The Broken Promise of Disintermediation

Disintermediation was celebrated as the biggest gift of the internet. Did it turn out to be all that it was made out to be?
One of the key innovations of the internet was disintermediation. At least that is what the pundits wanted us to believe. Take out the middleman and voila – profitability will get an unbelievable boost.
So what are the results?
Amazon.com took almost a decade to become profitable. Is Barnes and Noble dead? Well, all they had to do was to launch their own online store and give Amazon a run for their money. To the contrary, I believe Amazon would not have been around had they not modified their business model. They added other stuff to sell and then added other features like auctions and advertising etc. to survive. Now, they are profitable because they continue to innovate.
Did Travelocity and Orbitz knock off travel agents? Are all travel agents out of business yet? Admittedly, your corner store travel agency has “gone bye bye” but travel agencies in general have not. A spate of consolidations and change in business model later, travel agents are bigger and more profitable than ever.
How are our airlines doing with the profitability boost they got through this disintermediation? Not so good. The offline evil has been replaced by the online one but they still need “travel agents.”
Are cars sold online? Dealerships should have vanished by now. Have they? Some of the survival of the car dealers can be attributed to the legal protection they enjoy. But most of it has to do with customer preferences. It turns out that people still like dealing with people and people still like service. And cars cannot be serviced online.
How are insurance companies faring? Insurance agents all doing real estate? (real estate would be a bad career choice in this market in any event!) Not quite. The pesky insurance agent is still around pounding the pavement carrying their handy dandy briefcase full of safety and security for you. Not gonna change anytime soon.
So what are the lessons from this apparent disappointment?
1)      Online selling is not as easy as putting up a website. The old rules of customer engagement still apply.
2)      Disintermediation is not for the faint of the heart. It requires creative destruction to succeed. That is, you must destroy – or significantly change – your current business model to succeed. Insurance companies do not have the guts to do it. That is why the market is ripe for new entrants who do not have the baggage of a distribution network to dismantle!
3)      Disintermediation is not a stand alone strategy as advertised. Your distribution strategy should be multi-channel. Some companies started as pure plays and then went brick and mortar. Brick and mortar should actively consider going online but not by demolishing their existing channels
4)      Take every technology “flavor of the month” with a pinch of salt. The world of business turns on solid and non-negotiable fundamentals that still apply and will apply for the foreseeable future. Technology can make a dent but fundamental shifts are few and far between.
So please stop selling disintermediation as a panacea and stop blaming your website functions and features for the lack of “disintermediation” and start thinking in business not technology terms. It is time to get back to the basics of value chains and customer demographics/psychographics.
You see, this is yet another reminder that eBusiness is not IT. Not yet.

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