Without realising it, we all interact with middlemen every day and we do so because they actually create value for both sides. This is the premise of a book I read recently by Marina Krakovsky called The Middleman Economy.
She starts off with a famous example of how Bill Gates predicted the demise of the middleman thanks to the rise of the World Wide Web in the 90’s as “the ultimate go-between, the universal middleman.” He predicted that “the only humans involved in a transaction will be the actual buyer and seller.”
Of course, it didn’t happen exactly like that and the internet spawned Google (now Alphabet), one of the most valuable companies in the world, whose sole job is to help make connections between parties. In other words, a true middleman. And with the rise of the sharing economy, we now have Airbnb and Uber which both are, you’ve guessed it, middleman businesses. Instead of disappearing we have seen the rise of a new generation of middleman businesses, enabled through technology.
Trust and connection
According to Krakovsky “the major reason why the internet did not wipe out middlemen, is the need for trust. Because middlemen have more frequent interactions with buyers and sellers than those people would if doing business without a middleman, they have more opportunities to establish trust with both sides”.
Another major advantage becomes evident when you realise that a network (such as the internet) becomes more valuable as more nodes are added and connected to each other. A middleman does just that – they connect nodes on a network to increase the value of the network and if that’s the definition, why would you even think about cutting out the middleman?
Good advice that sounds good
I quite enjoyed this tweet by Michael Jordaan: “Bad advice that sounds good: follow your passion. Good advice that sounds bad: solve a real problem”. I thought of other quotes we often mimic just because they sound good on the face of it and a great example of bad advice that sounds good is: “Cut out the middleman”.
This statement is based on the perception that the middleman is some sort of parasite, doing what you can do for yourself, only adding cost to the value chain. But imagine really cutting out the middleman. Have you ever thought that you are not going to put up with Google’s ads since you can find that website yourself? Would you drive around with your old furniture on top of your car to avoid listing it on Gumtree? Why not go all the way and get rid of your bank or asset manager, who simply act as a middleman for depositors and borrowers, and give your savings to your neighbour who is looking for a mortgage and promised to give you your money back – every cent of it!
These examples sound crazy, right? Because we all realise the value of a trustworthy middleman with connections and know-how, who can help us make important decisions without feeling overwhelmed or confused.
One of the downsides of our connected world is that we are drowning in information and have more choices than ever before. What promised to be a blessing became a curse, since we often don’t have the time or the inclination to separate the wheat from the digital chaff. Herein lies the third reason why an effective middleman is so valuable. It’s someone who can make our lives simpler by reducing our options to fewer, more worthwhile choices (already vetted by the middleman).
As a curator of sorts, the middlemen are therefore probably more important in this information age we live in than ever before. But in order to be successful, they need to understand how a middleman creates value for both sides and how to take advantage of technology to accentuate the roles that ultimately make them useful. At Ctrl, we believe that helping you save time and effort is as important as saving you money. And that’s exactly what we plan to do.
By Pieter Venter
Co-Founder of Ctrl