Balancing trust and innovation in the internet industry

During the last few months we have seen several security breaches into large companies’ online networks. Does this call for more regulation for internet companies? During the eG8 Forum in Paris last month, internet leaders and government regulators had the opportunity to exchange ideas concerning the future of the internet and whether it should be further regulated. The main discussion point is the boundaryless freedom enjoyed by internet companies and the huge amount of customer info captured in their databases that include both personal and financial details.

On the one side we have European telecom companies such as Vodafone and several national government bodies, arguing that there is too much at stake and that therefore trust, privacy and copyrights have to be guaranteed. Also from a fair practice viewpoint, telecom giants urge for regulation; why should internet companies be excluded from regulation when companies in all other industries aren’t?

Meanwhile the other side, including companies such as Google and Facebook, argue that innovation should be maintained. A McKinsey study revealed that the internet contributed during the last 5 years 21% of growth in mature economies. By imposing regulation on internet companies, they claim, this growth will level off. Furthermore, they argue, self-governing processes are present in many internet companies, such as eBay and Amazon.

Is there a middle ground between trust and innovation? Is it possible to implement a set of laws which prevents data misuse and enforces consumer rights, but at the same time allows for the internet industry to realize its full potential within a legal framework? Next to this, regulation often lags behind innovation. Basel III, for example, is a set of laws responding to those invented financial products which have caused the financial crisis of 2008. Should we be proactive or reactive when dealing with the new possibilities of the internet?

New legislation required for future online transactions?

In the last weeks of April, the largest cyber attack ever took place when criminals successfully hacked into Sony's two online gaming networks, PSN and Sony Online Entertainment. Financial details of millions of online customers worldwide were extracted during the cyber attack.

As an immediate outcome of this disaster, Sony faced several lawsuits. Also on a broader level, this disaster has provoked drastic consequences. In the US, Republican Mary Bono Mack, who heads the Commerce Committee's Consumer Protection Panel, said she would introduce a new bill. According to her and others, the existing legislation falls short in obligating companies to secure sensitive information and to timely inform clients about such security breaches. Because more and more people become active online purchasers, large online companies such as Amazon, Sony and Apple contain vital financial information of an increasing amount of people, to such an extent that legislation should become updated to make companies safeguard this valuable information. Not only is an increased security needed, but also concerns about privacy and the potential trade in personal data should be considered.

Does this security breach mean that online consumers should doubt the security of their online transactions on all e-platforms? Are iPhone users OK with the fact that Apple can track their users? This matter can also be applied for companies; should companies which purchase online services such as cloud computing also be worried?

Balancing the retailer - manufacturer dynamic

As global retail chains increase their presence in the Asian markets, analysts question whether the battle for power between brand manufacturers and large retailers will also be fought here.

If pressure from retailers and their private labels continues on brand manufacturers, what are potential moves for manufacturers to alter a possible gloomy outlook of retailer dominance?

Create your own distribution network

If the mass channel becomes difficult to compete in, leverage your dependence away from that channel. Go in-house and target your customers directly. Using the franchise model is a relatively easy way for a quick expansion. McDonald’s uses this method to quickly expand its presence in new markets.

Engage in e-retail

Explore this as a serious option. Online retail has grown at a tremendous rate and there are no signs that this trend will change over the next years. Amazon, for example, has known an enormous success and has recently set up plans to start a free weekly home delivery service.

Provide your customers with a shopping experience

Don’t forget that shoppers see shopping as an important leisure activity. Focus on providing your clients with the best attraction in your category section in the supermarket or in your shop in the shopping complex. Apple experiences a lot of success in this way: shoppers can test and try Apple products, attend workshops and ask for advice from Apple ‘Geniuses’ about all kinds of products. Make your products stand out from the rest by experimenting with creative packaging, creating your own shelves, sample tastings and introducing innovative products. In this way, you essentially force the retailer to stock your products.

Be innovative

Many large brand manufacturers have spent decades creating an emotional brand value. Nowadays, as shoppers are more than ever aware of the huge amount of options they have, focus should shift towards creating innovative products and marketing them accordingly. Knowing how your shoppers shop and offering them a quality product will generate repeated sales. This focus readjustment to products can potentially prove to be effective against private label competition.

Cooperate with retailers

Work together and search for win-win situations.  Retailers and manufacturers are in it together to sell products. Retailers need brands in their shelves to create their own brand image. Look for symmetries between your brand and the retailers’ brand and establish safe long-term contracts to secure that collaboration.

Take these 5 guidelines into consideration and question yourself what they practically mean for your brand. We need to remember that the emergence of mass retailers is an effective channel for brand exposure and reaching your end customer, especially in the Asian markets where infrastructure is still developing.