Meet the New Middleman, Same as the Old MiddlemanBreaking News
tags: Internet, technology, history of technology
Kathryn Judge is the Harvey J. Goldschmid Professor of Law at Columbia Law School and the author of Direct: The Rise of the Middleman Economy and the Power of Going to the Source.
When we order takeout from a neighborhood restaurant, we are less and less likely to call the restaurant directly. Instead, we might order through Uber Eats or DoorDash, which take a cut of the sale and charge us a delivery fee. When summer hits and we go online to find new swimsuits and stock up on sunscreen, we might go to Amazon, which now relies, for the majority of its retail sales, on independent vendors that use its e-commerce platform. Even when we try to buy directly from the manufacturer, internet-empowered middlemen still play a big role. The 2000s wave of direct-to-consumer companies, for example, ended up paying massive amounts to Facebook and others for the targeted ads they depended on to reach new customers.
This isn’t what was supposed to happen. The internet, people such as Bill Gates insisted, would be a disruptive force that shifted power into the hands of makers and consumers. In his 1995 book, The Road Ahead, the Microsoft co-founder predicted that the internet would become “the universal middleman,” and that “often the only humans involved in a transaction will be the actual buyer and seller.” In other words, why pay a middleman to help you find what you needed when you could find it yourself?
The internet has swept away some intermediaries. The number of travel agents dwindled as Americans got used to booking their own flights, hotels, and rental cars online. But travel agents’ fate is the exception, not the rule. Far more common are the persistence of middlemen whom technology should have rendered obsolete and the rise of new types of middlemen, draining yet more money and power from creators and their customers.
Surprisingly, some long-established middlemen whose role seems comparable to travel agents have found ways to persist. Traditionally, buyers needed real-estate agents to help them identify available houses. Sellers relied on their knowledge of recent sales to know how to price their home. All of this information is now readily available online. Yet both buyers and sellers continue to use full-service real-estate agents and continue to pay very high fees—an average of about 5 percent of the value of the home sold. Because real estate—not stock—is the primary store of wealth for the typical family, the internet’s failure to render these expensive middlemen obsolete is a genuine loss for the American middle class.
Meanwhile, the internet has transformed some classic intermediary industries—most notably retail—in ways that empower a small number of supersize middlemen. More online shoppers start their search on Amazon than on any other website, including Google. Amazon, which started out as just a virtual version of the classic bookstore, has evolved into a middleman among middlemen; rather than set up their own e-commerce systems, smaller producers and resellers sell on Amazon—but doing so costs them. According to the Institute for Local Self-Reliance, Amazon’s cut of third-party sales increased from 19 percent in 2014 to 34 percent last year. Yet the number of sellers that use Amazon also continues to grow.