Sunday, November 09, 2014

Disintermediation - Getting Rid of the Middle Man

The new Internet economy is all about getting rid of the middle man. Part of it is about eliminating information asymmetry, so that all parties in the transactions have equal grounds, like real-estate sales (Zillow) and car sales (TrueCar) eliminating the privileged information withheld by the sales agents. Part of it is about providing an efficient virtual market place where buyers and sellers can mingle with minimal friction (Ebay). And yet other part of it is about new technological innovations enabling novel distribution mechanisms previously unthinkable (BlockChain).

Here are a few more examples that either have happened since the dawn of the Internet age, or emerging as new and powerful disruptive forces. 
  • Newspapers - Middle man that edits and disseminates noteworthy information, now partially eliminated by Twitter and Bloggers (Huffington Post).
  • Book publishers - Middle man that selects and distributes original writing from otherwise unknown authors, now partially replaced by self-publishing houses Lulu and Amazon Kindle.
  • Taxi - Middle man that employs drivers to transport people, now threatened by Uber that connects drivers and passengers directly. 
  • Hotels - Middle man that manages empty rooms to host travelers, now partially replaced by Airbnb that connects unused room owners with travelers directly.
  • Schools - Middle man that employs teachers to educate students, now threatened by online P2P education services like Coursera and MIT Open Course Ware, which connects people desired to learn with teachers and knowledges.
  • Cable TV - Middle man that licenses video entertainment and redistributes to consumers, now threatened by both new distribution technologies (IP streaming) and bundling business models from Netflix, as well as original content owners starting to serve consumers directly as streaming technologies mature, such as HBO, CBS, Univision, NBA Sports and Starz.
  • Banks - Middle man that makes a living by collecting deposits from people that have extra to save and lending it to people who needs cash, now threatened by peer-to-peer lending such as Lending Club, peer-to-peer payment Paypal, and crowd funding Kick Starter.
  • Credit card - Middle man that runs proprietary payment networks and charges on-average 3% transaction fees for the convenience of money transaction between consumers and merchants who want to avoid cash handling, now threatened by decentralized payment network Block Chain, and its virtual currency BitCoin.
  • Notary Service - Middle man who is authorized to perform numerous legal formalities and record keeping, now threatened by distributed Blockchain ledger and services like Proof of Existence.

So if you want ideas for starting up a new company, think about how you can eliminate the middle man, or any middle man.

image credit Ahmad Nawawi