Cutting out the Middleman?

It’s seems to have become a sticky meme. A new Technology comes along and everybody talks about how it will cut out the middleman. Sell stuff directly on eBay and cut out the middleman. Contact a potential employee on LinkedIn and cut out the middleman. Sell your house on Zillow and cut out the middleman.

At the same time powersellers are running eBay, Headhunters are thriving on LinkedIn and real estate agents are selling the majority of properties.

To get what’s actually going on, we first need to understand what middlemen actually do.

Marina Krakovsky, the author of The Middleman Economy identifies six roles for the middleman:

The most basic role is the Bridge, the person or company that promotes trade by reducing physical, social, or temporal distance.
An appliance flipper on Craigslist who buys a washer or dryer for $50 or $100 and turns around to sell it on Craigslist a few days later for $250 or $300 creates value for both the buyer and seller, taking the appliance off someone’s hands who wanted to get rid of it right away, and selling it to somebody who needed it a few days later.
The Certifier separates the wheat from the chaff and gives buyers reassuring information about the seller’s underlying quality.
The PowerSeller on eBay or a headhunter who finds hidden talent must excel at quickly sussing out quality and staking their reputation on that: If you present a client with a series of duds, you’ll be seen as a parasite, not a partner.
The Enforcer makes sure buyers and sellers put forth full effort, cooperate, and stay honest.
A wedding planner doesn’t just coordinate the efforts of multiple vendors — she uses her clout as a repeat customer with these vendors to make sure they deliver the highest service.
The Risk Bearer reduces fluctuations and other forms of uncertainty.
ZocDoc, by connecting patients who don’t know when they’ll need an appointment with doctors who have last-minute slots to fill, plays this role well. This is tricky because it means separating external risk (like normal ups and downs in demand) from counterparty risk (doctors who disappoint patients). The danger to ZocDoc is attracting doctors who’ve got slots to fill because they’re terrible doctors, so the Risk Bearer role usually goes hand in hand with being a Certifier and an Enforcer.
The Concierge reduces hassles and helps clients make good decisions in the face of information overload.
Finding information online is quick and easy — but processing all that information to reach a good decision can take forever. You can spend months researching a trip to Japan, for example, and find yourself unable to build an itinerary — or you can hire a travel agent who specializes in this destination and can quickly guide you through the whole process. To a middleman who does this every day, the costs are low compared to your costs of doing it yourself. The key to playing this role well is to keep things simple for your customer.
The Insulator comes into play when two parties already know each other but need a middleman to keep them apart; by strategically inserting themselves between the two sides, Insulators can help clients get what they want without the stigma of being thought too greedy, self-promotional, or confrontational.
Drew Rosenhaus, the NFL super-agent, plays this role well, routinely saying things to team owners that no player will dare say for himself. What’s really interesting is that while the player’s reputation would suffer if he acted that way on his own behalf, the agent’s reputation actually improves when he does things like this for his clients.

It turns out that with all the new platforms on the internet, bridging the physical, temporal and social distance, enforcing effort, cooperation and honesty, bearing the risk of uncertainty, helping with making good decisions in the face of information overload and letting someone speak on behalf of us are tasks we could do ourselves, but sometimes we rather not.

But why?

Again Marina Krakovsky points out:

The Internet lowers the transaction costs.

By doing so in many cases our needs for the middlemen may go away. Yes we can book a flight for ourselves at a lower cost, yes we can rent a room on Airbnb at a lower cost, yes we can sign an insurance contract without a broker at a lower cost.

But the Internet lowers the transaction costs for the middleman too.

So if the middleman adapts to the changing environment and makes the lower transaction cost work to his advantage more than to ours, it may make sense for us to turn to a middleman and that may explain the persistence of the middlemen.

Still one cultural question remains in the core of the audience’s resonation with Arthur Miller’s 1949 play Death of a Salesman:

More than 600 comments were posted in response to the series. We heard from actors and directors, from teachers and students, even from a few people who made their living as Willy did, riding on their own smiles and shoeshines. Most people felt a strong personal connection with the play that was evident in their impassioned, thoughtful commentary.
Some had performed in it in high school, others found in it a reflection of their own family’s dynamics or their own perceptions about the all-too-easy manner in which the fabled American dream can turn into a poisonous mirage inviting self-deception and self-destruction. I was struck, day in and day out, by how eloquent and incisive, and above all how deeply felt, many of the comments were.
Several school classes participated in the discussion, and from their responses it became clear that the sharp economic downturn of recent years gave an unwelcome currency to the petty financial cares that scrape away at Willy’s self-esteem every day. “I used to think a reader had to be at least 40 years old and put through the mill a couple of times to understand the play,” one teacher in California wrote. “Since the latest economic collapse, though, it has been a lot easier to teach. Students are more aware of the brutality of the workplace, poor kids.”

While the role of the Middlemen may still be in tact, some men in the middle may have been cut out.

But since I am not ending this post on a low note, I will give Sparky Sweets, PhD. the last word:

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