As we all know, businesses have traditionally made profits based on their superior knowledge. Quite simply, sellers knew more than buyers about what it costs to create a product or service.

Now, the Internet has dramatically leveled the playing field, strengthening the position of the buyer. This doesn't have to mean that your profits will disappear, but it does mean that your profits will have to be earned a different way.

Let's take of look at what's going on, where it's headed and what it might mean for your industry.

The Internet is the biggest threat to a company's ability to brand its products, extract price premiums from buyers, and generate high profit margins. The problem comes from what economists call "cost transparency," a situation made possible by the abundance of free, easy-to-find information on the Internet.

For example, services like MySimon, BizRate and NexTag help consumers comparison shop for consumer goods of almost every description. Now, a giant electronics retailer is no longer competing with other large electronics retailers with the same margins. Instead, on-line competition comes in the form of small businesses, manufacturers, overseas companies, auction sites, and even individual consumers peddling used merchandise.

All of this competition makes it easy for shoppers to find what they want at the lowest possible price. They can also find a wealth of material on product quality, supplier reliability, service offerings, and much more. All of these factors make the sellers' costs transparent to buyers. It lets them see through manufacturing costs — and decide whether those costs are in line with the prices being charged. That will make it much harder for companies, whether they are on-line or not, to impose large price premiums.

The power shift from sellers to buyers growing out of cost transparency is illustrated nowhere better than in the new world of car buying, where the Internet has reversed the traditional relationship between car buyers and car dealers. In the past, dealers closely guarded the actual costs of vehicles and often reaped big profits from uninformed shoppers.

Today, buyers who spend a few hours browsing the Internet are better prepared than ever for negotiations. They know the dealers' actual costs, as well as the prices that other dealers are charging for the same model, and the prices...