Evolution Shift
A Future Look at Today
April 14th, 2006

Disintermediation: a Buzz Word to Bring Back

Disintermediation was one of the buzz words of the late 1990s when Internet 1.0 was filling people with euphoria about how the world would change. Within the context of that time, Internet evangelists were saying that the Internet would largely eliminate the transactional middleman. This clearly came to pass in the travel industry as people researched and booked travel directly on-line, doing a lot of comparison shopping along the way. This, to a large degree, eliminated the travel agent, the middle man in this case, from the equation. When the airlines saw this trend and cancelled the fee they traditionally paid travel agents, the game changed forever. I’ll bet the growth of Starbucks was fueled in part by all the former travel agents becoming baristas.

The other market space that underwent disintermediation was the stock brokerage business. People could buy and sell stock on-line; no phone calls to brokers were needed. The concept, practice and “profession” of day-trading came into being. Transactions became almost immediate. Research was available on-line. Transaction fees plummeted. Who needed some broker talking to them on the phone and charging them commissions that greatly limited trading profit potential? As the coffee business swelled with well traveled baristas, the ranks of ‘independent financial advisors’ swelled with former stock brokers who now used their country club memberships to sell financial planning instead of hot stock tips.

Lately, I haven’t heard this word very much. Other buzz words and phrases seem to have superseded it. I had ranted earlier about 24/7, but there are many others, most of which are grounded in wireless or Internet technology. However, as a futurologist, as someone who looks at the present from the filter of ther future, and looks to find developing patterns, I think that the word disintermediation needs to be reenergized. I see it going on everywhere, but I also see a larger historical context at play here.

First a look at the dictionary as the usage that has developed is slightly different than the formal dictionary definition. Webster’s Unabridged defines as follows:

“Dis-in-ter-me-di-a-tion: the act of removing funds from savings banks and placing them into short-term investments on which the interest rate yields are higher [1965-70]”

That must be a surprise to all those Internet 1.0 former evangelists.

However this is the definition of intermediate, and intermediation:

“In-ter-me-di-ate: being situated, or acting between two points, stages things persons.etc.”

And

“In-ter-me-di-a-tion: the act of intermediating”

So, from now on in this space and probably elsewhere the word disintermediation will mean:

“the undoing of the act of intermediating” or “the removal of the intermediary person or entity”

The Internet, particularly in its current high speed broadband iteration, Internet 2.0 is the single most powerful agent of disintermediation there is at this time on Earth. It is being used to change economic transaction structures, in practically all areas of commerce. It is forcing heretofore firmly entrenched distribution channels to adapt or suffer significant negative consequences. It is the visible disintermediation agent for big economic, political and cultural institutions in the U.S. and around the world. That will be the subject of future postings here.

What I would like to suggest is that we live in a special era of history that is, in a sense, an era of disintermediation and the Internet is the primary invention/tool/agent of this era. There have been other times in humanity’s recent history when, during a relatively short span of 50-60 years the world has been reorganized to such a degree that the world was a fundamentally different place at the end of the era than at the beginning. These eras always have a single dominant agent of disintermediation that not only breaks things up but also greatly accelerates the changes of the era.

In 1455 Johannes Gutenberg invented the moveable type printing press which was the primary agent of disintermediation of the time. Decades earlier Europe was in the Middle Ages, decades later the Renaissance flourished and was soon followed by the Reformation. Prior to Gutenberg’s invention, written knowledge in Europe was largely held by the Catholic Church and the Royalty that ruled the lands. In the century that followed, knowledge, disseminated via printed books, had reached far beyond this most narrow of elites. This brought about a rapid increase in the expansion of education, philosophy and scientific inquiry. Copernicus and Machiavelli wrote – and published – their great works in the early 1500s. There were other forces at play that helped move Europe from the Middle Ages to and through the Renaissance, but it was the moveable type printing press that was the primary agent of disintermediation.

Three hundred years late the invention of the steam engine had a similar effect. While there is some dispute as to whether Thomas Newcomen, who built the first steam engin in 1712, or James Watt who received the first patent for the commercial use of the steam engine in 1769 was the inventor, there is no dispute that this invention was the change agent that began the transformation of the world from the Agricultural Age to the Industrial Age. In the fifty years from 1770 to 1820, Capitalism, Democracy and the Industrial Revolution were born. Clearly there were other forces at play, but it can certainly be argued that the steam engine was the dominant agent of disintermediation.

The point of this short historical discourse is to point out that, in key transformative periods in human history, there is something that provokes, stimulates and facilitates radical change in a relatively short period of time. Thanks in large part to Gutenberg’s invention; the people who were alive in Europe in 1450 would not have recognized the world their grandchildren lived in. The people alive in 1760 would have been mystified at the world their grandchildren lived in. As a baby boomer I can most certainly say that the world my son will live in as an adult would have been extremely difficult for his grandparents to comprehend.

We are now living in one of these occasional transformative periods when the world gets reordered. I sense that it has another twenty years to go. I use the name Threshold Era for the twenty year period 1985-2005. Think back to 1985 and how different the world is now than it was then. There was a Soviet Union, an eastern bloc, there was no global economy, no wide use of cell phones, Internet or wireless devices, and cable television had very limited distribution. Music was on vinyl records or analog cassettes, no CDs, no MP3 files. My flash drive has more storage than the office PC of 1985. The list goes on. When usage of the Internet took off in the late 1990s, and was again accelerated with the rapid expansion of bandwidth during the last four years, the speed of change and of disintermediaiton accelerated. The twenty years between now and 2026 will have a much greater amount of transformative change than the last twenty years, of that I have no doubt. Evolution Shift will always try to see and sense what is fast approaching.

The Internet, related technologies and certain dynamic flows of history will cause or bring disintermediation to some degree to practically every part of our lives in the next two decades. We live in an era of disintermediation. There will be more discussion of this here in the future. So, it is a buzz word I am bringing back because it helps to describe the world in which we live. Use the word and embrace, or at least accept, the reality it describes.

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In times of global uncertainty and disruption it takes a futurist to provide context and understanding.

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