The Fall and Software Rebirth of Middlemen

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Every region has its evil. In Hollywood, it’s content pirates, and in New York, it’s banking regulators (or Michael Bloomberg if you live outside Manhattan). In Silicon Valley, though, we don’t choose a small profession as our bogeyman: that’s way too pedestrian for us disruption gods. No, we choose all of middlemen as our foe.

In the pantheon of evil conjured up by Silicon Valley, middlemen sit right between stormtroopers boarding a CR90 Corellian corvette and Verizon cable representatives as a scourge that needs to be eliminated as soon as possible. Here is a group of people who ostensibly take commissions, fees, and salaries (‘scrapes’ in modern startup parlance) only to make the process of doing anything less efficient.

Gross. I may just have to call Verizon cable technical support to feel slightly better about my life (disclosure: TechCrunch is now a subsidiary of a subsidiary of a subsidiary of a …).

Of course, middlemen actually once did play a crucial role for consumers. Sure they were expensive and inefficient, but they solved problems for us when we didn’t want to. Their expense was often equal to the expense of using our own time to find solutions. Remember the golden era before online travel agents when a booking specialist would handle all the travel details for us? I don’t either, but it sounds like a great time.

Silicon Valley was mostly successful in its quest to disrupt the middlemen, but now it is bringing them back with a vengeance. New software platforms, using natural language processing and machine learning, are creating all the convenience of middlemen, but with that Valley efficiency (unlike every time you try to take 101 at 5pm). This re-bundling of network consumer services bodes well for a simpler, less hectic life.

The Disrupted

Modern life is complicated. There is so much bureaucracy and so many bullshit jobs, that we end up spending large swaths of our time just trying to manage it all. We have developed whole professions, from lawyers to accountants, to help us get a grip on this complexity without us having to open a textbook on Generally Accepted Accounting Principles.

Middlemen are powerful, because we really, really, don’t want to have to know what it is that they do. We don’t want to have to read the entire IRS tax code just to file our taxes, or learn everything about flight schedules in order to make a purchase. Middlemen provided us the critical help we needed – but at a price.

For many, that price was far too high, affording an opportunity to startups to disrupt these industries. Online travel agents like Kayak and Hipmunk allow us to purchase potentially complex flight itineraries all online with a minimum of hassle. Sure, it is still complicated, but their interfaces help us make decisions, and the cost difference between them and a human travel agent appears to be too high for most customers these days.

This software-based disruption has come to nearly every industry. Travel is just one example, finance is another. Getting loans used to require human involvement, but online loan information sites allowed us to determine who to contact first, no broker required.

TurboTax wiped out many tax middlemen, by using software to handle many of the easiest and even some not-so-easy returns. Law has been transformed by eDiscovery platforms that can comb through millions of documents effortlessly without expensive lawyers reading every word.

When we talk about the disappearing middle class in the United States, these are examples outside of manufacturing of some of the jobs that used to be commonly available. Middlemen required some level of expertise as well as good customer service skills, ensuring that they received a decent wage in the old economy. As software has replaced them, these jobs have simply not returned.

The Rebirth of Middlemen

Middlemen are making a comeback though, but in typical Silicon Valley style the entire idea has been reimagined with software at its core.

Let me give a personal anecdote. This weekend, I was having trouble with my flight schedule with Cathay Pacific. Due to the MERS outbreak in Asia, the airline repeatedly canceled my flight and rebooked it, first from Saturday to Sunday, and then from Sunday to Monday.

How do you handle this? Can I get a refund on my non-refundable ticket? Airlines are allowed to flexibly move your ticket for all sorts of reasons like mechanical problems and inclement weather, but what if it was just because the plane was not full enough to be profitable? I don’t know the answers here, nor do I want to learn the ins-and-outs of airline ticketing regulations.

So I used a one-and-a-half month old startup service called Service that was recommended by a friend at Arena Ventures. I uploaded the email correspondence with Cathay, and a few hours later (overnight in my case due to the time zone difference), Service had managed to get me a full refund. And it was free, at least for now as the company learns more about these transactions.

Maybe this would have been a five minute call with the Cathay reservations desk. Maybe it would have taken several hours up through the chain of command. The point is, I don’t know, nor do I want to have to stress about it or spend hours reading online forums to figure it out.

Hail ye, middlemen!

The entire on-demand economy centered around companies like Uber are really just middlemen companies. That’s what a “network provider” is after all. However, Uber created its own network of drivers, and built a network essentially from scratch. Future companies won’t have to do this.

Instead, the next generation of middlemen companies are going to interact fully with the existing world rather than creating their own. They are going to work like Service or Magic or Alfred, in which they re-bundle services together into one easy-to-use platform, taking the actual thought out of these decisions.

That level of premium customer care was hard and expensive to provide before, but machine learning and better computer/human workflow tools means that startups can actually build the best of the former middlemen, but now offer those services to everyone due to better cost structures. Think Mandarin Oriental concierge service at Super 8 prices.

Over the past few years, we have seen a proliferation of services to solve all of our needs, whether taxis, or laundry, or food preparation, or travel, or delivery, and on and on. Now, it is time for the consolidation wave to crash through, stitching these services together with delightful interfaces to create a blanket of security from the horrors of our everyday complex world. If middlemen are in the pantheon of evil, then their cousin – simplicity – is in the pantheon of good.

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