Disintermediation

Definition - What does Disintermediation mean?

Disintermediation is a process that provides a user or end consumer with direct access to a product, service or information that would otherwise require a mediator such as a wholesaler, lawyer or salesperson. The World Wide Web has often eliminated the need for a mediator. End consumers merely have to research the product, service or information for themselves, thus changing the relationship they have with the manufacturer or service provider.

Techopedia explains Disintermediation

Disintermediation cuts out the middleman. By using the Internet, companies and even manufacturers can deal directly with users or end consumers, which is a significant factor in decreasing the cost of servicing customers. The high market transparency often enables the buyers to pay less as they deal directly with the manufacturer, bypassing the wholesaler and the retailer. As another alternative, buyers can also buy directly from wholesalers.

The term originated in 1967 when consumers began seeing government-imposed limits on interest-bearing savings. In response, they started investing directly in government securities and private stocks and bonds, as opposed to leaving investment funds in savings accounts. Later, consumers began borrowing in capital markets rather than from banks. Eventually, the term was applied to cutting out the middleman. However, the term did not gain wide use until the 1990s.

A business-to-consumer company may be a bridge between the buyer and manufacturer. Therefore, the supply chain may change from supplier, manufacturer, wholesaler, retailer, buyer to supplier, manufacturer, buyer.

Disintermediation has significantly affected several industries, including computer hardware and software, book and music stores, travel agencies, and stock brokers. One of the strongest examples is Dell Computers, which markets its products directly to customers, bypassing the normal retail outlets.

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