Future Business

                              The Third Market


       In a changing world, retailers have a choice. Set nets for the
     well-heeled, who are fussy, demand top service, and want the best -- this
     is where the highest per individual sale profit resides. This is the
     first market. Or else deal with that segment of the market that makes
     most of its decisions on price alone. That's the second market.

       Today there is a new kid at the counter, the third market, better known
     as the entrepreneurial movement. It might yet save America. In times when
     large companies are shrinking like cheap shirts and laying off staff,
     when such giants don't know how or where to move or how to play the much
     faster business game, why are there a million small American companies
     growing at an annual rate of 15 percent?

       How have the huge companies, which once had all those markets tied up,
     got into such a fix? What have they to offer now, when all their
     executives who have spent their lives learning to play business/baseball
     have nothing to offer but the same old, worn-out products and poor
     service? Why can't they learn the new, much faster game of business/jai
     alai? The same reason an elephant with arthritis can't out-run a gazelle.

       These small companies are producing 44 percent of all
     business-to-business sales, according to a report prepared for Wilson L.
     Harrell, former publisher of Inc. magazine. Eighty percent of all new
     jobs created during the past decade have come through the actions of
     these entrepreneurial companies. Some have grown at lightning speed. With
     products and services for the Information Age there is often little
     relationship between cost and selling price, so profit margins border on
     the magnificent.

       In the software field, once development costs have been covered, the
     actual cost of reproducing software copies -- whether on computer
     programs, disk books, CD-ROM, audiotapes or videotapes -- resides in the
     minimal wholesale costs of a disk ($.19 to $.35) or a tape ($.50 to $10),
     and packaging ($.50 to $10). Retail price can run from $20 to $5,000,
     depending on what the product can do for you. Almost always the product
     is price insensitive. It is usually better and quicker and costs less
     than whatever it is replacing. People, at least for now, are so impressed
     with comparisons with the past (computer vs. typewriter, ultracompactness
     vs. bulk, speed vs. snail mail, brainpower vs. muscle power) that price,
     once consumers understand what the new product or service can do, becomes
     a fourth or fifth priority.

       Will some larger companies see the writing on the screen and follow
     these leaders of relatively small businesses to success? The General
     Business Systems Division of AT&T is converting some of its branches into
     franchises! IBM, admittedly belatedly, chopped a fifth of its Canadian
     operation and one hundred thousand employees from its staff worldwide to
     survive. Not only is IBM now a much better company, it provides better
     service.

       These are not isolated cases. It is happening everywhere. Globalization
     means competition can come from anywhere -- and everywhere. Like it or
     not, it's this sense of urgency that drives the successful -- here or in
     Kuala Lumpur.