Sometimes disintermediation isn't - it's just new middle-men

In my last blog, I wrote about how the concept of disintermediation (where the "middle man" is removed from a transaction) has changed industries throughout the world as consumers are increasingly enable to buy digital goods and services directly. In thinking about it more, however, I have realized that there's probably a whole lot less disintermediation than I may have realized.

Whether you are buying eBooks from Amazon, songs from iTunes or renting movies from Netflix, you are actually not buying directly. You are just dealing with a new middle-man. The same goes for buying online travel from Expedia or Travelocity - you aren't buying that travel directly from the provider, you're just dealing with a new middle man.

That doesn't mean there there aren't lots of successful examples of real disintermediation. They range from the smallest (such as independent recording artists who have their own Web sites and sell songs, t-shirts and CDs directly to their fans) to the largest (such as airlines and rental car companies that let customers buy airline tickets and reserve car rentals directly).

But the most popular online and successful examples of online commerce aren't real disintermediators - they're just new middle men. And what that tells me is that people who make things often aren't the people best suited to market and distribute them - even when the product is digital. So even though anyone can easily set up their own Web site to market and sell their own products, that is probably not going to be their best task to success.

I'm betting there are also good examples of "re-intermediation" where middle men have re-entered the buying process because they add value that those who have tried selling directly find that they (and their customers) need what the middle men can provide. More on that in the next blog.

Disintermediation and customer experience

The growth of disintermediation - when a "middle man" is removed from a transaction - has transformed global business over the last 20 years. And its has been painful for the many businesses that were either slow to recognize the impact of this trend - or simply refused to do much about it.

Witness the movement of video rental from established players like Blockbuster to a broad range of online players (such as Netflix) and cable companies (including Comcast and DirectTV). Similar changes happened in the landscape of the retail book business (where Amazon's success hastened the demise of "bricks and mortar" bookshops large and small) and in the gradual decline of the local record store (replaced by customers getting their songs online).

Further examples are all over the place - and most of them aren't really very new. And there have been times when certain sectors bucked the trend. Back in 2002, for example, I wrote in the Financial Times about how travel agents were fighting back against online travel sites by providing the kind of in-person, in-depth knowledge that customers appreciate and are willing to pay a little more for.

On the whole, however, disintermediation has generally won the day because many of the companies and industries that were being "disintermediated" didn't really understand the value of what they provided.

That's why - although Borders and Blockbuster were hit very hard - the exceptions prove the rule. There are lots of examples of small, well-established local bookshops and video stores who have survived. They survived, I think, because those small businesses understood that their real value was the experience. The experience, for example, of going to a book shop and talking to the owner or informed employee about books that you won't easily find elsewhere - and where the owner knows and understands a little about you - does have real value.  

The same - in terms of understanding the value to customers of the experience being offered - is true at movie theaters. If movies theaters were all about just providing people with great and engaging ways to watch movies, they would be largely out of business. Really good high-definition televisions with big, bright screens are now available at excellent prices - and many movies make the jump from theater release to DVD or online viewing very quickly. But movie-going is all about the experience.

It's about being in a big hall with a lot of people having a shared experience, eating over-priced popcorn and watery cola. It can also be about 3D technology and IMAX, although I do think those are just things that theaters need to do to keep evolving.

It's about what the theater itself has to offer - and all the fun things that are part of going to a movie. It also takes a bit of effort - you have to work with the theater's show times, plan for parking, sit through trailers - and figure out where and how to meet friends. There's a lot to the experience.

The movie industry is, of course, an interesting example since its demise has been predicated since the early days of television. Pundits have long asked why anyone would both going to a movie theater when they could get "the same thing" in their homes. And those pundits have generally misunderstood what that same thing is, which is why there are still lots of movie houses around.

None of this is to say that the movie business isn't deeply affected by the many changes that technology-led disintermediation has brought about. But movie producers have somewhat protected themselves from it - as they make money whether their movie is rented at a video store, shown on TV, Netflix, the local theater or your phone. And maybe that's the other lesson of disintermediation. It can "grow the pie" for everyone when consumers can get what you produce in the form that they want it.

More on that next time....