The Dot-com Bubble-Burst and Disintermediation
Page 1 of 2
[SOUTH AFRICA] Many of the dot-com companies strangled in last year's correction were badly served by a concept championed by Amazon.com: disintermediation. It was said by many, and seemed to many more, that the Web would cut the middleman out; with the demise of the middleman, prices would lower and everyone but the intermediary would be happier.
But as jeans maker Levi-Strauss discovered, disintermediation isn't the golden goose it seems to be. After investing millions of dollars in an online venture to sell jeans to the public, it switched course and announced that jeans would be sold only through its retailer partners.
The problems with dealing direct with the customer is the customer: small orders, returns, complaints, shipping and all the other issues that make up customer service. As Levi's discovered, the problems that surround customer service multiply with the orders. Keeping a million people who've placed orders for a single pair of jeans happy is harder than keeping a few big chains with huge orders satisfied.
Amazon.com itself doesn't really cut out the middleman: it is the middleman. It stands between the author and the reader, the musician and the listener. It's just another super-store, just one with a lower cost of overheads.
The Internet is even introducing new intermediaries, e.g. B2B exchanges, which bring buyers and sellers together and try and make a profit from it, and infomediaries, that help find, organize and distribute information.
Disintermediation is not a myth, however; it's a different animal than it was though to be, subtler yet more powerful than pictured. Take Napster. It cuts the music store, the recording industry and the artist out of the loop like an axe, giving the consumer the most direct access to music possible.
Another example is the Open Source Movement, which cuts away the software company and gives us access to the software which controls the hub of our lives, the computer; and not just for the user, but for the developer as well - they have access to the source code without needing a Microsoft executive level security clearance.
The power of disintermediation rests not in companies cutting out their competitors; it lies in lowering the our barrier to information. While information is exponentially increasing -thus the infomediary- the process of organizing that information is also increasing in sophistication. Search engines are delivering more and better organized results while Software Bots promise semi-intelligent agents that will do the searching for us, learning what we want all the time.
Disintermediation is not a myth, but it is just one half of a process that any significant change in technology brings about. The other half is reintermediation, the introduction and reshuffling of players in the supply chain. Access to suppliers and information resources have become easily available; expertise and service cannot be downloaded.
Good stockbrokers are not going out of business, even with online trading and investment advice, because they're better at playing the stock market than most. Those who pay for their services will do better than those who don't, unless they build up their own expertise - which most of us don't have the time or inclination for. Clicks-and-mortars do better than pure plays because they can offer service the small order, with all its problems, better than the w