What Is Disintermediation? Disintermediation In A Nutshell
Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all can produce products that customers want.
How the web disintermediated the old world
“Your margin is my opportunity,” this quote apparently attributed to Jeff Bezos, explains well the process of disintermediation that has been going on with the advent of the web.
One of the core premises of the web was the concept of decentralization and as a result intermediation. Companies like Amazon, Google, Facebook, Netflix, Uber, Spotify, Shopify and many other startups born in the web era, have all grown with the purpose of dismantling the old distribution pipelines, thus unlocking distribution.
Amazon has been disintermediating a whole supply chain for e-commerce and now it’s looking into last-mile delivery to cut out from the supply chain traditional large carriers (DHL, UPS, FedEx) to realize its dream of customer obsession.
Netflix has been for over a decade disintermediating the entertainment industry.
Google and Facebook unlocked branding and marketing at first. In the previous era, if you wanted to get brand exposure you had to go through the classical ad agency or a set of intermediaries that kept tight control over the industry and their marketing budgets.
As Google first, Facebook later, came up with a massive, mostly automated digital advertising machine, they first targeted a different segment of the ad industry (not that interesting to those who were used to the old way of advertising).
Indeed, Google itself proselytized a set of new marketers who learned to believe in the only god of performance-based marketing. No more branding or marketing, done without data, measuring, and clear ROI.
The engineering approach of Google first, Facebook later, made the whole deal look promising to those companies (especially startups) who didn’t have the budgets to invest in TV advertising.
Those digital marketers started to look for what we might define last-mile advertising, where it gets easy to track the click from and therefore measure the impact of marketing.
With that simple, yet powerful promise Google and Facebook created a digital advertising industry that, initially grabbed those who were all about performance, and therefore didn’t need an ad agency.
And later on, digital advertising would transition and become much more complete. As those companies evolved, both brand and performance advertising on Google and Facebook were covered up, and this process of disintermediation brought to the end of the traditional ad agency.
Yet, all in all, as those companies turned into tech giants, it started – I argue – a process of reintermediation. Before going there, let’s also look at the process of intermediation that happened after the consolidation of a new era, turning mature.
Reintermediation
As companies like Google and Facebook disintermediated the advertising industry. At the same time, the market has been adjusting to the new industry created by those players.
As marketing itself got redefined through the lenses of data and measurement, once ad agencies turned into digital marketing agencies. Today the whole industry of consultancy companies born as a result of the SEO/SEM and SMO/SMM industries has seen the rise of digital agencies managing budgets for clients.
So after all, after the first stage of actual disintermediation. The market adjusted, and the dream of disintermediation, transformed in something else.
Enter the gatekeeper’s hypothesis
[image error]In a world driven by tech giants that locked-in the digital distribution pipelines to reach billions of people across the globe, the gatekeeper hypothesis states that small businesses will need to pass through those nodes to reach key customers. Thus, those gatekeepers become the enablers (or perhaps deterrent) for small businesses across the globe.
Those once startups turned gatekeepers. The old markets that crashed under the pressure of new industries, also matured. That might have created a process of dominance, where winner-take-all effects took over.
And markets once fragmented by many intermediaries, turned into new markets primarily dominated by a few central players, setting the rules of the game. According to what I called the “Gatekeeping Hypothesis” we sort of went back to an era of blocked distribution by a few key players, with some critical differences.
First, this time algorithms defined the rules to follow, even though at central levels, a few key people (usual engineers following the executives’ instructions made those rules in the first place).
Second, this era is primarily customer-centered. Where in the past, it was all about keeping a tight control on the supply chain and distribution, so that over time consumers wold get used to whatever it got sold to them (standardized mass-marketing helped indeed). To an era where those tech giants are stubborn and obsessed with customer experience.
When Google sets the rules for websites to follow, it does that by keeping as North Start, the user experience (of course defined a la Google), and those who do not conform to that are out from the walled garden.
Third, consolidation and asymmetry took over. Where many more intermediaries might have controlled fragmented industries. The new players learned that domination is what matters and they set for it.
In addition, most processes are now asymmetric. When the user gives data to Facebook, the value it gets back is much lower compared to what Facebook can and will do with that data. Both in terms of usage and monetization. In short, Facebook will be way better by getting the data of the user, as this will add up to its network effects. Compared to what the user gets back (some form of entertainment).
Therefore, winner-take-all effects created a few, super large players that became the main intermediaries.
Super platforms and super gatekeepers
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Let’s add to that, those gatekeepers have been stretching their tentacles to cover more and more parts of the user experience, thus generating potential for the rise of super gatekeepers.
Blockchain and the renewed dream of decentralization at scale
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There isn’t a single way for the web to evolve. And renewed dreams of scaled decentralization took place with the Blockchain and its potential commercial applications. Whether this will be a permanent effect, we can’t be sure.
However, for one thing, Blockchain might get us to the rise of a new form of organization, something that goes beyond the classic corporation and take the form of a super, decentralized company, made of many companies combined, and all joining a shared protocol.
Key takeaways
Disintermediation is the process of cutting out intermediaries from the supply chain. The web has been a critical driver of this process, by disintermediating old industries to create whole new market opportunities for all.The wave of disintermediation is still going on (see Amazon last-mile). At the same time as those companies created new markets that are becoming more mature, a process of reintermediation (where new intermediaries are born as a result).As former startups, turned tech giants, those became gatekeepers and winner-take-all/intermediaries at large scale. The Blockchain brings back the dreams of disintermediation and decentralization at large scale. Whether this will happen, be permanent we don’t know yet, and can’t be sure either.
Hand-picked resources:
Business Strategy ExamplesTypes of Business Models You Need to KnowBlitzscaling Business Model InnovationWhat Is a Value Proposition?What Is Business Model Innovation And Why It MattersPlatform Business ModelsNetwork Effects In A NutshellDigital Business Models
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