Meet You In The Middle

After the Wednesday podcast, listener TrevorL took exception to economist Anita McGahan's definition of disintermediation. McGahan has written back. Both responses after the jump.

TrevorL wrote:

The definition of disintermediation presented on the podcast today was wrong. Disintermediation is the process of removing the (unnecessary) middlemen from an industry. The classic example is removing agents from an industry (eg: GEICO for insurance, for-sale-by-owner for real estate) and allowing consumers to access the service directly. While this causes loss for those in the industry, it's generally a *good* thing for consumers, who get cheaper, higher quality service. In the newspaper business, the printers and delivery people are the middlemen in getting information from the journalist to the reader.

Anita McGahan writes:

Your listener makes a great point — that taking out the middle man is one way that an industry may be fundamentally transformed. Certainly that would have radical consequences for the middle man, for example! But this is just one way that an industry can be disintermediated. In general, disintermediation involves keeping value-creating activities and dissolving activities such as the "middle man" role that are no longer creating value. Full-service investment brokerage was disintermediated when clients no longer wanted to pay for advice through $200 commissions on trades, but many brokerages still had valuable advisory services that could be offered in different ways. Traditional live fine-arts auctions were disintermediated by eBay and other Internet auctioneers, but retained valuable appraisal and consignment capabilities. Car dealerships were at least partially disintermediated by the online availability of information about car features and costs, but retained value-creating demonstration, preparatory, delivery and post-sales service activities. In other words, there are lots of ways that industries can be affected by disintermediation than by having all of the activities of a middle-man made irrelevant.

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