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Chapter 3. Internet Business Strategy > Disintermediation and Reintermediation

Disintermediation and Reintermediation

In the early days of Internet commerce, many people predicted that the Internet would disintermediate the middlemen in the complete value chain of bringing physical and digital goods and services to customers. By this, they meant that customers could go directly to the sources of value, such as manufacturers or publishers (or even authors). In fact, such disintermediation has not been common, for several reasons. First, when the revenue volume of Internet commerce is small, it makes little sense to risk alienating a distribution channel that provides much more revenue. Second, the required business focus and operational capabilities are different at different points in the ultimate value chain, and many producers are simply not very good at direct interaction with the customer. Indeed, some so-called middlemen distributors have grown stronger as they have taken advantage of the Internet and other information technologies to provide better service to their direct customers.

Instead, what we have seen is the beginning of a wave of reintermediation, in which the old distribution chains to the end customer are disrupted and reconstructed to make more effective use of information technology, including the Internet. In this reconstruction, middlemen who provide little value beyond moving and storing physical goods are probably at greatest risk of being cut out. Indeed, one can argue that a good measure of importance in the distribution chain is the information value added at each point.


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