Keep A Close Eye On The Middle

Somewhere between the late eighties and the early nineties, a new word — “disintermediation” — was silently introduced into our collective consciousness and vocabulary, especially in the context of the financial sector. It was a bit like how the words “paradigm” and “synergy” have attached themselves, uninvited and somewhat unobtrusively, to our conversations. Disintermediation is no longer restricted to the financial sector and it is changing many parts of our familiar world. Many other unfamiliar parts will also alter immutably. But, yet, there might still be some parts of this world that will continue to require a middle tier.

Disintermediation, when it was introduced into the Indian market jargon, simply meant savers taking their hard-earned savings directly to those who needed it most — that is, companies setting up projects — instead of lending it to intermediaries (such as banks), which then eventually lent it to the companies. The word was used repeatedly in the perspective of developing the Indian capital markets. It is another matter that in the meantime a larger number of intermediaries have reinforced their presence in the capital markets.

But, beyond the framework of the capital markets, the word “disintermediation” found new currency during the internet boom and, once the dust settled, in all kinds of consumer offerings. The term also inspired new theories on organisational structure and management strategy. What disintermediation simply meant was cutting out the middleman from — or delayering — a company’s supply chain or distribution networks. For example, Michael Porter’s value chain concept became the foundation for re-engineering corporate structures to e-commerce applications.

Two examples of disintermediation are threatening to change two industries beyond recognition.

Reams have already been written about Apple’s iTunes and how this business model has changed the music industry. Apple realised early on that the internet would modify the music distribution business forever. That model — which has the sale of hardware layered on the software promise — has now become the defining template for music distribution. It peeled off many layers — such as, the music stores and the distributors, all of whom meant additional costs for the ultimate customer. But, there are further changes coming, which drive the disintermediation process further and promise to even do away with the need to buy hardware to access the software. A new service called “Spotify” allows users to hear songs of their choice from a virtual jukebox, all free, provided they agree to listen to 20 seconds of ads between 30 minutes of uninterrupted music. The songs can only be heard, not downloaded, reducing the piracy threat for music companies. The promise becomes attractive, given the easier access to the internet today, especially through mobile phones. It not only does away with the need to carry an iPod around or manage shelf-space overflowing with CDs, but it also has music labels signing on to offer their music. The service is still developing, but it has already created a buzz.

The second example is “Kindle”, an e-book reader launched by Amazon, which is now in its second version. It would be instructive to remember that Gutenberg’s invention freed ordinary people from the tyranny of priests and godmen, when he made available printed copies of the holy texts and scriptures at affordable prices. That was disintermediation 101. With Kindle-2 comes the second phase. With the help of the net, readers can download books, magazines and newspapers on their e-reader, which can then be read at leisure. Most importantly, if Amazon becomes a publisher also (which is not too distant a likelihood), the Kindle would have eliminated — in one stroke — the whole middle kingdom of agent, publisher, distributor and book shops. Sure, the Kindle-2 still has a long distance to travel — readers are unlikely to give up the printed, paper version completely in favour of a Kindle (at least, not yet), or eschew the option of browsing in a bookshop. But, the field has been set and a game is certainly afoot. Watch this space to see how traditional publishers respond to this challenge, especially with Google and Sony also adding their hats to this e-space.

But, despite the seeming invincibility of disintermediation as a business process, a few things in life will always come with middle-men. For instance, our desire to live a life of good health is no longer within our control. Doctors have taken over every aspect of our health and maintain a stranglehold over the whole medical well-being business. With all of us leading complex lives, there is no way we could even begin thinking of a disintermediated surgical procedure.

There is another category which we love to hate and yet cannot eliminate from our lives — politicians. Post 26/11, many embittered citizens asked resentfully whether we needed politicians at all. The emotional outburst at that moment was understandable, but we elect politicians to govern on our behalf. If they’re abolished, we have to police ourselves, clear the garbage, or finance and oversee road-building through mosquito-infested swamps. The least we could do is elect the right guy and then monitor his work, his questions in Parliament or the quality of his debate. Since we have to live with this devil, we might as well keep an eagle eye on him.

(Courtesy: The Economic Times)

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