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What Is 'Intermediation' and 'Disintermediation'?

• Intermediation involves adding a party between a buyer and seller.
• Disintermediation involves removing a party between a buyer and seller.

Josh Kaufman Explains 'Intermediation' and 'Disintermediation'

Another way of thinking about value creation involves a simple question: how much help would your Probable Purchaser find useful?

Think of a complex buying decision, like purchasing a house. You can’t just walk into a store, examine all of the potential options, pick the house that suits you best, then walk up to a cash register to purchase it with cash or a credit card. Looking at available homes, clarifying needs and preferences, securing financing, negotiating the purchase price, and completing the legal paperwork takes a nontrivial amount of time, knowledge, and expertise.

That’s why residential real estate agents have a market: potential home buyers often don’t know the options (particularly if they’re not familiar with the area), don’t have a lot of experience completing these sorts of Transactions, and feel overwhelmed. Real estate agents assist in the search, purchase decision, and closing process, and home buyers are often happy to work with someone who knows what they’re doing.

The term for this sort of help is Intermediation: adding a party between the buyer and seller responsible for helping one of the parties complete the Transaction or derive value from the purchase.

Intermediation is useful in complex situations where the purchaser benefits from guidance and help from experts. You’ll often find intermediaries in areas where there are a lot of options to choose from—like Retailers who decide which items to stock. They’re also common in complex negotiations and purchases, like business brokerages who help entrepreneurs put a price on their current business operations, then help them find potential acquiring companies willing to pay what their business is worth. In most cases, the intermediary also acts as a Buffer between the parties, which can shield them from unnecessary pressure or uncomfortable situations.

The opposite of Intermediation is Disintermediation: removing unnecessary parties to a Transaction in favor of direct contact between the buyer and seller. Before the internet, most manufacturers had to deal with retailers if they wanted to sell their goods, since mass advertising and distribution opportunities were expensive and limited. The internet allowed manufacturers to attract the Attention of potential customers, complete purchases, and deliver their goods direct to their consumers: no retailer required. As a result, more Product and Service companies can exist in a profitable and sustainable way: the margins that would otherwise be captured by an intermediary can be redirected toward lower prices, targeted advertising, product development, or Profit.

Opportunities exist at both ends of the spectrum: would your potential customers benefit from more help, or less?

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"The shortest and best way to make your fortune is to let people see clearly that it is in their interests to promote yours."

Jean de La Bruyère, seventeenth-century philosopher and satirist

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https://personalmba.com/intermediation-disintermediation/

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