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Thursday
Feb112010

The Middle Man can be Good and Sometimes Essential

On this blog we often discuss new models that find creative ways to cut out the middle man and bring greater transparency to the customer. The benefits of disintermediation (coming about increasingly from the internet business models) are straightforward: lower prices for the customer, greater profits for the producer, and more transparency.

But are there negatives to disintermediation? And are there times when the middle man adds significant value? 

Middle men are a part of our supply chain because they have a variety of important functions from facilitating better customer service (such as retailers—who wouldn’t like to talk directly to a person as opposed to searching on a website for the answer to your question) to creating an actual market (such as the role of brokers who help buyers and sellers trade at the same price.) 

While in some cases eliminating the middle man can create an innovative and valuable business model, in other cases adding a middle man can also be the innovative solution.  This is generally the case in underdeveloped markets or in places where a market is completely non-existent, where the middle man is essential for connecting suppliers and customers. Take for example MicroEnergy Credits (MEC), which is an organization that connects microfinance clients with both green technology that reduces carbon emissions and with the actual carbon markets so that they can gather the revenue of their carbon offsets.  By standardizing and integrating the numerous small projects, MEC’s intermediation helps to connect the world’s poor to the carbon trading market—something otherwise nearly impossible.   

On the other hand, disintermediation seems to work well when it involves tapping the creativity and diversity of the masses. Controversial design contests in which the masses submit various designs to one customer are a great way to increase the number of different design ideas and options for visualizing a brand or concept, and they are able to do this by removing a big middle man (a marketing agency) and putting the client directly in touch with hundreds if not thousands of smaller-scale suppliers (the individual designers.) Etsy and is another example of disintermediation meets the masses to create a successful model.  

With this post we would like to ponder the many roles of the middle man and ask the question, of when is intermediation the solution to a problem and when is disintermediation an evolution to a superior business model? 

Flickr Creative Commons Credit: AndyRob

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