The Renaissance of Disintermediation

If you remove the middlemen from the transactional equation, companies can sell products cheaper and faster. Apply this term to the advertising industry, and it means the dissolution of agencies in the role of buyer-by-proxy because clients and publishers can deal with one another directly. While the Internet was supposed to revolutionize the way products are bought and sold, Jim explains why this didn't work in the online advertising business.

Disintermediation was first introduced into the English lexicon in 1967. The definition you will find for it in the dictionary is the following:

“The diversion of savings from accounts with low fixed interest rates to direct investment in high-yielding instruments.”

What the above alludes to is an individual’s direct involvement in the transactions being committed on his or her own behalf. Give it a few years to accrue a little meaning, and it comes to mean “buying direct.”

According to the Webopedia on internet.com, the term means, “removing the middleman.” The term is a popular buzzword used to describe many Internet-based businesses that use the World Wide Web to sell products directly to customers rather than going through traditional retail channels.

Basically, if you remove the middlemen from the transactional equation, companies can sell products cheaper and faster. There was a time when a lot of folks believed that the Internet would revolutionize the way products are bought and sold, and it was disintermediation that was playing the role of Che.

Middlemen in the trading chain as we know it today are the distributors, wholesalers, and retailers. In the world of electronic commerce, many manufacturers can trade directly with the consumer, thus eliminating these “middlemen” from the current trading chain.

Some argue that although this is good for the consumer, it really is impractical if it is implemented on a global scale. It has been posited that in the real world of global trade, we will still need distributors for “just in time” product distribution. Why should we rid ourselves of tried-and-true marketing mechanisms for goods and services by using unknown and potentially unstable trading systems when the current commerce model has taken us so long to develop and fine-tune?

Now take this term, “disintermediation,” and apply it to the advertising industry. What it means in this context is the dissolution of agencies in the role of buyer-by-proxy because clients and publishers can deal with one another directly.

When I said last week that this word was floated around time and again at the Jupiter Conference in New York last month, I placed it in a context that made it seem like the term was something new. What I meant to imply is that it is new only in the way that the pay-for-performance discussion was new. It isn’t that it was born then and there, but resuscitated for another round of examination.

So, after being examined in a setting of publishers, advertisers, and advertising agencies, disintermediation was bounced around like a hot potato in a couple of panels until it fell into the discussion about big brands using the online medium. Both Gina Shaffer, digital marketing manager at Miller Brewing Company, and Jackson Cosey, vice president at eBusiness, eVentures, Coca Cola, made it abundantly clear that their agencies are integral to formulating and executing their online advertising strategies.

Publishers on the web, particularly the big brands, have benefited from the “disintermediation” experiment over these last couple of years. With clients and publishers working directly with one another, enormous deals with millions of dollars that produced little to no results were put together.

Publishers positioned themselves as experts to the clients, and the clients, not knowing a hit from an impression or a GIF from a gaffe, happily backed up their trucks of money to the front doors of a Yahoo or an AOL because these were recognizable brands that would not require making an argument to a board, and they knew about the Internet, didn’t they? So the marketing/brand manager was off the hook for not being knowledgeable.

But now most of these deals are going sour, with renewal rates dropping through the floor. Clients are suddenly realizing that they may need to have experts in the field helping to commit online ad campaigns on their behalf. The trouble was that, in the early days, there were no experts, really. There were a handful of us running around making up things as we went along, but few of us were at the big monster agencies, and no one could say with confidence “I KNOW what to do.”

Over time, of course, that changed, but clients were still confident they could handle the big deals themselves and do their own online advertising. After all, they read in their business classes or in Wired that disintermediation was going to save the day and make everything more efficient. Alas, poor Yorick, it didn’t happen.

Disintermediation, though an interesting idea when applied to all facets of business and to all variety of industries, can’t entirely happen. Why? Because, it has to be someone’s job to facilitate the transaction. Will the guy who builds the car really have time to also market and sell that car? Certainly, some efficiencies are gained because so much more information can be shared with consumers, ameliorating staff time spent to make value propositions and educate consumers, but the guy who builds cars isn’t also the expert at selling them.

It’s the same with agencies. Sure, all advertisers could do it themselves if they wanted to. The Gap has its own internal ad department. But, lo and behold, it’s just like having an agency that is dedicated only to your business. You still need experts and individuals whose time and efforts are spent doing the project of marketing and advertising.

Agencies will always have a role, though it will change a lot over the next few years, in the marketing project, and they will be hired for the same reasons they’ve always been hired. Because when hiring an agency you get an aggregate of experience across a variety of disciplines among an array of experts that can be brought to bear on a single piece of business.

They are not just middlemen, they are specialists in a set of disciplines necessary to the marketing project whose diversity of experience cannot be accrued and then accessed any other way than in the agency environment.

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