car dealers and real estate agents remain the same or even increase, because these referral services reduce the cost of acquiring customers by educating them about things like car features, prices and options, a function that car salesmen or agents normally would have to perform.

"Those four salespeople that you used to talk to when you walked into a car dealership imparted a lot of information that you needed to have in the decision process, but it was just way too expensive and time-consuming," said Mark Lorimer, president and chief executive of

Salespeople Are Still Needed

By having computers take on the repetitive and computational information storage and distribution tasks, salespeople are free to perform higher-value functions--like giving customers personalized service--and getting better margins on their time.

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