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November 1st: Torsten Jacobi, CEO of Creative Weblogging, joins host Anita Campbell. Sponsored by Six Disciplines. Show details.
Saturday, October 01, 2005
Trend of Anti-disintermediation, or Personalized Services?
During the DotCom boom days of the late 1990s and early 2000s, many people thought that intermediaries would become victims to "disintermediation." We no longer would need distributors or independent agents. The Internet and sophisticated supply chain software would take their place. Or so the thinking went.

Well, time has shown that some -- some -- intermediaries are being taken out of the picture. Video rental stores are one victim. Between new Internet distribution models and cable TV providers offering video on demand, local video stores increasingly find themselves bypassed.

But the disintermediation picture is far more complex than some predicted five years ago:
  • Disintermediation has happened more slowly than predicted. It's not like a switch being turned on or off. These kinds of shifts in commerce take years and do not occur overnight.

  • Disintermediation has not happened uniformly or for every industry. Some industries have been hit hard. Others have not. In other cases the Internet has profoundly changed the way consumers interact with intermediaries, but not eliminated the need for them. The new car industry is an example. The Internet has become a place for consumers to educate themselves before walking into the dealership thus tipping the balance of power, and it has changed the way dealerships serve customers. It has not eliminated the need for car dealers.

  • In some industries one batch of intermediaries is being replaced by another crop of Internet-based intermediaries. That is partly what's to blame for the decline of local travel agents. Certainly, some consumers go directly to air carriers' websites, bypassing the middleman altogether. But you also have large Internet sites like Priceline and Travelocity that are themselves intermediaries, just of a new type.

    Arguably another industry with a new crop of Internet intermediaries knocking on the door is the legal profession. Today if you want to file a trademark application or incorporate, you have choices ranging from LegalZoom, which helps you file basic paperwork, to Nolo, which provides forms for do-it-yourselfers. You can even go to government websites and download forms you need.
A recent BusinessWeek article by Joshua Hyatt even goes so far as to argue that we actually have more intermediaries today in the Internet age, in this humorous piece:
    "Yet there now seems to be a broader "middle class" of entrepreneurs than before. In San Francisco, Jim Rushforth last year opened up Auto Trainers & Advisors, devoted to holding seminars and writing manuals that, he says, "teach people how not to get screwed by the auto industry." Pile & Co., a Boston consulting firm, boasts a fast-growing division (sales up 30% this year) that "helps big advertisers figure out ad agencies," says chief marketing officer Chris Colbert, 46. There are go-between businesses now wedged between you and your friends (networking consultants), you and your flab (personal trainers), and you and your life's mission (CEO coaches). In fact, the intermediary market has fragmented into cybermediaries (Internet-based deal brokers), infomediaries (linking companies and online suppliers), and mediaries that are so new they have yet to be assigned annoying prefixes."
Hyatt makes a great point about intermediaries not having gone away in the space of a few years.

However, I would not call every example he lists a true "intermediary." Some are simply providing a personalized service, and play no role in the supply chain itself. They are not middlemen that you have to go through in order to acquire a product, such as a car dealer.

Rather than a trend away from disintermediation, I see instead a separate trend toward personalized services.

In today's world each of us is faced with a dizzying array of products and services that become more specialized each day. The sheer knowledge and time needed to deal with everything in our business and personal lives can be overwhelming.

Hence, enterprising entrepreneurs see the need for personalized services to help us deal with it all. And because it is easier and cheaper than ever to start a business -- especially a service business -- we can expect to see more such businesses crop up.

This trend toward personalized services is good news for some businesses and professions where disintermediation is chipping away. Instead of focusing on lower value-add transactions that can be replaced easily by technology, it can free them to focus on personalized service that technology cannot duplicate.

The accounting profession in the United States is doing just that. Most small businesses I know use QuickBooks or other accounting software. Yet, instead of QuickBooks disintermediating accountants, something different is happening. Businesses use QuickBooks to keep their own records, yet most still have an accountant for doing taxes, providing guidance on complex issues, and reconciling and auditing the books. The accountants have learned to work with the client's electronic accounting records; the technology has not disintermediated them. In fact some accounting firms now have side businesses consulting with clients to help them make better use of software packages like QuickBooks, Peachtree, Microsoft and so on.

There are lessons in this example for every business and profession, including the legal profession.

For basic transactions, people will go with the lowest price alternative, and that usually means a technology-based solution will win out. But for anything complex or confusing or unduly time-consuming, people are willing to pay for someone to talk to and help them individually. Only other people can do that.

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