The Absence of Clear Value Chain Positioning Preempts the Required Cooperation among the American Online Industry Players

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The Absence Of Clear Value Chain Positioning Preempts The Required Cooperation Among The American Online Industry Players

"Whose customers are they, anyway?" was the title of a lively session at the IIA 1989 annual conference in New York on September 12, 1989. This session confirmed that the sharing of customer information between American gateway providers (GPs), system operators (Sys-Ops) and information providers (IPs) remains a major source of conflict, especially for consumer online services. IPs are requesting, without success, the customer's name, address and volume of service usage that gateway providers and system operators gather for billing purposes. As most IPs' online revenues depend on their service usage, they are increasingly reluctant to depend on their system operator/gateway provider's capabilities and willingness to market their service. They argue that their service's viability depends on their ability to better satisfy their online customer needs and to improve their service marketing. The customer information they are requesting from system operators and gateway providers would contribute to that end and at minimal costs.

The IP's argument seems legitimate. Knowing who is accessing their service, when, and how often can only help them to improve their product and its offerings. With the customer mailing list, IPs could use direct marketing to advertise new service features. Better service and marketing would, in turn, contribute to higher usage and benefit the ISP, system operator and gateway provider alike.

So, what motivates gateway providers and system operators to refuse to cooperate with SPs by providing them with their customer information?

Systems operators and gateway providers have traditionally advanced two arguments to justify their refusal. Argument one is that they are responsible for their customers' online usage privacy. They like to repeat that "their" customers sign a contract with them and usually not with the SPs. Argument two is that customer information can be gathered by ISPs through traditional market surveys.

Are these arguments valid? Can this issue of IPS' access to customer information be summarized as a trade-off between the customer benefits from online services enhancements and the potential loss of consumers' privacy, as the IIA session seems to conclude? No, and here is why.

First, the genuine care on the part of system and gateway operators for consumer privacy should be encouraged. The prevention of abusive use of customer online usage information is indeed important. But, isn't such prevention the role of customer privacy laws and law enforcement agencies? What entitles gateway providers to assume that IPs would be less responsible in their usage of customer information than they are? If they believe the law is inadequate to protect their customers, they should point it out to lawmakers. Finally, if the Sys-Ops and GPs have true concerns regarding their own responsibility in the case of IPs' misuse of customer information, they can include in their customer contract a discharge for passing customers' online usage information to IPs.

As far as argument two is concerned, it is only valid if argument one is. Sure, IPs can gather marketing information through traditional market surveys. But wouldn't they be paying expensive fees for information that their suppliers gather in the process of providing them a service? It just doesn't seem to make sense.

So what truly motivates such "counter-productive" attitudes from the Sysops and GPs? In my opinion, it is the fear of vertical integration that plagues the American online service industry and its lack of maturity is responsible for it. Most industry players are indeed still searching for optimum positioning along the videotex value chain. Many of them would still like to be it all: IP, system operator, gateway provider and network carrier. As the consumer market is small and fragmented, marketing costs are high and vertical integration is a natural tendency. …