Which of the following is an example of disintermediation?

Disintermediation is the process in which intermediaries are removed from the supply chain, so that the middlemen who get cut out, make the market overall more accessible and transparent to the final customers. Therefore, in theory, the supply chain gets more efficient and, all in all can produce products that customers want.

Contents

How the web disintermediated the old world
Disintermediation examples
- Dell
- Tesla
- Uber
- Expedia
- Glossier
Reintermediation
- Another case of disintermediation
- Disintermediating the disintermediators
Enter the gatekeeper’s hypothesis
Super platforms and super gatekeepers
Blockchain and the renewed dream of decentralization at scale
Key takeaways
Other business phenomena of the web 2.0 era
- Business Platforms
- Customer-Centrism and Customer Obsession
- Decoupling
- Digital Platforms
- Flywheels
- Network Effects
- Negative Network Effects
- Unbundling
- Value Innovation
- Vertical Integration (in the bits world)
Connected Business Frameworks
- Related

How the web disintermediated the old world

“Your margin is my opportunity,” this quote apparently attributed to Jeff Bezos, explains well the process of disintermediation that has been going on with the advent of the web.

One of the core premises of the web was the concept of decentralization and as a result intermediation. Companies like Amazon, Google, Facebook, Netflix, Uber, Spotify, Shopify and many other startups born in the web era, have all grown with the purpose of dismantling the old distribution pipelines, thus unlocking distribution.

Amazon has been disintermediating a whole supply chain for e-commerce and now it’s looking into last-mile delivery to cut out from the supply chain traditional large carriers (DHL, UPS, FedEx) to realize its dream of customer obsession.

Netflix has been for over a decade disintermediating the entertainment industry.

Google and Facebook unlocked branding and marketing at first. In the previous era, if you wanted to get brand exposure you had to go through the classical ad agency or a set of intermediaries that kept tight control over the industry and their marketing budgets.

As Google first, Facebook later, came up with a massive, mostly automated digital advertising machine, they first targeted a different segment of the ad industry (not that interesting to those who were used to the old way of advertising).

Indeed, Google itself proselytized a set of new marketers who learned to believe in the only god of performance-based marketing. No more branding or marketing, done without data, measuring, and clear ROI.

The engineering approach of Google first, Facebook later, made the whole deal look promising to those companies (especially startups) who didn’t have the budgets to invest in TV advertising.

Those digital marketers started to look for what we might define last-mile advertising, where it gets easy to track the click from and therefore measure the impact of marketing.

With that simple, yet powerful promise Google and Facebook created a digital advertising industry that, initially grabbed those who were all about performance, and therefore didn’t need an ad agency.

And later on, digital advertising would transition and become much more complete. As those companies evolved, both brand and performance advertising on Google and Facebook were covered up, and this process of disintermediation brought to the end of the traditional ad agency.

Yet, all in all, as those companies turned into tech giants, it started – I argue – a process of reintermediation. Before going there, let’s also look at the process of intermediation that happened after the consolidation of a new era, turning mature.

Disintermediation examples

Below we will list just a few of the many examples of how companies are removing intermediaries from a transaction.

Dell

No article on disintermediation would be complete without mentioning the American multinational electronics company Dell.

The company, which was founded in 1984, started as a direct seller with a mail-order system that eventually shifted online.

By 1997, Dell was direct selling around $4 million worth of computers each day.

While its competitors were selling pre-configured computers in retail stores, Dell used cost savings from cutting out the middleman to offer deeply discounted and highly customizable machines.

Tesla

Which of the following is an example of disintermediation?

Tesla is vertically integrated. Therefore, the company runs and operates the Tesla’s plants where cars are manufactured and the Gigafactory which produces the battery packs and stationary storage systems for its electric vehicles, which are sold via direct channels like the Tesla online store and the Tesla physical stores.

Unlike other vehicle manufacturers that tend to sell via authorized dealers, Tesla employs a direct sales approach with a global network of company-owned showrooms in major cities.

The company claims disintermediation increases product development speed and creates a superior buying experience for the customer.

Interested customers can visit a showroom in person and chat with sales and service staff who are employed by Tesla and have no conflict of interest.

Alternatively, those wishing to purchase a Tesla vehicle can customize and order it online.

The company also handles its own servicing.

Many showrooms double as service centers, with these supplemented by a fleet of mobile technicians who can perform routine maintenance at a customer’s residence.

Tesla is also following the same playbook when it comes to offering insurance premiums, through its real-time insurance.

A real-time insurance business model enables Tesla to build its own insurance arm, by dynamically adjusting the premiums, based on real-time driving behavior. Reduced insurance premiums hooked with the leasing arm, enable Tesla to scale its demand side of the business.

Uber

Uber is a is two-sided marketplace, a platform business model that connects drivers and riders, with an interface that has elements of gamification, that makes it easy for two sides to connect and transact. Uber makes money by collecting fees from the platform’s gross bookings.

The example of Uber disintermediation is perhaps the most controversial on this list.

The company was a major disrupter of the taxicab industry, enabling passengers to connect with drivers directly via an app.

While Uber has no doubt harmed the viability of taxis, it is nevertheless a representation of how removing the middleman can transform industries where regulation, lobbyists, and bureaucracy have created significant barriers to progress.

Expedia

One of the earlier examples of modern disintermediation comes from the travel site Expedia.

Once upon a time, consumers wishing to go on vacation would employ the services of a travel agent who would organize airline tickets, hotels, rental cars, and so forth.

Today, Expedia and many similar sites allow consumers to purchase airline tickets from the airline and accommodation from the hotel chain.

This has caused many travel agency businesses to shut down or move into related industries such as insurance.

Glossier

Glossier is a beauty brand that favors customer centricity over so-called “stale retail”.

Inspired by direct-to-consumer (D2C) brands such as Warby Parker and Dollar Shave Club, Glossier does not sell its products in traditional department stores like many of its competitors.

Instead, its skincare and makeup range is sold online and in a selection of retail stores across the United States which the company owns.

According to COO Henry Davis, Glossier is an innovative example of disintermediation because it controls the bottom section of its sales funnel and does not rely on third parties to make sales on its behalf.

The company is also looking at ways to disintermediate social media, noting that the brands of the future will need to take ownership of business-customer interactions away from companies such as YouTube and Instagram.

Reintermediation

Reintermediation consists in the process of introducing again an intermediary that had previously been cut out from the supply chain. Or perhaps by creating a new intermediary that once didn’t exist. Usually, as a market is redefined, old players get cut out, and new players within the supply chain are born as a result.

As companies like Google and Facebook disintermediated the advertising industry. At the same time, the market has been adjusting to the new industry created by those players.

As marketing itself got redefined through the lenses of data and measurement, once ad agencies turned into digital marketing agencies. Today the whole industry of consultancy companies born as a result of the SEO/SEM and SMO/SMM industries has seen the rise of digital agencies managing budgets for clients.

So after all, after the first stage of actual disintermediation. The market adjusted, and the dream of disintermediation, transformed in something else.

Another case of disintermediation

Another interesting case is how, over the years, thanks to the rise of Google, more and more vertical search engines started to spring up. Where Google could not offer a great search experience, users and qualified traffic would be sent there.

Whole new industries were born thanks to that. OTAs or online travel agencies were born, or at least, further disintermediated travel agencies, and locked-in demand in the travel sector, thanks to the massive amounts of traffic Google sent them:

Those digital players became the new intermediaries. They, together with Google, helped disintermediate an entire industry from fragmented players. Yet they became the primary intermediaries.

Disintermediating the disintermediators

Yet as Google turned, in what we can call “the everything search engine” or the tool able to cover many verticals that before could not be covered.

Google started to roll out products like Google Travel (Trips), and Google Flights that have the potential to offer an end-to-end experience within its own platform, thus disintermediating the digital disintermediators.

Enter the gatekeeper’s hypothesis

In a world driven by tech giants that locked-in the digital distribution pipelines to reach billions of people across the globe, the gatekeeper hypothesis states that small businesses will need to pass through those nodes to reach key customers. Thus, those gatekeepers become the enablers (or perhaps deterrent) for small businesses across the globe.

Those once startups turned gatekeepers. The old markets that crashed under the pressure of new industries, also matured. That might have created a process of dominance, where winner-take-all effects took over.

And markets once fragmented by many intermediaries, turned into new markets primarily dominated by a few central players, setting the rules of the game. According to what I called the “Gatekeeping Hypothesis” we sort of went back to an era of blocked distribution by a few key players, with some critical differences.

First, this time algorithms defined the rules to follow, even though at central levels, a few key people (usual engineers following the executives’ instructions made those rules in the first place).

Second, this era is primarily customer-centered. Where in the past, it was all about keeping a tight control on the supply chain and distribution, so that over time consumers wold get used to whatever it got sold to them (standardized mass-marketing helped indeed). To an era where those tech giants are stubborn and obsessed with customer experience.

When Google sets the rules for websites to follow, it does that by keeping as North Start, the user experience (of course defined a la Google), and those who do not conform to that are out from the walled garden.

Third, consolidation and asymmetry took over. Where many more intermediaries might have controlled fragmented industries. The new players learned that domination is what matters and they set for it.

In addition, most processes are now asymmetric. When the user gives data to Facebook, the value it gets back is much lower compared to what Facebook can and will do with that data. Both in terms of usage and monetization. In short, Facebook will be way better by getting the data of the user, as this will add up to its network effects. Compared to what the user gets back (some form of entertainment).

Therefore, winner-take-all effects created a few, super large players that became the main intermediaries.

Super platforms and super gatekeepers

Let’s add to that, those gatekeepers have been stretching their tentacles to cover more and more parts of the user experience, thus generating potential for the rise of super gatekeepers.

Blockchain and the renewed dream of decentralization at scale

There isn’t a single way for the web to evolve. And renewed dreams of scaled decentralization took place with the Blockchain and its potential commercial applications. Whether this will be a permanent effect, we can’t be sure.

However, for one thing, Blockchain might get us to the rise of a new form of organization, something that goes beyond the classic corporation and take the form of a super, decentralized company, made of many companies combined, and all joining a shared protocol.

Key takeaways

Disintermediation is the process of cutting out intermediaries from the supply chain. The web has been a critical driver of this process, by disintermediating old industries to create whole new market opportunities for all.
The wave of disintermediation is still going on (see Amazon last-mile). At the same time as those companies created new markets that are becoming more mature, a process of reintermediation (where new intermediaries are born as a result).
As former startups, turned tech giants, those became gatekeepers and winner-take-all/intermediaries at large scale.
The Blockchain brings back the dreams of disintermediation and decentralization at large scale. Whether this will happen, be permanent we don’t know yet, and can’t be sure either.

Other business phenomena of the web 2.0 era

Let’s look also at a few other phenomena enabled by the web.

Business Platforms

In the digita era, business platforms have become the key foundation for massive entrepreneurial ecosystems to form, and therefore the development of products used by a large consumer base.

The advent of business platforms has taught us that to scale up a product at mass-consumption level, it’s not enough anymore to have the physical side (hardware).

Instead, the non-physical, comprising the software, and all the other applications built on top of it become critical. In short, while hardware and software are critical to build a solid foundation, those are usually highly centralized.

Instead, there is another part, where companies act more like governments, setting the policies and rules for the platform. But then the platform itself is left to develop.

The products made as a result of these platforms enhance the core products offered by the organization (your iPad would be worth much less without apps).

Customer-Centrism and Customer Obsession

Customer obsession goes beyond quantitative and qualitative data about customers, and it moves around customers’ feedback to gather valuable insights. Those insights start by the entrepreneur’s wandering process, driven by hunch, gut, intuition, curiosity, and a builder mindset. The product discovery moves around a building, reworking, experimenting, and iterating loop.

In this era, customers got at the center of the business stage. They became the focus for the development of products in the first place. Indeed, at an entrepreneurial level, today, you first validate the market, understand if people really want something, then go on and build it.

At the same time, like Amazon taught us, customer obsession also takes the form of random discovery, where the company audacious enough to push products that customers don’t even know they want, yet, also win.

Decoupling

According to the book, Unlocking The Value Chain, Harvard professor Thales Teixeira identified three waves of disruption (unbundling, disintermediation, and decoupling). Decoupling is the third wave (2006-still ongoing) where companies break apart the customer value chain to deliver part of the value, without bearing the costs to sustain the whole value chain.

The decoupler learned how to look at the whole customer value chain, only to focus on one core aspect of it, to enable a whole new experience, based on convenience, in terms of money, time and effort.

The new experience designed by the decoupler breaks apart the customer value chain, thus identifying and offering only the most valuable part.

Digital Platforms

A digital business model might be defined as a model that leverages digital technologies to improve several aspects of an organization. From how the company acquires customers, to what product/service it provides. A digital business model is such when digital technology helps enhance its value proposition.

Digital platforms and digital business models, from e-commerce, to on-demand, subscription-based model, freemium, open source and more, have all become natural players in the web era.

Flywheels

The Amazon Flywheel or Amazon Virtuous Cycle is a strategy that leverages on customer experience to drive traffic to the platform and third-party sellers. That improves the selections of goods, and Amazon further improves its cost structure so it can decrease prices which spins the flywheel.

In this era, flywheels become the key growth component of platform business models.

Network Effects

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Network effects instead become critical to enable the platform to scale, and as it does become more valuable. In short, where in the past we talked about economies of scale, in this era, we talk about network effects.

Negative Network Effects

In a negative network effect as the network grows in usage or scale, the value of the platform might shrink. In platform business models network effects help the platform become more valuable for the next user joining. In negative network effects (congestion or pollution) reduce the value of the platform for the next user joining.

Where platform business models enjoy network effects. The opposite is true. In the physical world, where this phenomenon is known more as diseconomies of scale.

In the digital business world, when the network becomes too busy (overcapacity), or it scales too much, negative network effects can pick up. Thus, redounding the value of the overall network.

Unbundling

Unbundling is a business process where a series of products or blocks inside a value chain are broken down to provide better value by removing the parts of the value chain that are less valuable to consumers and keep those that in a period in time consumers value the most.

Many of the companies that entered those new spaces, and dominated them, started out as unbundler. They took an existing “pre-packaged experience” from the previous era, and they only offered the most valuable part.

In short, they surfed the giants of the previous era. And as they did they gained massive growth.

As new companies come into the market and supplant incumbents with an unbundling process, they tend to consolidate their distribution, thus bundling things up to offer an end-to-end experience and gain as much control possible over the customer journey.

When this process is mature, other companies, with a different mindset, willing to take the best of that experience and unbundle it, might gain traction at expense of the incumbent.

Value Innovation

A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

Innovators in the digital age, have been able to innovate by breaking down the wall between cost and value. This is at the core of the Blue Ocean Strategy.

On FourWeekMBA, I also advocate for a Blue Sea approach, where a minimum viable audience, becomes the North Star to build a valuable small digital business.

Vertical Integration (in the bits world)

In business, vertical integration means a whole supply chain of the company is controlled and owned by the organization. Thus, making it possible to control each step through consumers. in the digital world, vertical integration happens when a company can control the primary access points to acquire data from consumers.

Over time, once small players that have gained more and more market shares in their industry, also expanded in adjacent markets. Thus, controlling more parts of the journey for potential customers.

For instance, where Google has been able for decades, to only find relevant information for users, and it then sent them toward whatever site it was available on the web.

Google integrated more and more products to its search engine to enhance the user journey and create an end-to-end experience, and at the same time by integrating its supply chain, to gain control over the whole process.

A phenomenon known for decades to the physical world, has become also widely applied to the digital world.

Hand-picked resources:

Business Strategy Examples
Types of Business Models You Need to Know
Blitzscaling Business Model Innovation
What Is a Value Proposition?
What Is Business Model Innovation And Why It Matters
Platform Business Models
Network Effects In A Nutshell
Digital Business Models

Connected Business Frameworks

AI Supply Chains

A classic supply chain moves from upstream to downstream, where the raw material is transformed into products, moved through logistics and distributed to final customers. A data supply chain moves in the opposite direction. The raw data is “sourced” from the customer/user. As it moves downstream, it gets processed and refined by proprietary algorithms and stored in data centers.

Bullwhip Effect

The bullwhip effect describes the increasing fluctuations in inventory in response to changing consumer demand as one moves up the supply chain. Observing, analyzing, and understanding how the bullwhip effect influences the whole supply chain can unlock important insights into various parts of it.

Supply Chain

The supply chain is the set of steps between the sourcing, manufacturing, distribution of a product up to the steps it takes to reach the final customer. It’s the set of step it takes to bring a product from raw material (for physical products) to final customers and how companies manage those processes.

Data Supply Chains

In a data supply chain the closer the data to the customer the more we’re moving downstream. For instance, when Google produced its own physical devices. While it moved upstream the physical supply chain (it became a manufacturer) it moved downstream the data supply chain as it got closer to consumers using those devices, so it could gather data directly from the market, without intermediaries.

Last Mile Delivery

Last-mile delivery consists of the set of activities in a supply chain that will bring the service and product to the final customer. The name “last mile” derives from the fact that indeed this usually refers to the final part of the supply chain journey, and yet this is extremely important, as it’s the most exposed, consumer-facing part.

Backward Chaining

Backward chaining, also called backward integration, describes a process where a company expands to fulfill roles previously held by other businesses further up the supply chain. It is a form of vertical integration where a company owns or controls its suppliers, distributors, or retail locations.

Revenue Modeling

Revenue model patterns are a way for companies to monetize their business models. A revenue model pattern is a crucial building block of a business model because it informs how the company will generate short-term financial resources to invest back into the business. Thus, the way a company makes money will also influence its overall business model.

Pricing Strategies

A pricing strategy or model helps companies find the pricing formula in fit with their business models. Thus aligning the customer needs with the product type while trying to enable profitability for the company. A good pricing strategy aligns the customer with the company’s long term financial sustainability to build a solid business model.

Dynamic Pricing

Price Sensitivity

Price sensitivity can be explained using the price elasticity of demand, a concept in economics that measures the variation in product demand as the price of the product itself varies. In consumer behavior, price sensitivity describes and measures fluctuations in product demand as the price of that product changes.

Price Ceiling

A price ceiling is a price control or limit on how high a price can be charged for a product, service, or commodity. Price ceilings are limits imposed on the price of a product, service, or commodity to protect consumers from prohibitively expensive items. These limits are usually imposed by the government but can also be set in the resale price maintenance (RPM) agreement between a product manufacturer and its distributors.

Price Elasticity

Price elasticity measures the responsiveness of the quantity demanded or supplied of a good to a change in its price. It can be described as elastic, where consumers are responsive to price changes, or inelastic, where consumers are less responsive to price changes. Price elasticity, therefore, is a measure of how consumers react to the price of products and services.

Economies of Scale

In Economics, Economies of Scale is a theory for which, as companies grow, they gain cost advantages. More precisely, companies manage to benefit from these cost advantages as they grow, due to increased efficiency in production. Thus, as companies scale and increase production, a subsequent decrease in the costs associated with it will help the organization scale further.

Diseconomies of Scale

In Economics, a Diseconomy of Scale happens when a company has grown so large that its costs per unit will start to increase. Thus, losing the benefits of scale. That can happen due to several factors arising as a company scales. From coordination issues to management inefficiencies and lack of proper communication flows.

Network Effects

A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Negative Network Effects

What is the example of disintermediation?

Notable examples of disintermediation include Dell and Apple, which sell many of their systems direct-to-consumer—thus bypassing traditional retail chains, having succeeded in creating brands well recognized by customers, profitable and with continuous growth.

What is this disintermediation?

The term disintermediation refers to the process of cutting out the financial intermediary in a transaction. It may allow a consumer to buy directly from a wholesaler rather than through an intermediary such as a retailer, or enable a business to order directly from a manufacturer rather than from a distributor.

What is disintermediation quizlet?

What is Disintermediation? Occurs when product or service producers cut out marketing channel intermediaries or when radically new types of channel intermediaries displace traditional ones.

Is Amazon an example of disintermediation?

Amazon has been disintermediating a whole supply chain for e-commerce and now it's looking into last-mile delivery to cut out from the supply chain traditional large carriers (DHL, UPS, FedEx) to realize its dream of customer obsession.