Disintermediation is still going on

Learn about the concept of disintermediation in business and how it can benefit companies by removing intermediaries from the supply chain. Discover the potential challenges and considerations businesses must weigh before implementing disintermediation strategies. Click and learn more.

Halil AksuContent Editor

March 17, 2023
8min read

Disintermediation can have several benefits for businesses, including lower costs and increased efficiency. It can also help companies develop closer relationships with their customers and better understand their needs and preferences.

However, disintermediation can also present challenges for businesses, such as developing new skills and capabilities and navigating complex supply chains and distribution networks. As a result, companies need to carefully consider disintermediation’s potential benefits and challenges before deciding to remove intermediaries from their supply chain or distribution process.

Some common examples from various industries

Disintermediation can potentially be applied in a wide range of industries. Some common examples of sectors where disintermediation is often seen include:

  • Manufacturing: In the manufacturing industry, disintermediation can involve cutting out intermediaries such as wholesalers or distributors and directly connecting producers with consumers. This can reduce costs and improve efficiency in the supply chain.
  • Retail: In the retail industry, disintermediation can include the elimination of intermediaries such as brick-and-mortar retailers, and instead directly establishing producers with consumers using online platforms. This can help to minimise costs and improve efficiency in the distribution process.
  • Financial services: In the financial services industry, disintermediation can leave out such intermediaries as banks and brokers, and instead connect straight away consumers with financial products and services. This can help to reduce costs and enhance efficiency in the financial services sector.

Overall, disintermediation can be applied in a wide range of industries, reducing costs and improving efficiency in the supply chain and distribution process. However, businesses must carefully consider disintermediation’s potential benefits and challenges before removing intermediaries from their supply chain or distribution process.

Famous disintermediation examples

One famous example of disintermediation is the rise of online platforms such as Amazon and eBay. These platforms have effectively disintermediated traditional retail outlets by directly connecting producers and consumers. This has enabled producers to sell their products directly to consumers, bypassing traditional retailers and wholesalers, and has helped to reduce costs and improve efficiency in the retail sector.

Another example of disintermediation is the rise of peer-to-peer lending platforms like Lending Club and Prosper. These platforms have effectively disintermediated traditional banks and financial institutions by directly connecting consumers and lenders. This has enabled consumers to obtain loans directly from lenders, bypassing traditional banks and brokers, and has helped to reduce costs and improve efficiency in the financial services sector.

Overall, these examples demonstrate the potential for disintermediation to disrupt traditional industries by removing intermediaries and directly connecting producers with consumers.

Great benefits come with disintermediation.

There are many potential benefits for consumers associated with disintermediation. Some of the crucial benefits of disintermediation for consumers include:

  • Greater choice: Disintermediation can provide consumers with wider selection by directly connecting them with a more extensive range of producers and products. This can enable consumers to access a broader range of products and services and to choose the products and services that best meet their needs and preferences.
  • Lower prices: Disintermediation can help reduce consumer costs by removing intermediaries from the supply chain and distribution process. This can lead to lower consumer prices and make products and services more affordable.
  • Enhanced convenience: Disintermediation can also enhance comfort for the consumers by providing them with direct access to products and services. For example, with the help of platforms like Amazon and eBay shopping online has become more convenient for people, allowing them to purchase products from their own homes and have them delivered to their doorstep.

Overall, disintermediation can offer a range of consumer benefits, including greater choice, lower prices, and enhanced convenience. These benefits can help improve the customer experience and help businesses develop stronger relationships with their customers.

Disintermediation may bare some downsides.

While there is a number of potential benefits associated with disintermediation, there are also some downsides. Some of the key downsides of disintermediation include:

  • Reduced quality: Disintermediation can lead to reduced quality in products and services, as intermediaries such as wholesalers and distributors may not be present to ensure that products meet specific standards. This can lead to poor-quality products, damaging the business’s reputation and customer dissatisfaction.
  • Loss of personal touch: Disintermediation can also lead to the loss of the personal touch in the buying and selling process, as intermediaries such as salespeople may not be present to provide advice and assistance to customers. This can lead to a less personalized shopping experience, which can be off-putting to some customers.
  • Increased complexity: Disintermediation can also make supply chains and distribution networks more complex, as businesses need to manage multiple direct relationships with producers and consumers. It can be challenging for companies, especially if they lack the necessary skills and resources to handle these relationships effectively.

Overall, while there are potential benefits to be gained from disintermediation, there are also some downsides that businesses need to consider before deciding to remove intermediaries from their supply chain or distribution process.

Sometimes it can go wrong altogether.

There are multiple instances where attempts to eliminate intermediaries have failed or turned out unsuccessful. Some notable examples of such failed attempts include:

  • Kodak: In the 1990s, Kodak attempted to disintermediate its traditional distribution channels by selling its cameras and film directly to consumers through its website. However, this move proved disastrous, as Kodak could not compete with online retailers such as Amazon and eBay, which could offer lower prices and a more comprehensive range of products. As a result, Kodak’s sales and market share declined, and the company eventually filed for bankruptcy in 2012.
  • Barnes & Noble: In the early 2000s, Barnes & Noble attempted to disintermediate its bookstores by selling books directly to consumers through its website. However, this move proved to be unsuccessful, as Barnes & Noble was unable to compete with Amazon, which was able to offer lower prices and a wider range of books. As a result, Barnes & Noble’s sales and market share declined, and the company has struggled to regain its position as a leading retailer of books.
  • The music industry: In the early 2000s, it attempted to disintermediate its distribution channels by selling music directly to consumers through online music stores. However, this move proved unsuccessful, as music piracy became widespread, and consumers could download music for free from illegal websites. As a result, the music industry’s sales and revenue declined, and many artists and record labels struggled to adapt to the changing market.

In summary, these examples demonstrate the potential risks and challenges associated with disintermediation and highlight the importance of carefully considering this approach’s potential benefits and downsides before deciding to disintermediate it.

Four recommendations to ensure success.

If executives of enterprises are planning to disintermediate their business, they should consider a few key recommendations. Some of the key recommendations for executives who are planning to disintermediate their business include:

  • Carefully assess the potential benefits and downsides of disintermediation: Before deciding to disintermediate, it is essential for executives to evaluate the potential benefits and downsides of this approach carefully. By doing this, it can guarantee that they are equipped with the necessary knowledge to make a well-informed choice and fully comprehend the potential difficulties and hazards that might arise.
  • Develop a clear strategy and plan: Executives should also develop a clear strategy and plan for how to disintermediate their business. It should include a detailed roadmap of the steps they will take to remove intermediaries from their supply chain or distribution process and outline how they will manage the transition and any potential challenges they may encounter.
  • Communicate with stakeholders: Executives should also ensure that they communicate effectively with all stakeholders, including customers, employees, and suppliers. This can help ensure that everyone is aware of the changes happening and can help minimize disruption and ensure a smooth transition to the new model.
  • Monitor and evaluate the impact of disintermediation: Finally, executives should monitor and assess the impact of disintermediation on their business and should be prepared to adjust their strategy and plan as necessary. This can help ensure that the disintermediation process is successful and that the company can achieve its desired outcomes.

Final remarks: Informed decisions make the difference.

In conclusion, disintermediation can offer several potential benefits for enterprises, including greater choice and lower prices for consumers, and more direct control and potential cost savings for businesses. However, there are also some downsides to take into account, including reduced quality and the possible loss of the personal touch in the buying and selling process.

All in all, the decision to disintermediate should be carefully considered based on a clear strategy and plan. Executives should also communicate effectively with stakeholders and monitor and evaluate disintermediation’s impact on their business. By taking these steps, enterprises can maximize the potential benefits of disintermediation and avoid potential downsides.