What is internet disintermediation? Between manufacturers and consumers, distributors are intermediaries. The internet threatens to eliminate intermediary roles that provide low-value-added services, with distributors being the first to go. Layer upon layer of middlemen, each adding their markup, mean that the price we pay in physical stores includes not just the cost of goods but also the cumulative margins of many intermediate steps. Disintermediation could greatly reduce channel costs and thus lower retail prices. It sounds perfectly reasonable, but goods have not only production costs but also distribution costs, service costs, brand costs, information costs, and emotional costs. Intermediaries provide capital, bear risks, find buyers, facilitate transactions, and offer services. Merchants are the air, the water, the blood that nourish factories, consumers, and themselves. Intermediaries act as lubricants and reservoirs between manufacturers and end-users, reducing friction and improving transaction efficiency. Among the "scalpers," a natural distribution system has evolved. What do intermediaries actually earn?
First, they earn interest on the capital they advance.
Second, they bear storage, transportation, and price depreciation risks, earning risk compensation.
Third, they provide a bundle of services—display, consultation, sales, warehousing, and delivery—earning service fees. E-commerce brings us abundance and convenience, not necessarily low prices. Just as Didi may solve the problem of getting a ride, not necessarily cheaper rides. While the internet addresses connectivity needs, e-commerce itself is a new form of intermediary. True direct sales incur communication, interaction, logistics, and information costs far higher than a normal distribution model that follows market logic. For instance, Amway's direct sales products are not cheap. Goods bought through B2B matchmaking platforms are not necessarily cheaper than those from an offline matchmaking company. The value of channels and social division of labor Disintermediation means de-specialization, which goes against economic laws. Intermediary channels are a natural result of social division of labor, and their value is severely underestimated. In a complex upstream-downstream environment, the existence of intermediary distribution channels reduces the workload between upstream and downstream to a manageable level. Otherwise, information flow, capital flow, and logistics would face various problems, not to mention the "strong personal relationships" common in B2B. Of course, in a concentrated ecosystem, direct upstream-downstream connections are entirely reasonable, but in such ecosystems, transactional B2B is almost useless. SaaS-based direct enterprise connections and collaboration might play a larger role. Conversely, trying to enter complex transaction channel ecosystems through enterprise collaboration software is extremely difficult. The value of intermediaries has shifted from exploiting information asymmetry to providing logistics, trust, and interactive services. We must truly recognize the value of B2B e-commerce: we are not here to eliminate intermediaries but to improve the efficiency of connections between enterprises and their people. The internet itself does not represent efficiency gains; rather, efficiency gains often leverage internet tools and models. Internet ≠ Efficiency Most people think that with the internet, efficiency improves—look at Taobao, WeChat, JD. Indeed, many B2C internet projects have created immense value by improving the efficiency of connecting people. But B2B is ultimately about business-to-business. From an economic perspective, any large-scale organizational form will experience diminishing marginal returns beyond a certain point. Internet ≠ Efficiency; simply scaling up B2B does not necessarily lead to efficiency gains. Internet efficiency gains have a concept of minimum synergy effect. For example, a city can generate same-city synergy like ride-hailing. The higher the coverage and penetration in a city, the greater the efficiency gains. But the minimum synergy effect for many B2B projects may vary greatly depending on the ecosystem; it might require national coverage to achieve synergy, or a very small organization might already be a natural synergy unit. Many unvalidated models, driven by rapid data growth, assume that scaling up will inevitably lead to increasing marginal returns, reducing costs and achieving profitability. However, scaling does not necessarily bring increasing marginal returns. If the best you get is linear growth, then from the internet's perspective, you haven't gained efficiency-driven value. The direct manifestation is that projects cannot rely on the business model itself to become profitable in the mid-to-late stages—this is the current situation and dilemma for many B2B projects. So we need to find the minimum synergy scale for connecting enterprises and their people, and link these minimum-scale organizations in appropriate ways. There are many tactical approaches. In summary, B2B needs to: Play the role of a bridge B2B relies on strong relationships. How to leverage these relationships, activate existing stock, and not just improve management efficiency to find incremental growth? Under overcapacity, B2B has little incremental growth; only by reconstructing the original ecosystem's connection methods can we develop efficient models to serve the ecosystem. In different ecosystems, the core connecting 'b' can take various forms. The more information asymmetry and the heavier the reliance on personal relationships, the harder it is to transform or improve the original ecosystem. In such ecosystems, the connecting 'b' is best served by people. Using people faces the challenge of scaling. In such models, semi-automated, efficiently organized human-plus-internet-product combinations are suitable. Since early-stage models are often unclear, demanding high usage of internet products from the start is unrealistic. Efficiency is the best criterion for viability. Cleverly integrating existing industry people or organizations to improve efficiency is key. The role of labor costs in operations must be optimized, gradually finding more reasonable and efficient models that let internet products realize their value. If you merely follow traditional industry practices, efficiency gains will be insufficient. For example, a listed B2B company in Zhejiang, let's call it "XXBao," promoted supply chain finance based on transaction credit limits for core enterprises across Jiangsu and Zhejiang. The interest seemed low, using bank funds. The credit was only extended to core enterprises, without verifying whether they actually passed it on to upstream and downstream partners. They acquired customers through massive offline sales teams leveraging traditional relationships, achieving decent business progress. But when calculating profits, they were surprisingly low. Why? Not because of bad debts, but because of high offline personnel costs—sales, business development, and administrative overhead—plus the need for customer acquisition, relationship maintenance, and commercial documentation. Despite having so-called internet products and systems, most companies cannot efficiently manage large-scale organizations. This leads to high labor costs that severely impact profitability. Although B2B is heavy and offline promotion is sometimes necessary, the minimum efficient radius for offline promotion and business models is often overlooked by most B2B companies. Exploring models around core efficiency improvements is the only way to find a business model that fits your industry and has internet value. Profit Models In traditional distribution and trade models: trade margins, channel agency distribution, market speculation, logistics and delivery, advance payments, trade financing, etc., are the most common and intertwined profit models. Different roles in different market ecosystems often have different profit model focuses. E-commerce uses bestsellers to drive traffic and makes money from long-tail categories; offline hypermarkets sell eggs at a discount to attract queues of elderly shoppers, then profit from products along the winding shopping path; McDonald's sells its signature burgers cheaply and often offers coupons, but makes excess profits on fries, drinks, and toys. The business logic is the same. Matchmaking-based B2B e-commerce follows the same traffic-driving model. But it faces three challenges: First, can the matchmaking traffic continue to flow through the funnel of information, logistics, and supply chain finance? I described this funnel logic in a previous article. Widening, deepening, and penetrating the funnel is both a key point and a difficulty. Second, can the bestseller traffic from matchmaking lead to one-stop procurement of other products? Many platforms tout "one-stop" services, but this is constrained by national conditions and hard to achieve. From a supply chain procurement perspective, multiple suppliers, repeated price comparisons, and multiple decision-makers make one-stop procurement difficult. Third, can the relationship-based business model of B2B truly be broken by B2B platforms? We must better leverage the connecting role of people in the ecosystem so that all reconstructed links benefit. Sustained benefits are the only way to maintain B2B relationships. In fact, profit models come in many forms; the key is how different ecosystems play. In the B2B bulk commodities, MRO, agriculture, and FMCG sectors, some companies are trying to enhance the connecting role of 'b', exploring sharing economy models, and using existing ecosystem people for business development and customer relationship maintenance. For example, Dabai's Aokai Bulk Commodities—though I haven't met Dabai in person, I've long admired him. His synergy concept is somewhat vague, but that's understandable; in the business world, the core competitiveness of a business model is not easy to articulate clearly. Using internet products for synergy is difficult and requires a long accumulation process. If Dabai's model succeeds, it's worth learning from for most bulk commodity B2B companies. Salute to the wise. This article is partially excerpted from: Xiaomi and Scalpers—Reflections on Disintermediation by Dong Xie, Zhihu Do You Really Believe E-commerce Is Disintermediating? by iyiou.com Source: Thought Soup ideasoup -END-