The removal of intermediaries from a supply chain. "Cutting out the middleman".

Disintermediation has been a goal of buyers as long as there has been commerce, but the advent of information technologies and the Internet has not only created virtual markets that disintermediate commerce in tangible goods, but eases previously difficult transfers of intangible goods as well. Medical, legal, recreational, instructional and other types of information are now available to anyone who knows how to search.

The middleman has not been made completely redundant. In some cases the supply chain has been simplified toward its theoretical minimum, directly from seller to buyer, but in other cases the buyer simply now has a wider choice of suppliers. Intermediaries survive by adding value, and those able to continue adding value will stay in business. On the other hand, middlemen who merely exploit a geographical or legal bottleneck to take their cut will find themselves increasingly irrelevant.

Disintermediation is a term that became popular during the late 1990s internet boom. e-commerce was going to cut out the middleman, remove the intermediary, directly connect the business to the consumer and save us all time and money, and make a few of us rich. Those that didn't 'get it' were dinosaurs, about to be made extinct.

Spuunbena is perfectly right about some traditional middlemen being edged out. When living in South Africa, I found amazon.com to be cheaper than the local monopoly for obscure technical books, and with a far better selection. The user reviews and see-also links helped me to find just what I wanted. I loved it. I'd far rather give my money to a 'cool' website than a gouging distributor.

But amazon is a middleman. So is E-bay. E-bay may not sell you anything, but the sale wouldn't be possible without them. You give them a cut of each successful auction, and thus they stay in business.

That site that compares 200 models of Microwave oven? Middlemen. google? They just direct you elsewhere, don't they. Every web site that connects a seller to a buyer is in some small way an intermediary. And, as someone else pointed out, simple mathematics makes middlemen inevitable and necessary. There are many sellers with varying products, even more buyers with varying wants. There is a need for some way for them them find each other.

Amazon is just a better middleman. The business advantage to be gained using computerised and internet techologies is to make yourself a cheaper, more convenient, more reliable, more informative or otherwise better middleman than the existing ones. There is no disintermediation without reintermediation. .

It is possible that an online classified ads or user-submitted auctions are as low-friction as a market can be, and thus further disintermediation is not possible, at least for those of us who have internet access.

There is almost always some level of intermediation. The most extreme cases of commerce without intermediaries that I can think of are these:

  • You have just grown some apples. You pack them into a box, go down to the local retail district, stand on a streetcorner and sell the apples to passers by. Over time, this idea gets formalised into a system where there are "market days" when all the producers come in to town, and the consumers buy all the produce that they want in one trip. The town council sells stall space and regulates standards. In short, they mediate.
  • You read about the cool new HyperWidget, surf over to www.hyperwidget.com, click on the 'buy' button. You the consumer have bought directly from the manufacturer. Or have you? They are in the widget making business, not the retail business or the web site design or hosting business. Most likely they have contracted or outsourced someone to handle the online sales for them. And the product distribution. And you paid by credit card. There are third parties in the transaction.

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