Back in 1995, Bill Gates wrote a book called "The Road Ahead." In that book he forecast that the net would give us "friction-free" commerce.
The idea of friction-free commerce was that the net would let us use search technology to eliminate the middleman and get the best price. People would use shopping bot programs to go out and find the best price on the things they wanted to buy. Then they'd buy direct. Middlemen, especially brokers, would simply vanish.
That turns out to be mostly wrong. Let's look at online shopping first.
There are shopping bot programs. And you can use them to search the web for the best prices. But most folks don't use them.
As it happens, we shop online pretty much the way we do in the physical world. In both places, there are a few of us who are pure price shoppers but most of us aren't.
One of my high school buddies qualifies as a pure price shopper. His first name is Wally, like mine. In high school we called him Wally 3 because he was the Wally in our class with last name that was third in alphabetical order.
Wally 3 drinks generic beer. That's the kind that comes in bright yellow cans with big black letters. Generic beer is the cheapest beer that Wally 3can find. Taste doesn't matter nearly as much to him as price does.
Wally 3 will search for hours to save ten bucks on an airfare. When he travels, he stays at the cheapest budget motel and uses a coupon to get the rate down even lower.
Wally 3 is the prototype and exemplar of the pure price shopper. But he's not the norm. Only about ten percent of us shop that way. Shopping bots and friction-free commerce were designed for him, but most of the rest of us don't find them all that helpful.
Most of us make our decisions about where and what to buy based on a combination of price, convenience and relationship. The convenience factor comes first, followed by the relationship. Price is something of a hygiene factor. It doesn't factor into the equation as long as it's fair.
In a May survey of shoppers, undertaken by Andersen Consulting, the top reasons giving for choosing online shopping were convenience (75%) and it's twin time saving (63%). Cognitiative got even higher numbers when it surveyed folks about why they'd done some of their holiday shopping online. In that survey 83% chose "convenience" and 81% chose "time saving."
So Bill Gates, and lots of the rest of us, were wrong about the price shopping part of e-commerce. What about getting rid of those pesky middlemen?
Middlemen were supposed to go away in the marvelous Digital Age. The magic word was "disintermediation." That meant that the net would enable buyers and sellers to handle the details of finding each other and negotiating prices without any help, thank you.
That was very bad news for folks who were wholesalers, distributors, and brokers. They've come out slightly different in the digital world, so let's look at the wholesalers and distributors first and then review the situation for brokers.
Wholesalers and distributors were supposed to be superfluous in the Digital Age. If we were going to buy everything direct from the manufacturer, there wouldn't be much need for those folks in the middle of the value chain. That turned out to be spectacularly wrong.
Once again, human nature took a hand. It turns out that not everyone wants to have FedEx delivering everything they've bought. In a survey of contractors that I did a couple of years back, for example, I found that fully a third of contactors wanted to pick up HVAC parts and supplies at their wholesaler's counter, rather than have them shipped.
That's been true on the business-to-consumer side of the house, too. Penney's has been very successful letting customers on the web pick up purchases at a local store. Not everyone wants to do that, but lots of people do. It's turning out that those physical stores and not flat-roofed pterodactyls lining up for extinction benefits. Instead those stores are real, competitive assets.
OK, OK. It makes sense that the physical location of wholesalers, coupled with their knowledge of the local markets would make them valuable, but surely classic "broker" would fall victim to the net. After all, folks like travel agents, stock brokers, and anyone else who brings buyers and sellers together were performing functions that folks could do for themselves on the net.
Things did look a bit bleak for brokers, and with good reason. Before the net, if you were a broker, you made your money simply because you had access to information that other folks didn't have. With the connectivity and information transparency of the net, the database and Rolodex wouldn't be enough anymore.
That has caused lots of brokers to disappear. But some are doing better than ever. What's the difference?
The brokers that are disappearing are the ones whose only advantages were their databases and rolodexes. But great brokers have always provided a much more valuable service than just information. They're provided knowledge and insight as well.
No database or website will ever match the detailed knowledge of business cycles that a good stock broker has. Access to a Multiple Listing Service won't provide the insight into neighborhood patterns and changes that a good Realtor offers.
Think about travel agents. The good ones are thriving in part because we want help sifting through all the travel information and offers we can find online.
A good travel agent doesn't just have access to databases about airfares and tour packages and hotel rates. They also know the territory. A good travel agent knows about those destinations and accommodations. A good travel agent knows which airports you can make tight connections in.
As we move into the Digital Age, we're finding that human behavior and motivation stay pretty much what they've always been. And we're finding that good "middlemen," the kind who give great advice are more valuable than ever.
This feature appeared on 9 October 2000
