A Future Thinker Looks at Mid-Life Career Change, #04: Disintermediation, Part 2

Last week we discussed one of the most transformative forces in business today. Disintermediation is a force of change that every few centuries blows through society and the workplace with such impact that in a very short time, several decades, the world gets substantially reorganized. Some historical perspective will highlight this very clearly.

Gutenberg invented the movable type printing press in 1455. Fifty years later the world had changed. Prior to Gutenberg, all the written knowledge in the world was contained in manuscripts, which were in the possession of the church and the aristocracy. By 1500 there were millions of books being read in Europe. The later part of the Renaissance and the Reformation and many of the scientific discoveries of the 1500s occurred in large part due to the moveable type printing press.

The steam engine was first commercially available in the 1770s and this single invention helped to convert the western world from the Agricultural to the Industrial Age. Fifty years later, there had been several significant revolutions: railroads were transforming Europe and the U.S., sail-less ships were on the seas, and the centralization and industrialization of major cities was taking place.

The Internet is the current agent of disintermediation, equal to, if not more powerful than both the moveable type printing press and the steam engine. The importance of this cannot be overemphasized to any of you looking at picking a second, or a third career. You do not want to be in the situation of spending time learning a new business, putting a lot of energy into this new enterprise, only to realize several years in that you picked something that historically, dynamically, was in the process of disintermediation.

Last week I gave a very general definition of disintermediation. Now it is time to give you the definition that will offer guidance as you look around for the next career.

1. Disintermediation is the removal of the intermediary person or entity
2. If the intermediary remains in place, it will be drained of any excess compensation
3. Industries that hold information hostage for financial gain will be disintermediated
4. The Internet can be the agent of disintermediation of existing distribution channels
5. To avoid disintermediation, an intermediary must either lower price or add value.

Number one was the general definition from last week. An example of number two is the stock brokerage business. The cost of a stock trade today is a small fraction of what it was 15 years ago. The travel agency business has felt this rule since the Internet became widely used for buying travel services [it is the largest category of financial transaction on the Internet today]. The residential real estate business and the insurance business are examples of industries that are being affected by numbers two - four. A quick look at these two industries will help you see the signs of disintermediation.

Residential real estate has blindly been charging 6% sales commissions, paid by the seller. The historical reason for this is that only real estate brokers had access to listings, since the local listing agencies were closed to non-brokers. Therefore, if you wanted to buy a house in any market, you had to work with a broker to find what properties were available for sale. With the advent of listings going on-line, it is very easy to find a number of properties without ever having to talk to a broker. This points to rule number four. Since it used to be that brokers controlled the information, they are suffering the consequence of number three. Finally, in the past two years, there has been an increasing number of discount real estate brokerages, both on and off line, that will charge you 2-4%, but will make you do a lot of the work. This points to number two.

What this means is that I would not go into the residential real estate brokerage business right now [aside from the collapse in industry head count due to the real estate recession], unless you have a new Internet based model and are willing to work it. Make no mistake -- you can still make a living as a broker, but the industry is going to under go significant structural changes in the next few years.

The insurance business is also facing disintermediation. Think about the ads you now see on television for insurance. If they are for Geico or Progressive, the ads drive you directly to either an 800 number or to a web site. This means that the local agent is experiencing disintermediation. Many insurance companies are dispensing with the agent, or middle man. That is one of the reasons that they can quote competitive rates. This points to numbers two through five above. For companies that have institutionalized the agent structure, such as State Farm, the way to fight back is to promote the value of the personal contact and involvement of the agent, which of course points to the adding of value to maintain position.

In conclusion, if there is any line of work you are thinking about entering, take a look at it structurally and ask yourself if it is a business of being a middle man or an agent. If it is, then reflect on whether the Internet could provide all or part of the services that is currently being provided. If so, then that industry will change and if you enter it, you must always pay attention to how that industry is moving on-line.

An example of an agent business that will probably not be affected by the Internet is the Hollywood talent agent business. This is due to the fact that the entertainment industry is a talent driven industry and talent both wants to be represented and also usually does not want to get tough with possible employers during negotiations.

Disintermediation; always keep it in mind when looking at careers.

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Noted futurist David Houle blogs at Evolution Shift.