The Dot-com Bubble-Burst and Disintermediation

[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

holesaler.

As the disintermediation/reintermediation cycle plays itself out amidst the dot.com
wreckage, bear in mind that just because the public can buy from you, doesn’t mean
they’ll want to and having access to a searchable law library doesn’t make you a
lawyer – but it does mean you don’t need lawyers for trivial issues.

News Around the Web