differences between reintermediation and countermediation

[Nicholas Ong]

Hi Mr Toh

Im confused between reintermediation and countermediation.
Is there a differences between this 2 ?

Thanks

[William Toh]

This is a very good question, and should be discussed within the context of:

- disintermediation, vs

- reintermediation vs

- countermediation

The short answer to your question is that the difference between "reintermediation" and "countermediation" has to do with the ownership of the new intermediary (or marketplace).  When a company reintermediates, it is simply engaging with new intermediaries, or intermediaries that it has previously disintermediated.  If a company countermediates, it is not just reintermediating, but is also actively investing in the creation of a new intermediary that it owns.

Examples of reintermediation:

- The use of new e-intermediaries such as Adsense/Adwords for online marketing

- The use of new e-markets such as Elemica or Alibaba.com for e-sourcing (buyers' point of view) or marketing and sales (sellers' point of view)

- The use of new e-intermediaries for payment (Paypal) or identity authentication (Verisign).  These new intermediaries are needed for companies to function properly as e-businesses, even as they have disintermediated other traditional intermediaries such as retail stores.

Examples of countermediation:

- Johnson & Johnson and other pharmaceutical companies coming up with their own e-markets to sell hospital supplies to hospital customers.  This is to counter and mitigate the competitive threat of Baxter's e-market ASAP Express.

- Ford, GM and Daimler-Chrysler coming up with Covisint.com (buyer-oriented e-market) to act against suppliers with strong market power.

- Amazon.com coming out with its own Appstore instead of relying on Google's Playstore.

The whole idea about countermediation is about controlling key elements of a supply chain (and gain monopolistic power yourself), or to prevent a competitor from gaining monopolistic positioning in any of the 5 Forces.

A follow on question that is worthy of deeper discussion is:  Is countermediation or reintermediation more important than disintermediation in e-business?

What are your thoughts on that?

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[Nicholas Ong]

I think it would depend on the type of company that is choosing the strategy ?

[William Toh]

In what ways does the type of company affect its strategy of disintermediation or reintermediation?

Remember - disintermediation implies that the value chain is shortened, which would reduce transaction costs.  Whereas reintermediation implies that that the value chain is getting longer, with the introduction of new intermediaries, and hence increases transaction costs.

So why does it make sense to reintermediate or countermediate?  Would that not result in higher transaction costs?

[Ngoc Anh Nguyen]

I think it does make sense to the firm to reintermediate or countermediate .Adding a new intermediary will result in higher transaction costs, however it must  brings more benefits than it costs. If the costs are greater than the benefits, then the company might been wrong at the very first stage when doing their company analysis  . For example, eBay use Paypal as one their main payment method help them to greatly reduce their control cost . People don't like to reveal their credits card details because they fear that it might have been misused or abused. Using Paypal gives buyers more confidence to transact with seller (who are totally strangers). 

For this question:"  Is countermediation or reintermediation more important than disintermediation in e-business?" ---> I think it depends on what will give the firm more values/ or benefits. Some firms might be better off with disintermediation ( Amazon has shorten their supply chain by taking away (disintermediate) the manufacturing, the publisher and physical retail store) . But in case of Ford, GM and Daimler-Chrysler, using countermediation might giving them more benefits than disintermediation. They can disintermediate the wholesaler and distributors in the supply chain, and purchase directly from the manufacturer's websites. But in real life, how many manufacturers own a website that supports e-procurement? Plus some manufacturer might located halfway accross the world--> high transportation cost. But by developing Covisint.com, they not only buy goods at cheaper price (with lots of options  from tendering of many sellers) but also increase their buyers' power and reduce opportunistic behaviours from the sellers. Hence, it varies case by case and the firm will choose which way that benefits them the most and costs them the least. 

[William Toh]

Thank you!  Those are excellent points indeed!  Whether a company intermediates or disintermediates ultimately depends on how much value it gets from the outcome, in terms of reduction of transaction costs, or increase in market power or competitive advantage.  In other words, market process reengineering is centred around the goals of countering Porter's Five Forces.