Don’t Be Disintermediated

Don’t Be Disintermediated

Disintermediation Defined

Disintermediation is when one party inserts itself between an interested party and its customers (see below table of “disintermediators” and “disintermediatees”).  Ironically, parties that suffer disintermediation often invite it upon themselves.

Google Disintermediates Yelp and OpenTable

For the past several years Yelp restaurant reviews appeared on Google business listings (this appears to have changed within the past several weeks). OpenTable and Facebook restaurant reviews also appear next to Google reviews.

Exposure is always a positive – isn’t it? Yelp (and more recently OpenTable), believe it to be in their interest to allow Google to crawl and display Yelp and OpenTable reviews in Google search results (see example of Posto, Somerville, MA below). After all, isn’t it a good thing to have the exposure associated with appearing in Google search results?

Not necessarily. If your reviews appear in Google search results prospective customers no longer need to visit your Website to read reviews. Less Website traffic from legitimate users (i.e., not bots) is never a good thing. Further, if fewer people visit Yelp and OpenTable, it stands to reason that fewer people will publish reviews to either platform. Fewer visitors means less reviews, effectively creating a vicious circle.












Netflix Disintermediates Content Producers

Netflix – like Apple and Amazon – is a content aggregator (although all three companies have moved into the original content production game to augment their third party-produced content). Time Warner (now AT&T), was smart years ago to withhold its golden egg content – HBO – from Netflix. Instead, Time Warner made HBO content available via the proprietary OTT service “HBO NOW” for $14.99 per month.

{As an aside, why subscribe to a traditional cable TV package (ex-broadband fee) for $80-90 per month when one can subscribe to YouTube TV for $40 per month (40 channels including ESPN, FOX, etc.) and add-on HBO after the fact for a total monthly “TV” bill of $55? Add Netflix and you’re at $66 per month.}

Other content producers/movie studios weren’t so smart and were happy to fork over their content exclusively to Netflix in exchange for short-term dollars and long-term value dilution. Those content producers willingly acquiesced their customer relationships to Netflix as they previously did to Blockbuster years ago. The consequences in today’s OTT world are far greater than the analog world of yesterday. Frankly, the studios didn’t have it in their DNA to build an OTT platform at scale. It’s not surprising that disruption came from outside the industry (it usually does) in the form of Netflix.

If you are a content producer – especially a large one with deep pockets – why agree to a revenue share with Netflix rather than publish your content exclusively to a proprietary platform?  Even a shared ownership model like Hulu is preferable to getting in bed with Netflix.

We expect Disney to eventually pull its Disney/Marvel/Star Wars content (and Fox content if the Disney-Fox deal closes) from Netflix sometime after Disney launches its OTT service in 2019.

Drizly Disintermediates Independent Wine & Spirits Retailers

Drizly is an aggregator in the beverage space (wine & spirits) and operates a model similar to Amazon complete with a full e-commerce experience including customer reviews. Independent wine retailers use Drizly as a sales channel to augment in-store sales.

Upside: The upside for wine retailers (particularly small retail shops) is that Drizly can help extend the retailer’s reach and therefore accelerate unit sales.

Downside outweighs upside: The downside for wine retailers is that the long-term value accrues to Drizly, (and to a lesser degree the wine producers), not the independent retail shop.

  • Drizly customers identify with Drizly, not with the independent wine retailer. This presents problems for the independent retailer. First, the addressable market of in-store customers shrinks as certain in-store customers and prospects will invariably gravitate to Drizly, weakening the independent retailer’s customer relationships. Less in-store traffic means fewer revenue dollars associated with ancillary sales (cheese, cured meats, olive oils, etc. for the typical wine retailer). It also means less opportunity for customer interaction which translates to fewer opportunities to strengthen the store brand.
  • Drizly commoditizes retail store brands. Drizly does not provide independent wine retailers with an e-commerce store front on its platform or any opportunity for branding (Amazon allows certain third-party sellers to have a “store front”, although from our perspective it is a dilutive experience to third-party sellers). Drizly’s focus is on the product and product pricing.
  • Drizly users/reviewers become the voice for a particular vintage as opposed to the wine shop owner. A shrinking voice is never a good thing for a retailer.
  • Eroding pricing power. Pricing power that a wine retailer enjoys in-store may erode should that retailer be a premium pricer on Drizly. Our assumption is that Drizly customers gravitate toward low-cost suppliers given the choice between “like” for “like” bottles of wine. Thus, in an electronic, commoditized environment where price sensitivity rules the day, in-store value-added goods and services are rendered valueless.

What Should Independent Retailers & Content Producers Do?

Independent retailers and content producers should focus on the core elements that differentiate their respective businesses – the core competencies that make them unique. Invest in your core intellectual property. You don’t have to be a Technology company to invest in IP.

For example, if you are a “brick-and-mortar” retailer:

  • Invest in local advertising (radio is cost-effective) that touts your unique positioning. Advertising low prices isn’t a sustainable source of differentiation unless you have Walmart’s or Amazon’s scale. Advertising that you have the broadest selection of old world wines and the most knowledgable staff is a sustainable source of competitive differentiation.
  • Leverage social media tools to market your business. In a video-first world tools like Instagram IGTV and Facebook live are effective.
  • Invest in search engine optimization (“SEO”) and online marketing campaigns to drive traffic to your Website (even if you do not have e-commerce capability).
  • Design your Website to make it easy for customers to explore your goods and services and to engage via mailing lists, social media and any loyalty programs you may have.
  • For physical locations we are big fans of 360 degree virtual tours which are part of Google’s Street View platform. Retailers may hire local professionals to shoot their store location specifically for Google Street View (link to Google Street View for Hire program).

As always, you may reach me at