First published October 3, 2012 in Mediapost’s Search Insider
Up until five years ago, I had never used the word disintermediation. In fact, if it would have come up in casual conversation, I would have had to pick my way through its bushel of syllables to figure out exactly what it meant.
Today, I am acutely aware of the meaning. I use the word a lot. I would put it up there as one of the three or four most important trends to watch, right up there with the Database of Intentions, which I talked about last week. The truth is, if you’re a middleman and you’re not dead already, you’re living on borrowed time.
Why is the Middle suddenly such a bad place to be? A lot of people have made a lot of money in the Middle for hundreds of years. The Middle makes up a huge part of our economy, including a lot of middle-class jobs. Systematically eliminating it is going to cause a ton of grief. But the process has started, and there’s no turning back now.
Three big shifts are driving disintermediation:
The Democratization of Information
The Middle exists in part because we didn’t have access to what, in game theory, is called perfect information. Either we didn’t have access to information at all, or the information we had was not reliable or useful to us. So, in order to function in the marketplace, we needed a bridge to what information did exist.
Think of travel agents (which for the majority of us, is someone we probably haven’t spoken to for a few years). Travel agents were essential because we were walled off from the information we needed to arrange our own travel. We had no access to the latest airfares, hotel availability or room rates. If you had asked me what was the best hotel in Istanbul, I would have had no clue. We used travel agents because we had no choice.
Today, we do. The travel industry was one of the pioneers in democratizing information. The result? The travel marketplace is infinitely more efficient than it was even a decade ago. The average person can now put together a six-week multi-stop vacation relatively easily. The middle is being eliminated. In 1998, there were 32,000 travel agencies in the US. Today, through elimination and consolidation, that number is closer to 10,000. Disintermediation has cost thousands of travel agents their jobs.
The Improvement of User Interfaces
When’s the last time you spoke to a bank teller? If you’re like me, it’s probably the last time you had to do something that couldn’t either be done through online banking or at a local ATM. 99% of our banking can now be done quicker and easier because banks have invested in creating platforms and interfaces that enable us to do it ourselves. It’s better for us as customers, and it’s much more profitable for the banks. Disintermediation in banking has created a more efficient model. Ironically, unlike travel agents, bank tellers have not lost their jobs. They’ve just changed what they do.
The Overcoming of Geography
The final factor is the problem of distance. When mass manufacturing became possible, the distance between the factory and the market started to grow. Suddenly, distribution became a major challenge. Supply chains were born, making a lot of people very rich in the process. Becoming big became essential to overcoming the problem of distance.
But technology has made physical fulfillment much more efficient. Getting a product from the factory floor to your front door is still a challenge, but our ability to move stuff is so much better than it was even a few decades ago. The result? Massive disintermediation. And this particular trend is just beginning.
Much of what we’re familiar with today is part of the Middle. Just like travel agents, video stores and bank tellers, every year something we have always taken for granted will suddenly disappear. Huge swaths of the economy will be disruptively eliminated. That’s the bad news. The good news will have to wait till next week’s column.