Message: 51
Date: 9.1.97
From: <nicholas@media.mit.edu>
To: <lr@wired.com>


The new story of disintermediation is an old bits-and-atoms classic. The complex process of "things" has created a food chain of middlemen and wholesalers who import, export, warehouse, and redistribute physical items. For this reason, when you buy tomatoes for US$1.57 per pound, the grower gets less than 35 cents, while the rest goes to all the people in the middle (in the case of tomatoes, up to seven intermediaries may be involved). If you could buy direct, it would be a no brainer to split the difference with the farmer, which would no doubt please the both of you.

In fact, this is how online retailing started. Boutique winemakers north of San Francisco could not attract the attention of large wholesalers, nor were they satisfied with limited local distribution. Enter the cork dork.

Brothers-in-law Robert Olson and Peter Granoff, who refer to themselves as "propellerhead" and "cork dork," created Virtual Vineyards (www.virtualvin.com/), one of the first Web sites to retail anything, let alone wine. In theory, they run a no-inventory business by arranging to drop-ship wine directly to your home, while collecting a nominal fee for arranging the sale and handling the billing.

But, wait a second. Why do I even need them? Why couldn't each vineyard run its own Web page and just agree on simple terms (full body, tannic, fruity, et cetera) and conditions (blend of grapes, use of oak, price per bottle, et cetera), so that a computer program could do the work of Virtual Vineyards, thereby cutting it out as well?

Well, winegrowers could. And someday they will, albeit none too soon.

Death of a car salesman
The experience of buying an automobile is so unpleasant that experts uniformly agree that car salespeople should be "disintermediated." This is substantiated by the fact that automobile-related Web transactions are expected to reach close to $1 billion this year. Car dealerships are not like supermarkets; you've already made most of your buying decisions when you enter the showroom. It is in effect a factory outlet. For this reason, it's not hard to imagine buying directly from the factory. Automobile manufacturers would embrace this strategy aggressively, if it did not risk annoying the prime retail channel in the short term.

Car salespeople are comforted by this reality, but they also know their days are numbered - especially the young dealers, who won't be dead before it happens. They may be rude, but they're not dumb. They need to adopt a better attitude, become more pleasant, and focus on aftersales. The latter can be as silly as a birthday card or as serious as a warrantied house call. Therein lies the secret: as you are about to be disintermediated, reintermediate yourself by adding a new dimension of value. Typically, this is a service with some flavor of added personalization.

What bits have to learn from atoms
Unlike tomatoes or cars, real estate listings, stock quotations, and airline schedules are bits, easily and inexpensively shipped at the speed of light. Bits need no warehousing, and the cost to make more is effectively zero. For this reason, real estate agents, stockbrokers, and travel agents will disappear much more rapidly than food wholesalers or car dealers. In the case of travel planning, a great deal of hocus-pocus has been introduced - the purpose is to make it almost impossible for you or me to understand the jargon of airline reservations or the price changes, which are posted five times a day!

As computer programs are developed to help normal people make their own reservations, the travel agents will need to learn something from the car salespeople. I may be nostalgic, but I recall that old-fashioned travel agents knew something about travel - many of them had actually traveled and had tried hotels. More important, they got to know their clients and could personalize their recommendations. "Nicholas, since you like the Okura in Tokyo and the Peninsula in Hong Kong, you'll love Raffles in Singapore." And I do.

Eventually, computers will do that, too. But individualized service is certainly one way to keep a step ahead of being disintermediated; that is, to reintermediate.

Reintermediated publishing
The people who really ought to be disintermediated are publishers. Here I draw a distinction between magazines (of course) and books: the former sells context, and the latter sells content. The content side of the equation can and will go direct the fastest.

Since books are physical things distributed largely through thousands of retail outlets that buy one or two copies at a time, you and I would have trouble distributing as well as Knopf. Otherwise, we really can do without them.

But tilt. People will say, "I bought your book because Knopf published it." Knopf was the talent scout, the finishing school, the company whose judgment is trusted. Well, rubbish to that. Think of the last three books you've read. Do you remember the publisher? You know the author and the title, as well as the book's color, shape, and thickness. But you're unlikely to recall which company published it.

Whether you read Grisham or Goethe, you read the author, not the publisher. That's why traditional book publishers will slowly but inevitably disappear. Bookstores will vanish even sooner, as they bring almost no value over a Web site like Amazon.com. So who will remain?

The answer is a new intermediary. One who - or that - tells you which books you are most likely to enjoy. Think of it this way. How many hours have you wasted on a book that was just not worth your time? I feel about reading a book the same way I feel about waiting for a bus. Having already invested time doing so, I feel I might as well amortize that time by spending a bit more, and a bit more, until the bus comes - no matter how late. The digital intermediaries may change that forever. I want them to. So do you.

Next Issue: On Digital Growth and Form

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[Copyright 1997, WIRED Ventures Ltd. All Rights Reserved. Issue 5.09, September 1997.]