Reintermediation – Rethinking Disintermediation

In Philip Evans and Thomas Wurster bestselling book, Blown to Bits (Harvard Business Press 1999), the authors documented how the Internet’s informational flow fundamentally reshaped the relationships between consumers and retailers. (I’ve previously written how this phenomenon affects professional service companies and business market niches.) Described as “disintermediation,” they postulated that the inverse relationship between the richness and reach of content was eliminated by the extremely low transaction costs associated with providing consumers highly rich content through digital media. The Internet eliminated the need for middlemen to provide expertise. The book anticipated and highlighted the erosion of intermediary service providers, and its projections have largely proven correct.

Over the past two years, companies such as Apple, Amazon, Netflix, Google and Second Life have looked beyond the physical distribution of their products to identify opportunities to expand both richness and reach, significantly increasing the relevance of these companies to their customers. In each case, these companies have adopted reintermediation strategies, focused on creating an essential role for the business beyond serving as a source of the product of service. Reintermediation strategy utilizes contracting strategies, consumer data information, and structural business approaches to encourage additional steps in the consumer transaction which build an ongoing relationship between the enterprise and the consumer.

While reintermediation is predominantly a business strategy designed to overcome the pressures of Internet commoditization and digital piracy, the practice will have significant influence on privacy policy, intellectual property law, and contracting practice.

The most recent example of Google’s reintermediation strategy called Lively, a beta 3D virtual environment platform. Although behind Second Life, Google has a history of catching up. Moreover, the platform’s browser-based approach will allow it to insinuate itself into small and large application – putting Google between the consumer and the advertiser in a host of new environments.

Given the ubiquity of Google, consumers tend to think of it as a utility rather an advertising platform. Just like “free” broadcast television, however, Google’s strategy is simple: Be the first choice for consumer interaction and sell that interaction to advertisers. Google’s tools are not free; they are advertiser supported. Under this business model, the extension into virtual worlds represents a natural extension of its reintermediation strategy. And given the strategy, the extension into virtual worlds will grow, expand, and move from a curiosity to an essential tool because Google cannot afford to allow any other advertising company to gain a foothold.