#Middleman business how to

Understanding these dynamics helps explain the high degree of concentration among online middlemen.Īnother reason middlemen have thrived is that they have used their economic and political clout to contort the evolution of the markets where they operate. Similar network effects are at play on Amazon’s marketplace and in the multiple listing service (MLS) databases-controlled by traditional real-estate agents-of homes for sale. Those patrons in turn persuade more restaurateurs that they have no choice but to sign up, and the cycle continues. As more restaurants join DoorDash, for example, the growing range of options attracts a lot of hungry customers. Economists attribute the power of these middlemen to the nature of what they do: Once they attract a critical mass of sellers, buyers follow, and vice versa. Today, many people order through one of a handful of apps, even though the high fees that those apps charge eat away at restaurants’ profitability. When I was growing up, when we wanted takeout, we called the local pizza place and its delivery person brought us our food. Yet the number of sellers that use Amazon also continues to grow.ĭoorDash and Uber Eats, which dominate food delivery, show how the internet has contributed to new types of middlemen-disrupting direct connections rather than facilitating 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. 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. More online shoppers start their search on Amazon than on any other website, including Google. Meanwhile, the internet has transformed some classic intermediary industries-most notably retail-in ways that empower a small number of supersize middlemen. 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.

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. All of this information is now readily available online.

#Middleman business how to

Sellers relied on their knowledge of recent sales to know how to price their home. Traditionally, buyers needed real-estate agents to help them identify available houses. Surprisingly, some long-established middlemen whose role seems comparable to travel agents have found ways to persist. 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.

But travel agents’ fate is the exception, not the rule. The number of travel agents dwindled as Americans got used to booking their own flights, hotels, and rental cars online. The internet has swept away some intermediaries.

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?ĭerek Thompson: The booming, ethically dubious business of food delivery The internet, people such as Bill Gates insisted, would be a disruptive force that shifted power into the hands of makers and consumers. 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. Even when we try to buy directly from the manufacturer, internet-empowered middlemen still play a big role. 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. Instead, we might order through Uber Eats or DoorDash, which take a cut of the sale and charge us a delivery fee. When we order takeout from a neighborhood restaurant, we are less and less likely to call the restaurant directly.