Middlemen and Internet - I
It was mark twain who said “Reports of my demise are greatly exaggerated”. I know it has been used way too frequently, but it is apt to use this quote again referring to “Middlemen” and internet.
One of the many promises of Internet is that it allows the manufacturer and consumer to connect directly. A lot of the pundits, experts, visionaries were unanimously hasty in predicting how internet will be the demise of middlemen. Internet is going to bring efficiencies they said. It’s going to eliminate the need for middlemen, create a direct distribution network, and thus reduce prices. Ford would not have dealerships they said - people would just buy the cars off the internet. Certainly, cars might still need dealerships for users test drive, but for other stuff, people won’t need stores, distribution networks, no middlemen.
In reality, internet ended up introducing more middlemen. None of the middlemen offline “went away”. Manufacturers have their stores on line, they still have their distribution networks, and quite a few of the stores have online versions.
Apart from these merchants, Several new kinds of middlemen emerged. In fact, with the advent of Pay-Per-Click (PPC), every webpage is turning into some kind of paid middleman.
(Disclaimer. I work for yahoo! but these opinions are mine and mine alone)
The biggest middlemen on the internet are Google and Yahoo! - Each making around a billion dollars from the PPC revolution. The typical starting points for internet experience are the biggest middlemen. There are others in this category - MSN, AOL, and on a smaller scale LYCOS.
Why are these folks middlemen? Let’s start by searching for a digital camera. Let’s say - for argument’s sake - that you are looking for a canon powershot s50. Try typing it in google and yahoo!. On google the first 2 links are “advertising links” pointing to potential vendors. There is no guarantee that these folks actually sell this product. They bought advertising links for the keyword. So google is getting money to mislead folks and send them out to these vendors. In my case, i got shopcartusa.com and newegg.com. If i click on it - google is getting paid. Thus they are benifit from my activity of looking for a camera. Mind you, i haven’t bought anything yet. The next 4 links are links into froogle - google’s shopping product. Here, we get linked to merchants who actually sell this product. It’s unclear if google gets paid for it. Nonetheless, none of the merchants are “canon”. These are bunch of other middlemen. Should you click on the first link in the “product search results”, you’ll end up with a list of merchants that sell this product according to google. Interestingly, this list is yet again surrounded by links to merchants who want to pay google. Some of these links are real merchants, some are again other shopping sites. For example, pricescan.com came up for me. This is nothing but another company’s version of froogle like product. They - i am sure - make money if i visit their site and click on some merchant links.
On and on goes this saga.
Yahoo! is no different. They have more of the same. Advertising links put in the top result position with enough fineprint to protect them from law.
To be continued…
January 10th, 2005 at 11:01 am
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January 10th, 2005 at 12:44 pm
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