Net developments prompt a word to the wise

May 15, 2002

BY MICHAEL KRAUSS

Words are funny things.

Sometimes I remember words, and where I was when I heard them, but can't recall who said them. "Disintermediation" is one of those words.

When I first heard the word "disintermediation," it sounded odd to me. Like the low guttural noise a worn-out car engine would make.

I remember sitting in the audience of an Andersen Consulting (now Accenture) CIO conference listening to a speaker describe the coming Internet phenomenon. It was in 1993 or 1994.

I remember vividly how the speaker described the risks of being a stockbroker, a travel agent or a car salesman in the future networked world. It sounded like everything would soon be disintermediated. The rise of the Internet would connect buyers and sellers in a frictionless way, the speaker warned. If you made your money playing in the middle, find new work. You would soon be toast. The term was new to me so I was somewhat skeptical at first.

Early this spring, when the major airlines joined Delta in eliminating commissions for travel agents, it brought me back to that funny-sounding word. The likes of Travelocity, Expedia, Orbitz and Priceline have made the life of the independent travel agent a lot less comfortable and a lot less profitable.

But, now that we've made the paradigm shift to the networked economy that was envisioned in the early '90s, what are the new words on the horizon of which we should take note?

One word that may have as much impact on the operators of big consumer sites as disintermediation had on their predecessors is . . . bias. Let me explain.

We've created large-scale technology-driven Web sites that sell apparel, books, CDs, airline tickets and hotel reservations. How do we know these marvelous sites are providing us fair access to goods at reasonable prices? How do we know whether there is behind-the-scenes dealing with suppliers that bias our selection and availability of goods and services as well as the price?

About the same time as the airlines withdrew their commissions from the travel agents, the Washington Post reported an example of site bias toward a supplier. The Post explained, "Expedia briefly refused to display United Airlines fares after the carrier said it would stop paying commissions to Expedia on the tickets sold on the site." The story added, "When consumers searched for lowest fares on Expedia, United's flights were displayed but the fares were hidden."

Well, I suppose if I were a shopkeeper, I'd stop displaying the goods of a supplier who wasn't paying me to sell its wares. But it made me wonder.

Most consumers don't think about bias toward any one supplier, they think about getting low prices. If you go to Wal-Mart, and P&G products are low-cost, so much the better. But, what if P&G and Philip Morris, along with a few other companies, owned Wal-Mart and decide to exclude Kimberly-Clark or Clorox products from the shelves? How should we feel then? Should we be concerned about bias?

As watchers of the online travel industry know, American, Continental, Delta, Northwest and United banded together in 2001 to form Orbitz, ostensibly to compete with Travelocity. Now the Justice Department is looking into complaints that Orbitz gets cheaper fares through marketing agreements with its owners that are not available to competitors.

Meanwhile, Travelocity has agreements with American, Continental, Northwest, Delta and British Airways, while Expedia has agreements with Delta, Continental and USAir, according to the Post.

Wasn't the Web supposed to democratize the buying process? I guess not. All this feels a little like oligarchy. That's supposed to be the rule of the best, but it more often becomes the rule of the pushy and the few.

You might say that Internet technology allowed disintermediation. This led to consolidation and the rule of the oligarchs. Now online customers have no real way to determine if the oligarchs are fair or biased. I suppose that's the job of the regulators.

Still, all this led me to remember another old-fashioned word: reputation.

If I were running one of the oligarchic, online travel services and was busy signing complicated marketing agreements with my suppliers, I'd remember that all my investments in information technology could become worthless overnight if customers or the government thought I was biased.

Managers of leading online sites should take note. There can be worse fates than disintermediation.

Michael Krauss is a partner with DiamondCluster International in Chicago. He can be reached at michael.krauss@diamondcluster.com or news@ama.org.