by Peter B. Nichol

Disintermediation and intermediation beyond theory

Apr 21, 2016
Emerging TechnologyHealthcare IndustryInnovation

Bringing back the middleman for digital innovation. Disintermediation promotes disruption and intermediation fosters innovation.

Disintermediation removes the middleman from business transactions and by doing so improves the value of an existing product or service. Disintermediation is often accomplished by changing the perception of delivery. Inversely, intermediation injects a middleman between distribution channels e.g. a customer and businesses that previously sold directly to consumers. Intermediation gains traction when the platform is so large that companies can’t afford not leverage the platform to reach customers.

Coining the term

Let’s start with the history of the word, disintermediation, to guide our journey to the real meaning. Jonathan B. Welch, in his 1980’s article published in the Financial Analysts Journal, “Explaining Disintermediation at Mutual Savings Banks” describes the disintermediation of the mortgage market and the homebuilding industry during the 1960’s and 1970’s when the amounts withdrawn over a period exceed the amounts deposited. Contributing factors were interest rate differential between savings deposits and Treasury bills. However, the term disintermediation was coined in the mid-1960’s when consumers started to see government-imposed limits on interest-bearing savings.

Consumers responded by quickly investing in government securities, private stocks, and bonds that resulted in removing their prior investments from savings accounts. As a result, consumers began to explore borrowing capital from markets other than banks, circumventing banks as the middleman. Disintermediation is about removing the middleman in the distribution chain.

Unseating the middleman

A classic supply chain involves producers, wholesalers, retailers, and consumers. Disintermediation fractures the role of the middlemen between producers or avoids traditional distribution channels with intermediates such as distributors, brokers, or agents. In the case of disintermediation, one step is removed e.g. a producer goes directly to the retailer, therefore, eliminating the need for the wholesaler. Simplified, business goes directly to the consumer, although it could be the removal of any single point within the supply chain to make the process more straightforward.

The disruption generated by disintermediation can be significant and reshape entire business models as was the case with banking. The travel industry is another industry impacted by disintermediation. Travel agents were disintermediated by online travel websites such as,,,, and These online marketplaces unseated traditional travel agents, and the tourism industry was changed. Likewise, traditional publishing channels like Encyclopedia Britannica and Microsoft’s Encarta were disintermediated by Wikipedia.

Disintermediation can take markets by surprise. Banking wasn’t prepared, and neither was the music industry. The theme of digital disintermediation is harnessed well in the plight of the music industry with CD’s and their struggle to maintain active control over distribution. Consumers briefly loved CD’s until they hated them when during the 1990’s when consumers were forced to buy CDs with songs they didn’t need or want. Ultimately, the music industry failed and eventually, they awoke to realize that Apple controlled their inventory. Newspaper publishers, the music industry, and real-estate each has been on the leeward side of disintermediation with the likes of Craigslist, Apple iTunes, and Trulia. Disintermediators include Uber(freelance drivers and riders, removing cab companies), Airbnb (hosts and renters, removing the hotels), and Apple iTunes (viewers and creators, removing the music store). Business can be a disintermediator or intermediator, and they can even hold characteristics of both.

Disintermediation is bound to happen in healthcare. Where will disintermediation start in healthcare? The drug companies could directly reach consumers bypassing hospitals. Hospitals may opt to cut out private insurers and generate robust provider-sponsored plans offered straight to patients. Physicians may choose to circumvent hospitals and renegotiate compensation providing new care alternatives and structures through telehealth options with direct interaction with patients. Healthcare is on the cusp for disintermediation.


Almost more interesting than disintermediation – removing the middleman – is intermediation that adds the middleman back into the mix. Intermediation occurs when digital platforms inject themselves between the customers and a company.  These platforms are so large that businesses can’t afford not to reach customers through these platforms. Intermediation creates a dependency and disintermediation removes the dependency.

The Digital Disruptive Intermediaries report published through the University of Sydney Business School captures the heart of intermediaries extremely well. Digital disruptive intermediaries are disruptors and can be categorized into eight archetypes: 

1.       Digital stores (online e.g.,

2.       Content hubs (consumer interaction e.g. Apple’s iTunes, Netflix)

3.       Sharing hubs (user-generated content e.g. Pinterest, YouTube)

4.       Promotor focus (best price to consumers e.g., Groupon)

5.       Aggregators (comparisons in fragmented markets e.g.,

6.       Discriminators (customer reviews e.g. reddit, Yelp)

7.       Crowd sourcers (customer sourced services e.g. Kickstarter, IndieGoGo)

8.       Matchers (linking supply and demand e.g. Airbnb, Uber, or e-Harmony).

Who’s an intermediary? The real definition is less glamorous; every business is an intermediator. Many intermediaries have become icons within their industries due to their disruptive impact, brand recognition amplified by the media, or word of mouth. Intermediaries include Facebook (between users and advertisers), Twitter (between companies and consumers), Apple Pay (between credit card companies and cardholders), and Apple HealthKit (between payers and members or between providers and their patients).

The digital innovators of tomorrow will forego the disruption that disintermediation creates for the innovation that intermediation fosters. Digital platforms are welcoming back the middleman.