Piggy in the Middle

“The same technological changes that have allowed disintermediation of the traditional supply chain have created an industry of intermediation on the demand side.”

In economics, disintermediation is the removal of intermediaries in a supply chain, more popularly known as “cutting out the middleman”. The world is currently coming to terms with the diminution of power of the traditional supply side intermediary. The internet allows us to circumvent them and buy direct from suppliers, or other, newer, intermediaries. From Clinton Cards to Tesco traditional retailers now have to contend with new intermediaries like Amazon, or none at all as we increasingly go direct to suppliers, or intermediaries higher up the value chain.

For the younger generation I should perhaps explain that once we used to go to the high street to buy what we wanted from department stores and supermarkets, which have now mostly migrated out of town, or from a shop on the corner of the street.  To a large extent our choice was limited by what they decided to stock. They were gatekeepers to the supply chain and like a big kid playing piggy in the middle in the school playground it was hard to bypass them. We are no longer limited to the choice on offer in our local shops, we can now buy a much wider range of products and services online and we are doing it more and more.

As intermediaries are changing on the supply side new forms of intermediary have developed on the demand side to help us to choose from the many alternatives now so easily available to us.  With such wide choice comes the relatively new form of intermediation, from price comparison sites and the like, to help us to make the right buying choice. I think of them as a new form corner shop, open all hours, but with much more choice: the corner of your living room rather then the corner of your street.

We now live in a world where bright young middlemen are trying to jump in front of every purchasing decision we try to make and several of the most popular brands have done rather well. We are quite happy to pay higher prices so that they can be rewarded for providing their clients with leads. It clearly has utility for us too.

In a sector dominated by such success it may come as something of a surprise then that Experian, the credit ratings and data company that operates in 41 countries, has just sold PriceGrabber and LowerMyBills for just a quarter of what they paid for these price comparison sites in 2005. Although they expect to get about $120m of tax relief on this transaction over the next two years there will still be a net loss of about $300m on this foray into the consumer market.

I have never heard of either of these brands, which may say more about me than them, but it may also point to the maturity of this form of intermediation too. While in the UK we seem to have bought into the idea of using price comparison sites for financial services, of one sort or another, we can still wander into stores and get free advice about what electrical goods to buy before we go and buy them online. This may not be the same in the future when these sites may come more into their own. More likely though, the owners of these brands have not had the confidence, or the focus, to promote them adequately in order to establish a big enough market share.

Clearly Experian have better things to do than wait and see and they have decided to cut their loses. Arguably, this isn’t the business they are in so no wonder they didn’t push it. It looks to me like a smart call to move them on. It will be interesting to see if Ybrant Digital, a digital marketing company based in Hyderabad, that has bought both sites, has made a wise move. Will they become more successful and valuable with a little more focus and possibly as the rebalancing away from bricks provides more value to their target audiences?

Mark

 

 

 

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