Three’s a crowd – Four’s a party

This article explores the emergence of 4th parties as a ecommerce force to be reckoned with – what they are and how they benefit the customer, plus some of the challenges they face and how Geddup fits into the picture.

What is a 4th party?

Doc Searls, the undisputed godfather of VRM, defines 4th parties in his book “The Intention Economy: When customers take charge” as those:

“whose interests are aligned with those of the customer or user or that act as an agent or fiduciary for the customer or user.”

So where we once had three parties to a transaction – the customer, the vendor, and a party acting on behalf of the vendor – we have added a fourth, a party to act on behalf of the customer.

How does this work? Doc paints a scenario (here) where a 4th party enables a customer to say to the car rental market:

…“I’ll be skiing in Park City from March 20-25. I want to rent a 4-wheel drive SUV. I belong to Avis Wizard, Budget FastBreak and Hertz 1 Club. I don’t want to pay up front for gas or get any insurance. What can any of you companies do for me?” — and have the sellers compete for the buyer’s business.

Sounds ideal. And in a perfect world it would be this clear-cut. A 4th party would always be totally aligned to the customer, just as a 3rd party is wholly aligned to the vendor.

The broker’s challenge

But reality is blessed with many shades of grey and the distinction between 3rd and 4th parties is not always straight-forward.

Consider for example, the difference between two online travel specialists. Wotif, is a “booking site that allows you to easily compare flights and accommodation online”. It is paid a fixed booking fee on each transaction it completes. On the other hand, Zuji is an “online travel agent”, an aggregator of travel industry deals – in effect it promotes those deals that are front of mind for its clients: the airlines, resorts and car companies with which it works. Wotif finds deals that suit the customer. Zuji advertises deals that suit the vendor.

At face value then, Wotif is a 4th party and Zuji is a 3rd party. But looking deeper into their respective sites, it is easy to find examples that blur the lines of distinction. Booking a flight on Zuji delivers a very similar process and outcome as found on Wotif. Conversely, Wotif is not immune from advertising ‘specials’ on behalf of vendors. Perhaps it is better to view these companies as sitting somewhere along an alignment spectrum that runs from customer to vendor.

This issue of alignment is often defined by how choice is presented to the customer. Given the apparent ease with which customers can compare products and services in an online context, this is not so surprising. It is for good reason that getting to the top of the search queue is a widely held ambition of vendors globally.

At its worst, commercial agreements around this aspect can lead to market distortions like the EnergyWatch seraglio. But there do not need to be explicit arrangements for choice to be compromised. Other circumstances, such as resources, can limit the choices offered to customers by 4th parties.

The point is that alignment of interests is rarely a simple proposition. Even the most honest of brokers must be alive to the competing demands of vendor and customer.

Geddup and the 4th party revolution

A good part of this issue is that a 4th party’s economies of scale is typically as much a function of vendor aggregation as customer aggregation. For example, a company like LoadMax that offers to find the cheapest costs for moving goods must have relationships with couriers and logistics companies across the country. While customers can then enjoy the scale benefits of vendor aggregation that LoadMax is able to deliver, this is clearly a specialist service. Their offer is limited to shipping goods and LoadMax is unable to access any further scale benefits from aggregating the customers themselves.

This is where Geddup can play a role. Given our objective is to drive scale efficiencies across all industries, Geddup is perfectly positioned to bridge the gap between 4th party specialists and customers.

In practice this means that customers can use Geddup to find 4th parties and then manage their interaction with them. For example, customers can avoid having multiple passwords and logins. They can maintain the security of their personal data while keeping a 4th party up-to-date with that data. They can expect standardisation of privacy agreements. And they can easily file and retrieve information relating to those relationships.

In short, Geddup enables customers and specialist 4th parties to share the scale benefits of aggregating the ‘buy side’ regardless of product. This is one of the ways that we aim to promote the customer and the emergence of 4th parties.

Vive le révolution

Technologies are enabling companies to align themselves more closely to the customer. It is in their interest to do so because the customer is the final arbiter of demand. This is the business model of the 4th party – companies that operate on the finest of margins because they have the required scale and leanest of cost bases.

The recent growth in the number of 4th parties is ample evidence of the success of this model. The decline of the traditional media industry confirms it – advertising based business models are difficult when customers can go direct. If Searls is right, and we think he is, then we can expect these trends to accelerate as the intention economy takes root.