The Times of London
Monday, July 17, 2000
Power to the people
By Ben Hammersley
Buy in bulk and you get it cheaper - it's a standard law of business. If you're a small company chances are you will always be undercut by the big boys of your business sector. If you've only one outlet, you won't be able to demand as good a deal as the man with five hundred.
But what if you could combine with lots of others - and demand a better deal? That's the idea behind one internet idea: aggregate buying.
There is one area that every small business could easily save on, and it's one that most don't think about: Power.
A new site, BuyingPower.com, looks set to change all that. By aggregating hundreds of small businesses together as one large group, then asking rival electricity companies to bid for the group.
This is possible because of the recent deregulation of the electricy market. With the SME electricity market giving big profit margins to the electricity companies there is plenty of scope for a big discount, according to BuyingPower's Damien Bombell: "As much as 30 per cent, not to mention the fact it costs Pounds 30 a client to close an account...electricity companies will fight to keep you," he says.
The process is simple. Go, as a business, to BuyingPower.com, and register. This, they say, does not obligate you to participate in an auction. Once registered, you must enter your energy needs: fill in a form about your electricity consumption and electricity meter information. Trickily, to complete this form you will need to have electricity bills for the last 12 months at hand.
Then you get to join a "Powergroup". These are the groups of associated businesses - all grocers, say, or all businesses beginning with "a" - that will be auctioned to suppliers.
Then the auction is held, and the new price is sent to you via e- mail and you can accept or reject the chance of saving cash.
All in all, it's a top idea and certainly one that extends to other commodities. Power companies like it because it gives them the chance to bring on massive amounts of new business in one easy swoop, and companies like it because it can save them high percentages off their standing charges. The slow, expensive electricity distributors may suffer - but who cares?
The business model stands up for other products. Small businesses can happily look forward to buying water, gas, office supplies, computers or any other generic business necessities for much cheaper prices than they can arrange alone.
For the consumer too, aggregate buying is becoming fashionable.
Letsbuyit.com is the most vocal of the consumer-facing sites. They have been very aggressive in their expansion plans and now sell in fourteen countries.
The theory there is similar to Buyingpower.com. The more people who join a group wanting to buy a PalmPilot, say, the cheaper it becomes. The sale continues until a set date, at which time the price is set and the sales are made.
All might not be happy at Letsbuyit.com, however. Earlier last week they pulled out of their planned floatation for the second time. Some worries have been raised as to the real viability of such a model for the (inherently less valuble) groups of consumers as opposed to businesses: many heavily discounting online retailers are offering the same goods at a price similar to the best price available on the aggregate sites - but without the week long wait for people to join your group.
The fact that these retailers are on dodgy business ground is irrelevent to the consumer: at the moment they offer the same goods with a better service.
This, at the end of the day, is the curse of e-commerce businesses: consumers don't care if the price you are selling things at isn't viable for a continuing business. What's more, there'll always be another e-tailor willing to step into the bankrupt's shoes and keep under-cutting longterm businesses.
But for small business suppliers, perhaps aggregate buying is the way to go.