The Swapping of the Old “Middle” for the New

First published November 8, 2012 in Mediapost’s Search Insider

For the past several columns, I’ve been talking about disintermediation. My hypothesis is that technology is driving a general disintermediation of the marketplace (well, it’s not really my hypothesis — it’s a pretty commonly held view) and is eliminating a vast “middle” infrastructure that has accounted for much of the economic activity of the past several decades. It’s a massive shift (read “disruption”) in the market that will play out over the next several years.

But every good hypothesis must stand up to challenge, and an interesting one came from a recent article in Slate, which talks about the growth of a brand new kind of “gatekeeper,” the new “bots” that crawl the Web and filter (or, in some cases, generate) content based on a preset algorithm. These bots can crawl blog posts, pinpointing spam and malicious posts so they can be removed. The sophistication is impressive, as the most advanced of these tap into the social graph to learn, in real time, the context of posts so it can make nuanced judgment calls about what is and isn’t spam.

But these bots don’t simply patrol the online frontier, they also contribute to it. They can generate automated social content based on pre-identified themes. In other words, they can become propaganda generators. So now we have a new layer of “middle” that acts both as censor and propagandist. Have we gained anything here?

The key concept here is one of control. The “middle” used to control both ends of the market. It did so because it controlled the bridge between the producers and consumers.  This was control in every sense: control of the flow of finance, control of the physical market itself, and control of communication.

With disintermediation, direct connections are being built between producers and consumers. With this comes a redefinition of control. In terms of financial control, disintermediation should (theoretically) produce a more efficient marketplace, resulting in more profit for producers and better prices for consumers. That drastically oversimplifies the pain involved in getting to a more efficient marketplace, but you get the idea.  In this case, the only loser is the middle, so there’s no real incentive for the producers or consumers to ensure its survival.

Disintermediation of the physical market essentially works itself out. If the product needs a face-to-face representative, the middle will survive. If not, then we’ll figure out how to facilitate the sale online, and you can expect to see a lot of UPS vans in your neighborhood. We consumers may mourn the loss of a “face” in some segments of our marketplace, but we’ll get over it.

When it comes to control of communication, it’s more difficult to crystal-ball what might happen in the future. This area is also where new gatekeepers are most likely to appear.

Communication between marketers and the market used to be tightly channeled and controlled by the “middle.” It also used to flow in essentially one direction – from the marketer to the market. It was always very difficult for true communication to flow the other way.

But now, content is sprouting everywhere and becomes publicly accessible through a multitude of online touch points. It could soon become overwhelming to navigate through, both for consumers and producers. In this case, arguably, the middle served a very real service to both producers and consumers. The middle could edit communication, saving us from wading through a mountain of content to get what we were looking for.  It could also ensure that the messages producers wanted to get to the market were effectively delivered. The channels were under the control of the marketplace. For this reason, both marketers and the market may be reluctant to see disintermediation when it comes to communication.

The new gatekeepers, such as those featured in the Slate article, seem to serve both ends of the market. They help consumers access higher quality information by weeding out spam and objectionable content. And they help producers exercise some degree of control over negative content generated by the marketplace. In the absence of tight control of channels, a concept that’s gone the way of the dodo, this scalable, automated gatekeeper seems to serve a purpose.

If the need is great enough on both sides of the market, we are likely to find a new “middle” emerge: an “infomediary,” to use the term coined by John Hagel, Marc Singer and Jeffrey Rayport. According to this definition of the middle, Google emerges as the biggest of the “infomediaries.”

The question is, how much control are we willing to give this new evolution of the middle? In return for hacking some semblance of sanity out of the chaos that is an unmediated information marketplace, how much are we willing to pay in return? And, where does this control (and with it, the associated power) now live?  Who owns the new gatekeepers?  And who are those gatekeepers accountable to?

Will Customer Service Disappear with the Elimination of the “Middle”?

First published October 18, 2012 in Mediapost’s Search Insider

In response to my original column on disintermediation, Joel Snyder worried about the impact on customer service: The worst casualty is relationships and people skills. As consumers circumvent middlemen, they become harder to deal with. As merchants become more automated, customer service people have less power and less skills (and lower pay).

Cece Forrester agreed: Disintermediation doesn’t just let consumers be rude. It also lets organizations treat their customers rudely.

So, is rudeness an inevitable byproduct of disintermediation?

Rediscovering the Balance between Personalization and Automation

Technology introduces efficiency. It streamlines the “noise” and marketplace friction that comes with human interactions. But with that “noise” comes all the warm and fuzzy aspects of being human. It’s what both Joel and Cece fear may be lost with disintermediation. I, however, have a different view.

Shifts in human behavior don’t typically happen incrementally, settling gently into the new norm. They swing like a pendulum, going too far one way, then the other, before stability is reached. Some force — in this case, new technological capabilities — triggers the change. As society moves, the force, plus momentum, moves too far in one direction, which triggers an opposing force which pushes back against the trend. Eventually, balance is reached.

A Redefinition of Relationships

In this case, the opposing force will be our need for those human factors. Disintermediation won’t kill relationships. But it will force a redefinition of relationships. The challenge here is that existing market relationships were all tied to the “Middle,” which served as the bridge between producers and consumers. Because the Middle owned the end connection with the customer, it formed the relationships that currently exist. Now, as anyone who has experienced bad customer service will tell you, some who lived in the Middle were much better at relationships than others. Joel and Cece may be guilty of looking at our current paradigm through rose-colored glasses. I have encountered plenty of rudeness even with the Middle firmly in place.

But it’s also true that producers, who suddenly find themselves directly connected with their markets, have little experience in forming and maintaining these relationships. However, the market will eventually dictate new expectations for customer service, and producers will have to meet those expectations. One disintermediator, Zappos, figured that out very early in the game.

Ironically, disintermediation will ultimately be good for relationships. Feedback loops are being shortened. Technology is improving our ability to know exactly what our customers think about us. We’re actually returning to a much more intimate marketplace, enabled through technology. Producers are quickly educating themselves on how to create and maintain good virtual relationships. They can’t eliminate customer service, because we, the market, won’t let them. It will take a bit for us to find the new normal, but I venture to say that wherever we find it, we’ll end up in a better place than we are today.

The Good Side of Disintermediation

First published October 11, 2012 in Mediapost’s Search Insider

You know you’ve found a good topic for a column when half the comments are in support of whichever side of the topic you’ve lined up on, and half are against it. Such was the case last week when I wrote about disintermediation.

This week, I promised to present the positives of disintermediation. I’ll do so at the macro level, because there are market forces at work that will drive massive change at every level. But there were also some very interesting questions raised last week by readers:

  • Is disintermediation killing relationships and our ability to deal with people?
  • Are the benefits of disintermediation tied to social status, driving the haves and the have-nots even further apart?
  • Is more information good for the market, or does it just create more noise for us to wade through?
  • What will the social cost of disintermediation be?
  • What are the global implications of disintermediation?
  • In knowledge-based professional markets where experience and expertise are essential (i.e. health care) what role does disintermediation play?
  • Are we just replacing one type of “middle” with another (for example, online travel agencies for traditional travel agencies)?

Each of these questions is worthy of a column itself, so I’ll file those away for future writing over the next few weeks. But today, let’s focus on the silver lining inside the disintermediation cloud.

I’ve written about Kondratieff waves (also K waves) before. In the world of the macro-economist (who are of mixed opinion about the validity of the theory), these are massive waves of disruption (often driven by technological advances) that first deconstruct the marketplace and then rebuild it based on the new (improved?) paradigm.

The Industrial Revolution was one such wave. What that did was create a new marketplace built on scale. Bigger was better. It introduced mass manufacturing, mass markets and mass advertising. It also created the “middle,” which was an essential part of getting goods to the market. Given the scale of the new markets, it was essential to create a huge support infrastructure. Most of the wealth of the 20th century was built on the back of this particular K wave.

One of the characteristics of a K wave is that the positive benefits outweigh the negatives. After the period of destruction as the old market is torn apart, the new market scales to new heights. Technology fuels increased capabilities and opportunities. The world lurches ahead to a new possibility. We were better off (arguably) by most metrics after the Industrial Revolution than before it. We were more productive, had a higher standard of living and could do things we couldn’t do before.

Today, we’re in the middle of another K Wave disruption, and I believe this one is going to dwarf the impact of the Industrial Revolution. Of course, K waves by their nature are long-term phenomena whose impacts take decades to roll their way through society.

This particular K Wave is reversing many of the market dynamics established by the previous “Bigger is Better” one. We’ve begun to deconstruct the gargantuan support system required to service mass markets. Inevitably, there will be pain, and last week’s commentators zeroed in on many of those pain points. But there will also be growth. And the bigger the wave, the bigger the growth. In this case, the same factors I talked about last week – democratization of information, better user experiences, solving the distance problem – are all being driven by technology. As this wave continues, the market will become more efficient. Information asymmetry will be lessened (if not eliminated) and the superstructure of the “middle” will become unnecessary.

A more efficient marketplace means new opportunities. More businesses will start and grow. Previously unimagined sectors of a new economy will emerge. This new economy will be global in scope, but hyperlocal in nature. Pure ingenuity will have a chance to flourish, freed from the constraints of the need for scalability. Once we get through the stumbles inevitable in the transition period, the economy will ramp up for another bull run. But we have to get there first.

The Disintermediation of Everything

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.

So What?

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.