Re-intermediation on steroids?

There was a popular myth in the late 1990’s that the e-commerce revolution would lead to the death of the intermediary. Why buy a holiday through a travel agent, insurance through a broker or a property through an estate agent when you can go direct? Or so the logic went.  Michael Hammer writing for Information Week back in July 2000 called this out in his article “The myth of disintrmediation” he wrote:

“Today, disintermediation is supposedly dooming distributors, retailers, wholesalers, and all other intermediaries between manufacturers (or service providers) and the ultimate customer… A more reasoned view of the impact of the Internet on distribution channels is that it will transform but not eliminate them. The reality is that customers need a significant amount of value to be added to most products before they can buy and use them. Think about an air-conditioning system: A customer needs help to determine how much air conditioning he or she requires, which system to buy, and what related products--duct work, for instance--are needed. The customer also will likely need help installing and maintaining the system. Who is going to provide all this value? Certainly not the manufacturer, which has no local presence and may not have all the needed skills. This value needs to be provided by the distribution channel, which is here to stay, but not in its current form.”

12 years later, those intermediaries that failed to adapt have indeed vanished from the high street, but by in large those intermediaries that have survived (and often thrived) have re-invented themselves and focused on the simple question of how they can add value to the end customer. See my post on Flightcentre from last year as an example of an intermediary going the extra mile to add value to the end consumer.

Moreover, since the disintermediation myth. we have seen the rise of giant mega-intermediaries; think of Amazon, Google, eBay –all have grown to multi-billion dollar companies since 2000. In addition we have seen online price comparison sites like MoneySupermarket, uswitch and Pricerunner and online review sites like Tripadvisor and Yelp grow at pace and significantly disrupt industries like banking, insurance and travel. In a very short time frame we have experienced re-intermediation on steroids.

So where is re-intermediation heading? I still think we have much further to go. Re-intermediation will be driven further by big data and real time access. Take the mobile phone industry for example – huge amounts of data exist on both call patterns and on tariff structures, yet most intermediary activity focuses only on the point of contract renewal i.e. it’s very easy for consumers to get a better deal when they switch tariffs once a year but that’s about it. Taking better advantage of data and real time access would see a intermediary analyzing my calls at the point that I make them and finding me the best tariff to make that call – imagine a price comparison SIM card?! Even better (to pick a particular pet peeve of mine) one that works overseas and avoids excessive roaming charges… ok – perhaps that’s going too far!

Alternatively take the Television industry. Over the next few years I suspect we will see an increased battle for content rights as both cable TV companies and OTT players battle for exclusive content. This could mean a bidding war between the cable TV companies and the likes of Netflix, Amazon (LoveFilm), Sony, Apple, Tesco (Blinkbox) and others for movie or sports rights. In the short term this could make for a frustrating customer experience – do I really want to subscribe to 5 different streaming providers? Enter the intermediary. The promise of Google TV (or other services like it) is to help consumers find content across multiple providers to learn about their tastes (and maybe their friends tastes) to help them watch what they want. Again there is potential for a powerful intermediary to grow and disrupt an industry.

This “re-intermediation on stedoids” will place huge pressure on those at the beginning of the supply chain. To thrive and take advantage of intermediaries will require:

1. Strong insight into the end consumer – see my post on the opportunities presented by the combination of broadband, hardware device explosion, cloud computing, apps & social networks. Together these provide new ways to connect to consumers on their terms, collect huge amounts of data (ideally with their permission and also on their terms!) and better meet customer needs.
2. A unique product offering (e.g. innovative media content that people want to consume or an artisan product). Esteban Kolsky recently pointed me at this great story on “A revival in American Manufacturing, Led by Brooklyn foodies”; a superb reminder of Chris Anderson’s long tail in action.
3. Flexible pricing – the airline industry seems to lead the way in constantly changing ticket prices based on demand, fuel costs and market conditions yet other industries lag far behind and are unable to change their pricing in months. In a world of big data and intermediaries Customers will want to pay for what they use, when they use it and get the best deal at that time rather than being locked into long contracts. Pricing therefore needs to be dynamic enough to be changed and adapted at speed.

Re-intermediation is nothing new but I suspect it has much further to travel. How well prepared are you?