Is there a future for the middleman
The changes brought by the WWW
In the 90s, the Internet enabled immediate and direct contact between millions of people, eliminated geographic distances, and created a new ‘global village’. It also marked the beginning of the era of disintermediation.
The initial industry shakers
The sectors impacted first were those with obvious and instant disintermediation benefits. For example, industries in which:
- The middleman’s main role was to link multiple parties, e.g., real estate agents handling apartment leases were replaced by Yahoo! Real estate and by Craigslist.
- The goods were commodities or well defined products with no customisation: books, CDs, and DVDs; basic financial services (car insurance, stock trading); and travel. Amazon, ETrade, Expedia, and Travelocity were some noticeable new players.
- Low value/low priced goods: a good example is online flea market at Shopclues.com, where most items are offered at heavily discounted price.
- Major market inefficiency existed. For example, artists could not publish their art in industries dominated by powerful publishing companies. Eventually CD Baby was founded and enabled amateur musicians to publish and sell their music online. Lulu did the same for aspiring authors.
Who is immune to disintermediation?
Despite the above mentioned trends, some middlemen are unlikely to vanish. This is especially true in these cases:
- Complex/large/customised transactions, e.g., billion-dollar M&A deals usually need experienced investment bankers to get the deal sealed.
- Scale, brand, and operational excellence are sustainable values for intermediation. Leading online marketplaces such as eBay, Amazon, etsy, elance, and Apple’s iTunes offer a huge selection of products and solutions, a large user base, reliable intermediation, and robust operating systems, making these players unlikely to vanish.
- Industries where trust and confidence are essential, especially B2B sectors such as the defence industry – sale and purchase are global and carry very big tags, and in such cases a known intermediary is highly desirable all along the step of sale and purchase.
- Wealthy customers. Owners of expensive houses enjoy the benefits of potential buyers’ screening provided by realtors and marriage match makers for affluent families and also keeps their privacy till the very end of the deal.
- In special conditions such as very quick sale or purchase, intermediaries cannot be avoided because they have ready access to many customers or leads.
Having said that, we can still expect the disintermediation process to continue to affect most industries/domains and get deeper.
Our perspective
The Internet was indeed a disruptive force in the way producers of goods and services connected with consumers. The intermediaries were powerful entities who had held their ground firm since the beginning of mass trade. With the Internet coming into the picture, they felt their ground shake for the first time in hundreds of years. Although, many online platforms like Amazon , Etsy, Expedia may also be considered an intermediary, but even as an intermediary, they offer value in restricting the number of intermediaries in the whole chain and thus offer better value for both provider and customer.
Another area where the Internet has proved to be disruptive is public services. With more and more public services like application of passport to buying railway ticket to paying utility bills are moving online, this has wiped off a whole class of agents, touts and brokers.
There are still many areas which have survived the onslaught of the Internet but still remain vulnerable to advances in technology. The only way these intermediaries may keep themselves relevant is to reinvent, innovate and offer value more than mere intermediation. However, we will largely witness increasing disintermediation in all domains of work and commerce.
Gazing through the crystal ball
- The rise of digital intermediation platform will continue and keep evolving for a good while; there are big and many opportunities for ‘new intermediation’
- The business model of existing digital intermediations also offers innovative opportunities for new entrants, e.g., e-commerce platforms are trying out advertisement revenue from sellers in place of commission from sales from them
- Opportunities of disintermediation will continue to be an axis of business opportunity, e.g., furniture companies now giving one stop home shop and décor option.
