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Disintermediation: Part 1

by Matt Manning

When the Worldwide Web was born in the 1990s, there was a lot of talk about disintermediation. The removal of layers of intermediaries—middlemen, that is—in marketplaces and other commercial processes would lead to fewer handoffs and price mark-ups. The resulting efficiencies would redound to the all-important end-users, making their lives easier at the same time as they paid lower costs than ever before.*

A lot of these new players, though, wanted to insert themselves into established business processes to slice a percent of existing revenue flows into their own pockets by controlling a key “choke-hold” in a given process. I remember speaking at a European conference in 1999, for example, where a firm was trying to make the case for a middleman service to handle all the RFPs for a company in return for a small percent of the goods purchased. I was asked about the model and said that while I understood the middleman’s desire to tap into this mother lode I couldn’t see any reason why a firm would volunteer for such a “tax” in exchange for some minor potential market efficiencies.

Today, over 15 years later, big corporate players are fully aware that they, not some clever VC-funded middlemen, hold the keys to making their own processes more efficient. They’ve also figured out that their own “data exhaust” has a commercial value if leveraged properly. And with that epiphany, they came into direct competition with the information industry.

Major shipping companies, office supply companies, and even the IRS itself, for instance, are sitting on top of huge amounts of valuable metadata on every business and their activities. Want to sell to growing companies? There are dozens of indicators of growth in the hands of the private and public sectors:

  • Receipt of VC or other funding money
  • Shipping volume for the products they produce
  • Purchase volume of the goods they consume
  • Data on company head counts
    • hires minus fires
    • people on the company healthcare plan
    • capacity of the corporate parking lot

Now, some information firms have staked out these areas and found ways to gather and monetize these indicators. Many data sources, however, belong to owners unaccustomed to the business of selling metadata. Data aggregators work with a lot of them to monetize these data, but they are middlemen too, and as such, prone to disintermediation themselves.

So, will the information industry get displaced by the big corporates? Will the corporates go into the info business as a revenue-generating endeavor? The answer to both questions is, I think, no. But I can absolutely see the corporates creating consortia to pool their data for mutual benefit, and those entities could potentially be huge data players.

Imagine, for instance, a consortium of IoT-enabled appliance manufacturers selling usage data to the electric utilities, Angie’s List, appliance or appliance supply retailers, etc. Or, how about utilities sharing comparative data on usage in your area with municipal energy efficiency programs and building contractors? (“Homes your size in your neighborhood are using 33% less energy than your home. Do X to reduce your monthly bill.”)

As always, it’s hard to picture this happening without startups (i.e., middlemen) writing code to connect the dots, but over the long term the corporates may well hold the best cards at the table.

* This premise was not unsound and benefitted from the fact that established types of businesses (land line phones, taxis, hotels) were often taxed aggressively while the new players on the block were mercifully free of such encumbrances and thus could offer lower prices by definition.

Part 2 explores the impact of Native Advertising and Content Marketing on the B2B magazine industry.

posted by Shyamali Ghosh on April 12, 2016

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