Re-intermediation — Same as the Old Boss?
I am watching a trend emerge. I don’t know if it has a name yet so I will offer this — re-intermediation. Most of us have been around the technology world in general and the Internet specifically to understand and remember its opposite, disintermediation. Re-intermediation is a reversal of disintermediation — in many cases formulated by the same forces that caused the original disintermediation.
The Internet did a great job of disintermediation — weeding out the middleman in a huge number of transactions in every day commerce. Disintermediation is one way of saying that customers now have more power than ever before because we have information. Middlemen were often the holders of information and their control gave them power — to set prices, allocate inventory and more.
There was nothing illegal about how the middlemen did their jobs and some economists might argue that they facilitated an efficient market. Suppose you wanted a car in a specific color with a five-speed transmission. In the old days if a dealer had the right car but in a different color or trim package, that dealer could have easily told you that your selection didn’t exist this side of the Mississippi River. That information — which might not have been right — would hopefully influence your decision to buy what was on the lot. The dealer controlled your access to information about availability of other models at other dealerships but today you can go on-line and find an exact match taking the dealer out of the picture almost entirely.
It’s not a fun way to be a vendor these days. Smart buyers can do most of their research online long before meeting a vendor representative and at that meeting the discussion is often over price. Middlemen used to make money on their superior knowledge and the Internet made that a lot harder, changing whole industries. The holy sales cycle has been replaced in many circumstances by the buying process with many different rules. Worst of all is the realization that a vendor can be locked out of a process and not even be aware of it.
In some ways the Internet has been turned into a later day Prometheus, the Greek god who legend tells us stole fire — the highest technology of that day — from Zeus and gave it to humans. As punishment Zeus sentenced Prometheus to being chained to a boulder for eternity. By day a great eagle would eat his liver, by night he would heal and at dawn the cycle would renew.
Watching the emergence of re-intermediation tells me that Zeus is no longer happy with the arrangement. He’s walking around with a fire hose trying to extinguish all memory of fire. But the incredible irony is that the re-intermediators are, in some cases the very technology companies that started and benefitted from the original disintermediation.
For instance, in my industry I have never seen so much competition from some of the outlets that I write for as there is today (ok, not this one). Publishers with their own, very different, business models are staking a claim to what has historically been analyst work — white papers, reports and webinars for example. But I am not here to dwell on that part of re-intermediation, simply to note that it is a spreading phenomenon and goes beyond simple commerce.
The more interesting re-intermediator is Apple. The company that bought a 1984 Super Bowl ad to define a market dominating IBM as Big Brother seems now to be grasping for the same kind of market dominance. Exhibit A is Apple’s announced thirty percent cut of everything sold through the App Store.
The App Store is a marvelous thing, it consolidates demand for all kinds of products that run on an Apple platform. Truth be told, many of the things the App Store sells could not be sold at all, let alone at prices that make impulse buying possible, if the companies that developed them also marketed them. The overhead would simply be too great. So in this, the App Store adds great value; however, this aspect of the App Store might also be its Achilles Heel.
What if a vendor doesn’t actually need the market consolidating power of the App Store? What if a vendor already has a high quality brand and a customer base eager for its product? Does the App Store’s market consolidating power actually add any value? Or is the App Store simply a low cost conduit for a commerce stream that already exists and is simply moving from, say, a brick and mortar delivery model to a digital one? What is the value add of Apple’s infrastructure stripped of its market consolidating power? Thirty percent? Really?
Such is the case of the publishing industry. Publishers of printed materials for daily or monthly consumption have been battered by market forces for years, even decades by unions, high costs of raw materials including transportation, paper, ink, real estate and professional labor. Some of these costs can’t be helped and publishers that have tried to lower costs by firing half of their newsrooms have simply succeeded in cheapening their products and abetting the stampede to other content formats.
So it seems like publishers have arrived on the digital doorstep exhausted and bled dry by forces beyond their control as the marketplace continues a secular shift. Many are ready to trade in their eighteenth and nineteenth century business models for something shiny, new and digital and to hand over thirty pieces, er I mean points, of their revenue to do it.
But thirty points is too much for what they would get — which is basically distribution — and on top of all that, the publishers would forfeit their relationship with their customers. The primary relationship henceforth would be between Apple and the reader which is like saying my relationship with my paper is primarily with the guy who throws it in the general direction of my neighbor’s garage seven days a week.
Publishers have an alternative. They already have circulation departments that manage subscriber lists, truck routes, stores and home delivery. Newspapers already have websites too. Surely a circulation department is the right place from which to handle digital distribution and billing for a fraction of the re-intermediator’s fee.
Publishers — especially the newspapers — generally have waited too long to adjust their business models to the digital age. They have watched in silence as nimble webmeisters stole their classified and display ads and they’ve glumly tried to play the bloggers’ game even as they cheapened the art of professional news reporting. But now is not the time for the ultimate surrender to a business model that will likely complete a process of making vassals of the once proud and independent fifth estate.
There are better solutions out there than Apple’s rather arrogant demand of thirty points and publishers owe it to their readers and shareholders to investigate them.