How the company's online auctions have influenced the way we do business.
BURLINGAME, Calif. -- Welcome to eBay world. Don't make yourself comfortable.
The Internet auction giant, beset by years of competition, bad customer relationand general fatigue, may rank a solid "eh, whatever" from Wall Street analysts, but with little notice the core of its sensibility now dominates our business lives. Everything is an auction now. The rules of contracts, pricing and planning may never be the same.
Over the past several months, I have asked a dozen businesses what length of time might define a long-term contract, buying or selling, today. Answers ranged from "six months" (for a publicity firm) to "five years" (telecommunications company). Then I asked, how long was "long term" five or 10 years ago? Typically the old contract length was at least twice as long as the new one--in the telecommunications sector, the executive told me with nostalgia, contracts "used to be for life." Only one group I talked to, which was involved in health care, said its contracts had lengthened modestly (see below for why).
No matter what the curt duration of the new "long-term" relationship, everybody agreed on one thing: During the contract, each side seemed to quietly acknowledge, the prices and terms of service would likely come up for review and renegotiation. In other words, the "long term" part of the deal was to have a relationship. Specific terms might shift.
What is going on here? It is easy to ascribe it to the credit crunch and recession. If you lose your loans or your customer demand, obviously you have to readjust. Many companies took advantage of this, pressing for lower prices even if their businesses were OK, just because they could. But some executives noted that prices did not always move downward. They can move up too. More than anything, they just … change.
What has happened to contracts is awareness. Thanks to the burgeoning nature of Internet connectivity and communication--someone else is always out there, with a new product or service or lower price--suppliers, customers and consumers have assumed a real-time market sensibility around all commercial relations. Renegotiation has always been with us, of course, but usually to the shock and consternation of one or another side of the deal. Now it is implicitly acceptable to both sides, since we live by eBay rules.
In many cases, both parties would like to have more stable relations, but they cannot assume conditions will stay the same. Who can say what a competitor will be in a couple of years, in a world where Apple ( AAPL - news - people ) is a dominant force in music, Wal-Mart ( WMT - news - people ) is a doctor's office and Amazon is your source for supercomputing? In a global market with portable factories, who knows what the cheapest source will be?
The auction world sensibility affects company workings too; for instance, job definitions can be in constant renegotiation. Some years ago Intel ( INTC - news - people ) determined that most of its executives had at least three entirely different roles at the company. Cisco ( CSCO - news - people ) puts its execs on a number of different development panels, so they work in, say, marketing, product design and supply chain at the same time. Google ( GOOG - news - people ), which makes money by selling ads on a continuous auction basis, hires people with an expectation that a year later they could be doing something entirely different.
Some years back, I knew a group of engineers who were developing a real-time global telephone billing system. Until then, worldwide bills worked off a standard, usually Greenwich Mean Time, which established a 24-hour clock to the billing cycle. For various reasons, this practice would not work for this new satellite-based system, so one of the billing engineers' big issues was answering the question "What time is it?" The answer, it turned out, was "yes," all bills would be calculated for that moment, not against any other standard. We're all heading there now.
The issue becomes one of figuring out how to keep prices steady to higher, or even grow the length of the contract. Usually the answer is to find a way to improve service, or redefine what is being sold in a way that narrows the competition. On many news Web sites now, content providers avoid the mass auctions of display ads by creating specially-themed pages of information, like "Tour de France background," instead of "sports." With luck, your definition makes you a scarce supplier, who gets a single sponsor or just a couple of keen bidders.
Another tactic is to sell that scarcest of commodities in this world beset by change: Peace of mind. The health care company that had lengthened its contracts had done so thanks to the increasing number of regulations hitting its customers. It handled the hassles and sold customers the prospect of more time to plan.
Brands, with their promise of fewer defects and better customer service, are another beneficiary. That is, if they can avoid the onslaught of awareness aimed at their customers from good competitors.
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