Illustration by Konani Chinn

Disintermediation is when someone cuts out the middleman. It’s happening more often these days, as technology makes it easier for producers and consumers to transact directly.

Story: Joe’s Used Car Emporium

Ever go to a farmer’s market, or buy something directly from a farm stand? If so, you’ve had a taste of disintermediation, or cutting out the middleman. You’ve cut out the supermarket, and the distributors who sell to the supermarket.

Of course, most people can’t buy food directly from the source. But in many other product categories, they can. The businesses in the middle are collapsing, because they’re no longer needed.

Retail stores, for example, are getting cut out by the Internet (and cheap home delivery). Consumers can research purchases from home, then buy them online rather than driving to the store. Traditional retail stores with their higher costs (rent, clerks etc) simply can’t compete.

Take car dealerships, for example. Until recently, if you wanted a used car, you’d go to Joe’s Used Car Emporium, talk to Joe, see what they had and ask a lot of questions. There’d be a negotiation, and maybe you’d drive away with a car.

Joe has now been disintermediated. You don’t need him anymore for information, for pricing, or for a money-back guarantee. You can get all that online. All you need now is Joe’s parking lot to store the car (that you buy online) and for Joe (or someone) to hand you the keys when you pick it up.

Salespeople of all types are getting disintermediated. People now buy travel, insurance and stocks online, completely cutting out travel agents, insurance agents and stockbrokers.

Even the disintermediators can now get disintermediated. If you find a seller you really like on Etsy, for example, you could start buying directly from them, skipping the extra fees that Etsy imposes.

Is this all good? Not if you’re one of the businesses in the middle getting cut out (or their employees). And not if you value in-person human contact more than online interactions.

But for companies developing technology to cut out the middlemen, disintermediation is a big opportunity.

And for most consumers, they’re getting so used to disintermediation that they probably can’t imagine going back to the way things were before.