Clearly the Internet is a significant driving force behind much of what is being said about the changing role of middlemen and intermediation. However, it would be all too easy to get carried away with "all things Internet", and conclude that there is no space or requirement for intermediaries in the new economy. After all, some would argue, who needs middlemen when information is only a click away?
The reality is that intermediaries can play an important, if not vital, role in a Web-enabled environment. In fact, we are currently witnessing a meteoric rise of a new breed of intermediary, often referred to as infomediaries, whose only role is that of adding value through information.
In the move to online business, some traditional intermediaries have naturally become disintermediated. However, at the same time new roles and positions are created. The principal rule to remember here is simple; if you do not add value, your days are numbered. Intermediaries thrive in complexity, acting as experts that have acquired their competence through repeated dealings with information producers.
Consumer confidence is often lost when businesses move on-line, as it becomes harder to reach out and engage clients. As a result, it can be argued that brand awareness and perceived brand value are incredibly important attributes, which easily justify the substantial sales and marketing costs. For the likes of amazon.com, this is a fundamental principle that underpins its business model.
Extensive advertising and marketing has helped Amazon to become a globally recognised dotcom brand, which is trusted and used by millions. Unfortunately for Amazon et al, the new breed of infomediaries have no respect for brand value or advanced marketing, and are being used to lead savvy customers to the best Internet deals.
There are a number of online retailers that are guilty of following in the footsteps of Amazon, in offering similar lines of discounted goods over the Internet. As a result, the consumer is now faced with a choice when purchasing, say, a book online, and can shop around if desired. Comparing prices across multiple retailers, although valuable, can be a time-consuming process. New intermediaries have seized this opportunity and positioned themselves in between the customer and on-line retailer to provide a comparison shopping service. Shopbots such as Kelkoo.com can compare prices and offerings from multiple retailers based upon a single search request.
The problem for the retailer is that these intermediaries do not recognise brand value, and are simply out to get the best deal for the customer. This puts the retailer in a Catch 22 situation: through driving principles of business, they feel compelled to create brand awareness and value, yet also come to rely on these intermediaries for directing traffic and additional custom their way. This is just one example of the type of intermediary turning established companies into suppliers of commodity items, where the only possible way of maintaining market presence is through price.
The issue of brand value is complex and needs careful consideration as a topic in itself. Clearly however, if price comparison intermediaries become the access point for e-commerce, then it is they that should be most concerned with raising their brand awareness and profile and not the retailers that they utilise.
At a higher level it is possible to see how the role of intermediaries is changing in line with the nature of commerce. As old-fashioned middlemen become exposed due to an inability to add value or competitive advantage to the transaction process, new information-based infomediaries are set to take their place. Their role is based upon the value they can provide to customers, as is indicative of the power transfer away from retailers in the new economy. Intermediaries are instrumental in reducing the length of time it takes for a transaction to be completed, and since information products are time sensitive, expediting this process benefits all parties.
Intermediaries therefore perform a price setting function, regulating between buyers and sellers in a range of markets. They minimise the risks associated with online purchases, through purchase experience and knowledge of the retailers. From a wider perspective, we can see these new intermediaries as just one component in new information industries. It is here where rapid growth will occur for the foreseeable future, leaving traditional companies to fight on price, and play their favourite game of downsizing until they have a viable business. Perhaps, having reached this conclusion, we could envisage a time when the promotion of trust, standards, and safe commerce would become as much the responsibility of reputable and established intermediaries. These key players will become the portals of tomorrow, facilitating e-commerce and safeguarding the interests of consumers.
This was first published in July 2000