The Internet Leads to Disintermediation

2011 could be the year of disintermediation. In the 90's, the internet became a place where many entrepreneurs created new etail businesses with high expectations to grow forever at astronomical rates. Many of those expectations were not met and we had the .com crash. Of course, some of those enterprises are still around and thriving today while others have survived but remain a shadow of their original businesses. The first decade of 2000 resulted in the creation of many internet enterprises that enabled ecommerce companies to thrive. The use of analytics, data, search, consumer generated content, social networks, and other technology became a focus to drive the growth of retailer's sites and consumer brands, while dramatically expanding the usage of the internet globally. 2010 brought us the social network explosion and the growth in location based services and couponing.

Where do we go from here? I suspect the old trends will continue but mobile and video will become a bigger focus. In 2008, the United States and much of the rest of the world suffered through a financial crisis not seen since the Great Depression. The psychology of the consumer has been damaged for many years to come. No longer are people frivolously spending money and most consumers are looking for a bargain. This should propel the internet to become the driving force behind the "disintermediation of business". Traditional business has a supply chain that moves from manufacturing floor, to shipper, to wholesaler, to retailer, to consumer. 2011 will lead to the squashing of the supply chain and new fears will develop among the brick and mortar crowd. Entrepreneurs will develop ventures that either eliminate some of the supply chain or they will look to fill a need for lower prices for the consumer. In some cases, lower prices could result in expanding the customer base of a retailer so that overall their revenues rise as excess inventory gets depleted.

We recently have seen a trend of disintermiediation where some interesting businesses are starting to pop up. The combination of couponing and location based services may become a normal offering for every retailer if it wants to remain competitive. On the other hand, we find a company like http://www.jhilburn.com/ recognizing a niche to eliminate the supply chain for expensive men's shirts and using multi-level marketing to drive growth. The result is custom-made clothes at 1/3 the price of the retail store's off the rack designer shirts. It sounds crazy but how can a retailer compete? How about http://www.hbloom.com/? Many individuals order flowers weekly for their homes while businesses like to display flowers in their lobbies or reception areas. For those who buy flowers on a regular basis, this is not a cheap proposition. H Bloom has figured that out and they offer a weekly subscription for flowers. As a large buyer of flowers, they can offer customers this service cheaper than the local florist while guaranteeing fresh peddles conveniently delivered to your door. What is going to happen to the local florist? How about http://www.amazon.com/ and its new bar code App? Go to a store, scan the bar code, and Amazon will show you their price for that item which you can order immediately on-line, IF the price is cheaper. My guess is there is no IF. Amazon is likely using location based services in combination with their price optimization algorithm to guarantee they always have a compelling offer. Lookout retail?

The above three companies represent a new trend to displace or at least steal plenty of business from the good old brick and mortar retailer. We expect to see many more emerging companies that will cater to the thrifty consumer. Nobody wants lower quality goods but if one can use technology or remove the supply chain to lower prices, the move towards the disinetmediation of old line businesses will continue well into this new decade.