Disintermediation is the process of removing intermediaries from a transaction. This can happen in any industry, but it’s particularly common in the financial industry. For example, disintermediation can occur when a business decides to deal directly with its customers instead of using intermediaries. Disintermediation can also happen in the advertising industry. When companies like Google and Facebook disintermediated the traditional advertising model, they upended the entire industry.
Hotel bookings are another area where disintermediation is common. Many hotels now deal directly with customers, rather than using intermediaries like travel agents. In general, disintermediation occurs when companies decide to cut out the middleman and service customers directly. This can often lead to lower prices and more savings for customers.
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What is Disintermediation?
Definition: Disintermediation is the act of removing the financial middleman in a transaction. It lets a user directly purchase from a wholesaler instead of going through a retailer. It also enables a firm to buy directly from a producer instead of purchasing from a distributor.
It refers to the act of buying stock directly rather than via a broker or a financial institution in the financial sector. The goal of disintermediation is frequently to reduce expenses as well as speed up the delivery process.
Disintermediation is the process of removing intermediaries from a supply chain or business model. In the context of business, disintermediation can refer to the removal of traditional middlemen from the distribution channel, such as wholesalers or travel agents. Disintermediation can also refer to the direct servicing of customers by manufacturers or service providers, without the use of traditional channels.
Meaning of Disintermediation
Removing the middleman from a transaction has several advantages, including lowering its overall cost. It is now an important component of the internet model, which is widely known as the B2C or business-to-consumer model.
When a wholesaler purchases large amounts of goods from the producer directly, it’s possible for an interested buyer to do the same. As a result, because the intermediary, such as a traditional retail shop, is excluded from the transaction, the buyer may save money by getting lower prices.
The idea began in the financial sector, allowing investors to purchase financial products directly rather than through a middleman such as a broker or a bank. The government limited bank interest rates for federally insured savings accounts in 1967, prompting customers to withdraw their funds from savings accounts and invest them into bonds or stocks instead.
All in all, the key takeaways disintermediation suggests is that it is the process of taking out the middleman in any transaction while servicing customers. This can save the customer money by cutting down on prices. It can also speed up the delivery process by making it more direct. Disintermediation has become an important component of business models like the B2C, where companies sell products and services directly to potential customers without going through a middleman.
History of Disintermediation Business Strategy
The disintermediation concept was first used in the banking industry in 1967 when the US government placed a limit on the interest rates that banks could offer for savings accounts. This action created an opportunity for other financial institutions to attract savers by offering higher interest rates on certificates of deposit and money market accounts.
The disintermediation of deposits from banks continued into the 1980s as bank customers responded to high inflation rates by seeking investments that would preserve the purchasing power of their savings. The disintermediation trend accelerated in the 1990s as technological advancements made it easier for consumers to access information about investment alternatives and to conduct transactions without using traditional intermediaries.
By 2000, disintermediation had become a significant force in the financial services industry, as investors increasingly turned to online brokerages, mutual fund companies, and other direct-to-consumer channels. The disintermediation of the advertising industry began in the early 2000s as companies like Google and Yahoo! started selling ad space directly to advertisers. This disintermediated the traditional agency model, in which ad agencies served as intermediaries between advertisers and publishers.
The disintermediation of the hotel booking industry began in the mid-2000s as hotels started dealing directly with customers through websites like Expedia and Priceline. This disintermediated travel agents, who had previously served as intermediaries between hotels and customers.
Disintermediation has also occurred in other industries, such as the airline ticketing industry, the music industry, and the newspaper industry. The disintermediation of the airline ticketing industry began in the late 1990s as airlines started selling tickets directly to customers through their own websites. This disintermediated travel agents, who had previously served as intermediaries between airlines and customers.
The disintermediation of the music industry began in the early 2000s as consumers started downloading music directly from the internet instead of buying CDs from stores. This disintermediated record labels and music retailers, who had previously served as intermediaries between musicians and music fans.
The disintermediation of the newspaper industry began in the early 2000s as consumers started reading news online instead of buying newspapers from newsstands. This disintermediated newspaper publishers and newsstands, who had previously served as intermediaries between newsmakers and news consumers.
How Does Disintermediation Work?
Disintermediation can be accomplished in a number of ways, including the following
1. Direct marketing
This is the most common form of disintermediation, and it involves companies selling products and services directly to consumers without going through a middleman.
2. Self-service
This is a form of disintermediation that allows customers to serve themselves without the need for a human intermediary.
3. Electronic commerce
This is a form of disintermediation that allows companies to sell products and services online without the need for a physical storefront.
4. Social media
This is a form of disintermediation that allows companies to connect with customers and promote their products and services through social media channels.
Benefits of Disintermediation
There are several benefits associated with disintermediation, including the following
1. Cost savings
One of the main benefits of disintermediation is that it can lead to cost savings for companies. When companies disintermediate, they can avoid the costs associated with using intermediaries, such as commissions, fees, and markups.
2. Increased efficiency
Another benefit of disintermediation is that it can lead to increased efficiency for companies. When companies disintermediate, they can avoid the delays and inefficiencies associated with using intermediaries.
3. Greater control
The third benefit of disintermediation is that it gives companies greater control over their operations. When companies disintermediate, they are able to make decisions more quickly and without the need to consult with an intermediary.
4. Improved customer service
The fourth benefit of disintermediation is that it can lead to improved customer service. When companies disintermediate, they are able to deal directly with customers and address their needs more quickly and effectively.
Drawbacks of Disintermediation
While there are several benefits associated with disintermediation, there are also some drawbacks, including the following:
1. Direct marketing costs
One of the main drawbacks of disintermediation is that it can lead to increased marketing costs for companies. When companies disintermediate, they need to invest in direct marketing efforts to reach their target customers.
2. Self-service challenges
Another drawback of disintermediation is that it can be challenging for companies to provide self-service options that meet customer needs. When companies disintermediate, they need to ensure that their self-service options are user-friendly and offer the features and functions that customers need.
3. Limited customer reach
A third drawback of disintermediation is that it can limit a company’s customer reach. When companies disintermediate, they need to invest in direct marketing efforts to reach their target customers. This can be costly and time-consuming.
4. Increased competition
A fourth drawback of disintermediation is that it can lead to increased competition for companies. When companies disintermediate, they are no longer the only source for their products and services. This can make it difficult for companies to compete in the marketplace.
Disintermediation and the Internet
The Internet has been a major force behind disintermediation in recent years. The Internet has made it possible for companies to connect with customers and promote their products and services without the need for a physical storefront.
The Internet has also made it possible for companies to sell products and services online without the need for a middleman. As a result, the Internet has had a major impact on the way businesses operate and the way consumers shop for products and services.
The disintermediation of traditional businesses is not limited to large companies or industries. In fact, disintermediation is happening in many niche markets as well.
For example, the hotel booking industry has been disintermediated by websites like Airbnb, which allow customers to book hotel rooms directly from homeowners.
Similarly, the advertising industry has been disintermediated by online advertising platforms like Google AdWords and Facebook Ads. As a result, disintermediation is likely to continue to have a major impact on businesses of all sizes in the years to come.
Disintermediation at work also includes many examples where companies cut out the middleman to deal directly with customers. A few examples include – Apple Store, Dell, and Netflix. These companies found a way to disintermediate the traditional retail model and sell their products directly to customers.
In the financial industry, companies like Lending Club and Prosper are disintermediating the traditional banking model by allowing customers to deal directly with lenders.
The Future of Disintermediation
The future of disintermediation is likely to be impacted by the continued growth of the Internet and the rise of new technologies. The Internet will continue to make it easier for companies to connect with customers and promote their products and services.
New technologies, such as mobile commerce, will also make it easier for companies to sell products and services without the need for a physical store. As a result, disintermediation is likely to continue to have a major impact on the way businesses operate and the way consumers shop for products and services.
Here is a video by Marketing91 on Disintermediation.
Cryptocurrencies and Disintermediation
Cryptocurrencies have the potential to disintermediate many traditional financial institutions. For example, Bitcoin can be used to make direct peer-to-peer payments without the need for a bank.
Similarly, Ethereum can be used to create decentralized applications that run on the blockchain. This could disintermediate many traditional software companies.
As more people become aware of cryptocurrencies and their potential, disintermediation will likely continue to increase in the years to come.
Examples of disintermediation
1. Apple Store
The Apple Store is a good example of disintermediation. Apple sells its products directly to consumers through its own website and retail stores. This allows Apple to bypass the traditional retail model and sell its products at a higher price.
2. Dell
Dell is another company that has disintermediated the traditional retail model. Dell sells its computers directly to consumers through its website and call center. This allows Dell to offer a lower price for its products.
3. Netflix
Netflix is a good example of disintermediation in the entertainment industry. Netflix offers its movies and TV shows directly to consumers through its website. This allows Netflix to offer a lower price for its content.
4. Lending Club
Lending Club is a good example of disintermediation in the financial industry. Lending Club offers loans directly to consumers through its website. This allows Lending Club to offer a lower interest rate on its loans.
5. Prosper
Prosper is another example of disintermediation in the financial industry. Prosper offers loans directly to consumers through its website. This allows Prosper to offer a lower interest rate on its loans.
6. Airbnb
Airbnb is a good example of disintermediation in the hotel industry. Airbnb offers rooms directly to consumers through its website. This allows Airbnb to offer a lower price for its rooms.
7. Uber
Uber is a good example of disintermediation in the taxi industry. Uber offers rides directly to consumers through its app. This allows Uber to offer a lower price for its rides.
8. Amazon
Amazon is a good example of disintermediation in the retail industry. Amazon sells products directly to consumers through its website. This allows Amazon to offer a lower price for its products.
9. Google
Google is a good example of disintermediation in the advertising industry. Google sells ads directly to advertisers through its AdWords program. This allows Google to offer a lower cost per click for its ads.
10. Facebook
Facebook is another example of disintermediation in the advertising industry. Facebook sells ads directly to advertisers through its advertising platform. This allows Facebook to offer a lower cost per click for its ads.
Conclusion!
As you can see, disintermediation is having a major impact on many industries. This trend is likely to continue in the years to come as more people become aware of the benefits of disintermediation.
From small businesses to major corporations, companies are finding new ways to sell directly to consumers. Are there any other examples of disintermediation that you can think of? Let us know in the comments below!
