The Good Side Of Disintermediation

You know you’ve found a good topic for a column when half the comments are in support of whichever side of the topic you’ve lined up on, and half are against it. Such was the case last week when I wrote about disintermediation.

This week, I promised to present the positives of disintermediation. I’ll do so at the macro level, because there are market forces at work that will drive massive change at every level. But there were also some very interesting questions raised last week by readers:

  • Is disintermediation killing relationships and our ability to deal with people?
  • Are the benefits of disintermediation tied to social status, driving the haves and the have-nots even further apart?
  • Is more information good for the market, or does it just create more noise for us to wade through?
  • What will the social cost of disintermediation be?
  • What are the global implications of disintermediation?
  • In knowledge-based professional markets where experience and expertise are essential (i.e. health care) what role does disintermediation play?
  • Are we just replacing one type of “middle” with another (for example, online travel agencies for traditional travel agencies)?

Each of these questions is worthy of a column itself, so I’ll file those away for future writing over the next few weeks. But today, let’s focus on the silver lining inside the disintermediation cloud.

I’ve written about Kondratieff waves (also K waves) before. In the world of the macro-economist (who are of mixed opinion about the validity of the theory), these are massive waves of disruption (often driven by technological advances) that first deconstruct the marketplace and then rebuild it based on the new (improved?) paradigm.

The Industrial Revolution was one such wave. What that did was create a new marketplace built on scale. Bigger was better. It introduced mass manufacturing, mass markets and mass advertising. It also created the “middle,” which was an essential part of getting goods to the market. Given the scale of the new markets, it was essential to create a huge support infrastructure. Most of the wealth of the 20th century was built on the back of this particular K wave.

One of the characteristics of a K wave is that the positive benefits outweigh the negatives. After the period of destruction as the old market is torn apart, the new market scales to new heights. Technology fuels increased capabilities and opportunities. The world lurches ahead to a new possibility. We were better off (arguably) by most metrics after the Industrial Revolution than before it. We were more productive, had a higher standard of living and could do things we couldn’t do before.

Today, we’re in the middle of another K Wave disruption, and I believe this one is going to dwarf the impact of the Industrial Revolution. Of course, K waves by their nature are long-term phenomena whose impacts take decades to roll their way through society.

This particular K Wave is reversing many of the market dynamics established by the previous “Bigger is Better” one. We’ve begun to deconstruct the gargantuan support system required to service mass markets. Inevitably, there will be pain, and last week’s commentators zeroed in on many of those pain points. But there will also be growth. And the bigger the wave, the bigger the growth. In this case, the same factors I talked about last week – democratization of information, better user experiences, solving the distance problem – are all being driven by technology. As this wave continues, the market will become more efficient. Information asymmetry will be lessened (if not eliminated) and the superstructure of the “middle” will become unnecessary.

A more efficient marketplace means new opportunities. More businesses will start and grow. Previously unimagined sectors of a new economy will emerge. This new economy will be global in scope, but hyperlocal in nature. Pure ingenuity will have a chance to flourish, freed from the constraints of the need for scalability. Once we get through the stumbles inevitable in the transition period, the economy will ramp up for another bull run. But we have to get there first.

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1 comment about "The Good Side Of Disintermediation".
  1. Paula Lynn from Who Else Unlimited , October 11, 2012 at 11:44 a.m.
    The industrial revolution put people to work, skilled and non skilled. The "K wave" puts people out of work and those fewer workers must have more advanced skills. The education bridge is a whole topic for another one of your columns. Meanwhile, the less people working, the less to spend on what all the data is pointing.