Insight No. 28

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Online Knowledge Markets:
how do they work?
No. 28

What Are They?






The period 1999-2000 saw a rapid growth in the development of B2B exchanges - online marketplaces where buyers and sellers trade a wide variety of goods and services. While many may not survive, online marketplaces can play an important role in helping creating efficient and effective marketplaces. Online knowledge marketplaces are not as well developed as those for conventional products and services. However, many are emerging as important places to seek out and trade specialist knowledge. This Insight provides a general introduction to the different types of online knowledge markets and gives an overview of how buyers and sellers can exploit their potential.

What are Knowledge Markets?

Knowledge markets are not new. Recruitment agencies, author's agents, speaker's bureau's, and the consultancy matching services of many professional associations are example of knowledge markets that are well established. We must also not forget that knowledge markets already exist in organization, where individuals use discussion groups, knowledge centres and informal networks to share knowledge. What is new, is that Internet Commerce enables such markets to be much more efficient by bringing in a broader range of buyers and sellers, as well as introducing alternative marketing methods and business models (some still to be proven!). A typical online knowledge market will offer the following facilities:

  • Ability to post wants (buyers) and offers / statements of capability (sellers); these can range from the very specific (e.g. a report on robotics suppliers in Japan) to quite broad (e.g. help in developing an e-business strategy)
  • Categorization of products and services, sometimes with automatic matching of bids and offers
  • Transaction facilities - with automatic payments; the market provider may manage accounts directly and minimize risk through some form of guarantee
  • Feedback - giving the market participants information on successful trades, prices, and reviews of suppliers and their products
  • Ability to carry out different types of transaction such as auctions, reverse auctions, open or blind bidding
  • Discussion groups / communities - in open forums or closed groups to discuss topics of mutual interest.

In many respects, the facilities are like those on auction sites like eBay, but with added refinements because of the more complex nature of the sales process for some types of knowledge product and service. These may include the pre-qualification of participants, facilities for buyers and sellers to negotiate privately, and dynamic pricing, where prices on easily replicable knowledge, such as that in reports, can be dynamically adjusted according to demand.

Although knowledge markets inherit many of the characteristics of B2B exchanges, the motivation for creating and using them is different. In many B2B exchanges a group of dominant players in a market segment create an Internet markteplace to gain economies of scale in purchasing and to optimize their supply chains. Knowledge, however, is much more differentiated that a typical supply, and the market for knowledge is much more fragmented. Therefore, most knowledge markets are more balanced in terms of the relative power of buyers and sellers.

Types of Marketplace

Knowledge markets can be categorized in several ways:

  • By type of product and service e.g. publications, consultancy, intellectual property rights
  • By the type of package e.g. a consultancy project vs. a short piece of advice that answers a specific question
  • By the kind of market and communications mechanism e.g. an answer network, phone or email, project matching
  • By the scope and coverage e.g. a local area (for certain professional services) vs. international, a specialist niche vs. a broad set of categories publications, consultancy
  • How open it is e.g. on the Internet accessible to all, a closed marketplace, internal to a company (on an intranet), open to selected customers (on an extranet).

The Kaeiteur Institute of Knowledge Management (KIKM) has developed a taxonomy that merges some of these distinctions, but nevertheless gives a good overview of what is available. Its categories are shown below, with some illustrative examples added:

See the KIKM Knowledge Markets Portal for further examples. Of the various types, there is currently much activity in the eighth category (Intellectual Capital) since it provide an opportunity for freelancers and small consultancies to extend their market reach with minimal marketing expense. The exact facilities on offer vary from market to market and buyers or sellers will need to evaluate which ones are most suited to their own individual circumstances (see Resources).

Opportunities and Benefits

Knowledge markets can offer some significant benefits for buyers and sellers alike:

  • Better market access. Suppliers can reach a wider range of potential buyers than normal. For inventions, it is estimated that only 3 per cent of patents are used by the firms that create them. Patent exchanges give the creators access to buyers who they would not normally consider as potential customers. Buyers, likewise, can see a wider range of offers.

  • Precision matching. A good product and service classification coupled with good descriptors for suppliers capabilities means that bids and offers can be more closely matched.

  • More transparency. Open markets allow buyers and sellers to see what is on offer, and what the prevailing market price is. In the case of freelance services, indicates the number of bids while eLance also shows the profiles of suppliers.

  • Knowledge co-creation and development. Markets bring together people sharing similar challenges. The provision of online services for closed groups allows virtual organizations to be created for collaborating on new product or market development. KNOW Inc., for example, provides "a secure virtual space for sharing ideas, having real-time chat, and testing online products" as well as other infrastructure elements such as cooperative legal agreements and project management.


Knowledge markets are relatively new, and like B2B exchanges, many will have to restructure or reinvent themselves significantly in the near future if they are to survive. One of the pioneering markets that had many good features - - was closed following its market trial. Participating in knowledge markets is not suitable for every buyer or seller of knowledge or in specific situations. For example, where product and market characteristics are well known and the organizational impact is high, buyers often prefer competitive tendering situations with suppliers they already know. However, where the risk is small and the opportunities to save costs or gain unique knowledge are high, then going to knowledge market may yield some valuable benefits. Some of the factors that organizations should look for in a knowledge market (and that market owners should consider as part of their strategy) are:

  • Well publicized and easy to find. (e.g. via search engines and directory listings). The more buyers and sellers that are attracted to a market, the better it is for everybody.

  • Critical mass. There should be a sufficient number of buyers and sellers for the particular product or service sought or offered.

  • Well presented selling space. Products and services should be easy to locate, and sellers should have opportunities to embellish their descriptions with images and links to more detailed information.

  • Validation of supplier and product. The more complex the offering, the more that buyers need to understand precisely what it is they are buying. Offering samples and giving buyers the ability to contact previous purchasers will help reduce uncertainty.

  • A fair and transparent pricing mechanism. As in other areas of e-commerce, buyers should understand clearly the trading terms and conditions and what is included or excluded in the price. Sellers also need to understand exactly the levels of service the market owner provides, how they will be paid, and precisely what charges will be levied.

  • Incentives. There must be sufficient incentive for buyers and sellers to want to participate. Sometimes there is case of chicken and egg: sellers will not participate if there are not enough buyers; buyers are not attracted if there is only a limited range of products on offer. In the early stages many market owners will need to offer inducements in the way of free participation, lower transaction costs, conventional advertising etc. in order to attract participants.

  • Sense of community. The markets that are likely to flourish will be those that go beyond merely offering transaction space. They are likely to act like a portal for particular groups of people, offering news, discussion groups and other facilities that will help knowledge workers in their daily activities.


As with B2B marketplaces and many companies, knowledge markets are embryonic and the whole scene is one of flux. For most market owners, the immediate concerns are to develop a critical mass before the funding from their backers runs out. Others are taking a more cautious approach, evolving organically with a very low cost base - after all many of today's successful Internet companies grew through word of mouth (now called viral marketing!).

From our analysis, three things are clear:

  • Knowledge markets, in one form or another, are here to stay - the benefits are overwhelming compared to the haphazard ways of letting buyer meet seller through conventional mechanisms.

  • Some will be successful, while some will fail. The difference will not depend on dollars, but on strategies and the quality of products and services. Participants therefore need to evaluate them carefully and limit their investments during the current experimental phase.

  • The successful markets will be those that have good customer knowledge and exploit it well - they understand the needs and motivations of all participants and they delight them with their offerings and level of service. They create win-wins all round.


Being a relatively new phenomenon, little has been written about knowledge markets. Here is some recommended reading and links to explore

'The Promise and Challenge of Knowledge Markets', Chapter 2 in Working Knowledge by Tom Davenport and Laurence Prusak. This is about internal knowledge markets (i.e. within organizations) but give a good overview of some general considerations.

The Knowledge Markets Metaportal. The Kaieteur Institute of Knowledge Management (KIKM).

Additional Reading:

'Online Knowledge Markets', Chapter 4 in Commercializing Knowledge, David J. Skyrme, Butterworth-Heinemann (to be published Spring 2001). This gives expanded coverage of the topics in this Insight.

See Also:

Management Insights:
Internet Commerce
Commercializing Knowledge.

I3 UPDATE articles:
Knowledge Markets: Do They Have A Future? (January 2001)
Knowledge Trading on Trial (March 2000)
Knowledge Trading: But at What Price? (December 1998).

© Copyright. David J. Skyrme. 2001. This material may be copied or distributed subject to the terms of our copyright conditions (no commercial gain; complete page copying etc.)

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Management Insights are publications of David Skyrme Associates, who offers strategic consulting, presentations and workshops on many of these topics.

Additional coverage of these topics can be found in our free monthly briefing I3 UPDATE/ENTOVATION International News, various articles, publications and presentations.

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