Will Blockchain Propel a New Wave of Disintermediation?

Disintermediation is at the heart of the promise and period of a wide range of potentially-huge new enablers of business and economic life, including blockchain, cryptocurrencies, distributed finance and distributed autonomous organizations. 

Disintermediation is the process of removing  “middle men” or distributors, steps or layers or retailers from a supply chain. 

For that reason, disintermediation has been a key business issue for all retailers and distributors since the internet emerged, reducing the roles or value of distributors of all types and increasing the ability of suppliers to go straight to their customers for fulfillment of sales. 

Disintermediation also has affected the connectivity business. Consider only the role of applications in creating messaging apps that directly displace carrier text messaging and voice services. Email had a similar impact prior to the emergence of messaging. 

Now 5G private networks are being evaluated and deployed to replace some parts of the public mobile network. 

source: WallStreetMojo 

Blockchain is a distributed ledger (database) system where details of transactions are stored across a distributed network of servers with no centralized repository of those transactions. The chain of records are indelible: once created they cannot be changed, which is how the integrity  of the information on transactions is maintained. 

Blockchains store data in blocks that are then linked together in series, which is where the name comes from. For that reason a sort of time stamp is created, as the chains form sequentially. 

As new data comes in, it is recorded in part of a fresh block. Once the block is filled with data, it is chained onto the previous block.\

Decentralized finance (DeFi) is an emerging financial technology based on blockchain that allows parties to conduct transactions directly, without the use of an intermediary bank, broker or institution.

A distributed autonomous organization is an online-only group of people who have entered into a contract with one another to reach a coordinated goal. The contract is enforced by the use of blockchain, so that if any member who violates the terms of the contract, their access to owned tokens is revoked automatically by the blockchain itself. 

The promise for users and peril for incumbents is clear enough. As always, disintermediation flattens hierarchies; removes middlemen from a value chain; reduces costs and enables more-direct transactions between buyers and sellers; creators and users. 

What blockchain, DeFi or DAOs could affect, in the connectivity and computing business, is settlements, transaction clearing, ordering and fulfillment, the way sales are handled, bad debt protection and fraud prevention. 

And that should mean the potential for lower operating costs and higher potential margins, partly because sales effort is automated, partly because cost of sales could drop, partly because bad debt is avoided, partly because cash float is improved. 

Other possibilities seem less likely, in large part because vested government interests are involved. DAOs have been used to raise large pools of money to buy assets, for example. Would any regulator ever allow a perceived national connectivity asset to be purchased by a DAO?

Could “service providers” emerge that use DeFi to allow customers to purchase access to computing or connectivity capabilities without directly engaging a facilities-based provider on a longer-term basis? 

Organizations already buy compute cycles “as a service,” typically with a quota of cycles purchased upfront. Could DeFi allow purchasing on a full on-demand basis, with no “bucket of usage?”

Disintermediation is a powerful process that reshapes industries and creates winners and losers. It virtually always leads to lower prices and efficiencies in supply chains. 

We have already seen a first wave of disintermediation in the connectivity and computing businesses. Will we see additional waves as blockchain-based business processes arrive? Probably. But we will see the first impact in settlements, then in sales. 

The other possible changes will involve broader changes that involve additional stakeholders, so would take longer, if they happen at all.

Disintermediation is the Single Biggest Disruptor of the Connectivity Business, Ever

Disintermediation has been an issue for all retailers and distributors since the internet emerged. Irt also affects the connectivity business. Disintermediation happens when a “middle man” or distributor or retailer is cut out of a supply chain. 

source: WallStreetMojo 

Consider what Facebook has explored about operating as an internet service provider, and what Amazon is doing as a supplier of unified communications. 

Ignore for the moment the fact that app suppliers no longer require a business relationship with an access provider (telco, cable company, satellite or wireless internet access provider or Wi-Fi network) to supply value to end users and customers. 

Look only at the disintermediation of the whole third party internet access provider role. 

Facebook--as do other hyperscale app and computing giants--operates its own wide area networks. But it also has been working on ways to reduce the cost of building access networks, through Telecom Infra Project, for example, which has produced the Terragraph wireless access system, the Bombyx  optical fiber construction robot, 

Facebook also has experimented with internet access from unmanned aerial vehicles and satellite delivery, as well as seeking to overcome the other gaps--cultural, social, linguistic--that have prevented people from using the internet. 

That Facebook has determined that neither UAVs or satellite access makes sense for Facebook as a way of supplying internet access directly to customers or end users is not the point. It was exploring disintermediation. 

Also, consider the new offering of Amazon Connect, which provides contact center capabilities that displace or compete with other contact center services or owned infrastructure. 

Amazon Connect, available from Amazon Web Services,  “offers high-volume outbound communications for calls, texts, and emails,” says AWS. “Amazon Connect now offers organizations a simple, embedded, cost-effective way to contact millions of customers daily for communications like marketing promotions, appointment reminders, and upcoming delivery notifications without having to integrate third-party tools.”

Contact center managers can more easily schedule and launch high-volume outbound communications by simply specifying the communications channel, contact list, and content that will be sent to customers. 

Those are examples of disintermediation at work in the connectivity business. The most challenging example has been the change of telecom architecture from closed models to open internet protocol. 

Connectivity providers no longer have gatekeeper power over applications that flow over their networks. Any lawful application can reach any customer on any public network, anywhere. That separation of app from access is profound.

But connectivity providers also sometimes face other, more direct, forms of disintermediation, as when a third party completely displaces one or more of the values (services and apps) once provided directly by a telco. 

Messaging, voice, unified communications, video entertainment and rival facilities-based networks provide examples. WhatsApp--owned by Facebook--displaces text messaging. Facebook Messenger--owned by Facebook--likewise displaces text messaging. Skype early on displaced international voice calls. 

Cloud-based unified communications providers displace enterprise phone systems. Streaming video services disintermediate linear video subscription services. Google Fiber displaces carrier internet access. Google Fi displaces carrier mobility service. Now Amazon displaces some unified communications services. 

Disintermediation is at Heart of Many Telco Worries

When the global connectivity industry chose TCP/IP (Transmission Control Protocol/Internet Protocol) as its next-generation protocol, it opened Pandora’s Box. The industry does not presently like the business changes IP was wrought, but can hardly deny that it chose the platform willingly. 

The key problem is disintermediation, the removal of distributors and “middle men” from value chains. In a loosely-coupled ecosystem, participants operate in “layers” or disaggregated roles, much as software can run on a compliant platform without a formal business relationship with the platform or operating system. 

Think of the way modern software runs on compliant hardware, operating systems or networks: so long as the agree-upon interfaces are in place, software, hardware and networks can work seamlessly, without formal business relationships. 

Disintermediation is at the heart of the promise and period of a wide range of potentially-huge new enablers of business and economic life, including blockchain, cryptocurrencies, distributed finance and distributed autonomous organizations. 

source: GSMA 

One example of this is the direct supply of services to enterprises that otherwise might have been provided by a connectivity provider. A recent survey by TelecomTV illustrates the concern. Some 44 percent of respondents believe an inability to compete with the major cloud firms in the enterprise services sector is a major issue.

 

source: TelecomTV 

That’s a classic example of disintermediation.

Where Could Blockchain Add Value in Communications or Media?

Will disintermediation be one of the ways blockchain ultimately has value in the “technology, media and telecom” (TMT) industry? Possibly. Disintermediation is the process of removing distributors from any supply chain. Think “over the top” and you get the concept. So anything that promises disintermediation could have big consequences in the TMT space.

In the case of blockchain, that disintermediation could be a positive, not a negative, for content owners or distributors, though. Think about the problem of authenticating users and subscribers; participants in any social media transaction or in any highly-distributed access services environment.

Consider the case of a mobile services provider that amalgamates access to multiple networks, including assets secured from two or more other underlying service providers. Think of Google Fi, which uses Wi-Fi, Sprint and T-Mobile US networks. In some future scenario, perhaps blockchain is used to authenticate users for access to each of the participating networks.

To be sure, there are other ways of doing so. The issue is whether blockchain might be easier or cheaper, eventually, perhaps for cross-border (international roaming) transactions, for example. International settlements always are seen as a value of blockchain, in terms of taking cost out of such transactions.

The idea is that blockchain could have value whenever databases must be kept or transactions completed. Communications and content arguably have lots of places where those two things happen.

Blockchain is a technology of more than average potential usefulness in the “technology, media and telecom” industry (or industries; it is hard to say which is the more-apt description), according to consultants at McKinsey. In fact, in most industries, blockchain might have both low feasibility and relatively-modest impact, the consultants say.

Essentially, blockchain offers the hope of “perfect audit history,” without fraud. That obviously has implications for the financial industry, or any situation where “trust” is essential. And since “money” is always based on trust, that matters.

But trust has become a bigger issue for social media and advertising as well, which is likely why blockchain could have relevance in the TMT space. Though blockchain is not foolproof, it arguably is more hardy than most other ways of using databases, as fraud generally requires a wide level of willingness to commit fraud (something over half of all connected computers are in on the attempt, McKinsey essentially argues).

source: McKinsey

Nor can blockchain check on the integrity of data that is input into the database. “All that the blockchain itself does is ensure the integrity of the individuals making the transaction, ensuring that you have the right combination of a public and private key,” McKinsey analysts note.

source: McKinsey

Disintermediation Does Not Always Help OEMs

“Disintermediation,” the removal of “middle man” or “distribution” stages in a value chain, has been a major outcome of the internet, leading to flatter distribution chains with a new emphasis on “direct to customer” strategies. 

As a rule, that should reduce costs for goods and services suppliers.  Perhaps oddly, that has not been true for parts of the video content industry. You might expect “direct to consumer” video streaming services to provide competition and a substitute product for linear video subscriptions. 

So cable TV and telco linear video subscription businesses arguably are damaged by direct-to-consumer video streaming services, as they are distributors or “middle men” in the value chain.

But it remains unclear whether most direct-to-consumer video streaming services actually benefit so much from the flatter value chains and disintermediation. 

For starters, content owners have traditionally earned affiliate fees from their distribution partners. Disney, for example, has earned about 17 percent of total revenue from affiliate fee payments. Warner Brothers Discovery and Paramount have tended to earn about 21 percent of their total revenues from affiliate fee payments, while NBC (Comcast NBCUniversal has earned about 22 percent.

Revenue Source	Linear Model	Streaming Model	Change in Marketing Cost
Subscription Revenue	High (Bundled with other services)	Variable (Can be higher or lower depending on platform strategy)	Potentially Higher (Need to directly compete for subscribers)
Advertising Revenue	Low (Limited ad inventory)	Variable (Can be a significant source of revenue)	Potentially Higher (Need to build audience and ad platform)
Affiliate Fees	High (Revenue from cable/satellite providers)	Low (Little to no role in streaming model)	Not Applicable

Ironically, cutting out a major part of the distribution chain also has reduced revenue for content owners. 

Nor is it so clear that “direct to consumer” has actually reduced marketing and other distribution costs. Selling direct means building a fulfillment process including retail billing and lots more marketing. 

The point is that disintermediation is "supposed"to reduce costs for supplers of goods and services (original equipment manufacturers). In the case of video content owners, going "direct to consumer" has yet to do so, consistently, if at all.

Disintermediation in the Subsea Business

“Disintermediation” is a term some attendees at the PTC Academy event in Bangkok, Sept. 20 and 21, 2018, heard for the first time. The term simply means that product and service providers go direct to end users and customers, rather than using distributors.

Since communications service providers are distributors, that has key implications. Think “over the top” and you get the point: apps go direct to customers and end users with no direct business relationship between the app/platform and the user.

To an astonishing degree, market demand for wide area communications has shifted away from telcos and to application and platform providers.

The amount of undersea traffic carried by the largest U.S. application and platform providers grew to 339 Tbps between 2013 and 2017. International capacity supplied by internet transport companies grew to 350 Tbps.

“15 years ago, 100 percent of my clients were telcos,”  said Sean Bergin, APTelecom president. “Now 80 percent of my customers are OTTs,”

source: TeleGeography

So platform and app companies Google, Facebook, Microsoft and Amazon do not yet move more bits than service providers do, but arguably will do so in the future. And that “function substitution” has happened in telecommunications before.

Though you are familiar with mobile substitution--the use of mobile networks to displace use of fixed networks--the substitution happening elsewhere is “over the top” substitution for carrier services and value.

In the undersea and wide area network business, that means enterprises of a particular type (tier-one application and platform suppliers) are creating and owning their own transmission networks, and no longer buying capacity from transport providers. And that also means disintermediation of the communications service provider.

source: Google

Put another way, wide area networks now are experiencing product substitution, as did fixed network service providers, where mobile services are preferred to fixed services. As "over the top" apps, platforms and services often displace carrier services and apps, so enterprises (app, platform, device providers) increasingly have found it makes sense to own their own global networks. 

And that means the demand for capacity services from "public" networks (telcos) is diminished. In other words, as bandwidth demand grows, the amount of growth available as "revenue for service providers" diminishes. 

source: Google

That trend can be seen clearly in the growth of transoceanic capacity that is supplied directly and internally by app and platform providers directly, on their own private networks. 

In other words, OTT now covers a much-wider range of business cases, all based on disintermediation, where producers go straight to their customers or users, without relying on distribution partners. 

source: TeleGeography

Agentic AI Will Cause Additional Disintermediation in Value Chains

Agentic artificial intelligence, which as software agents acting on behalf of human users, will threaten some participants in existing value chains, in the same way that internet platforms and apps disrupted commerce and content value chains. 

“Disintermediation” is the removal or reduction of intermediaries in any value chain. Disintermediation allows buyers, producers, and consumers to bypass traditional middlemen such as brokers, consultants, customer service agents or logistics coordinators. 

Consider any procurement operation. 

AI agents can gather and compare data across sources in real time, reducing reliance on human experts or intermediaries for information gathering or product curation. That might threaten some parts of Amazon and other e-commerce platforms, for example. 

As was the case with internet retailing, this is going to create new pressures for “price-based” comparisons and some potential diminution of “brand value.” 

AI agents then will negotiate price, delivery, and quality parameters autonomously, replicating the human “buy this” operation, and also circumventing many of the marketing practices that assume a human is persuadable during the buying process. 

As was the case for internet retailing, agentic AI should create more direct producer–consumer ability to transact directly, without distributors.

Process orchestration also should happen, where the AI unifies and handles procurement, contracting and payment operations that previously might have required multiple apps or systems. In a growing number of cases, this will involve the buyer’s agent negotiating with the seller’s agent, without distributors, advisors, consultants or specialists in between them. 

And where internet commerce featured lots of “personalization,” so agentic AI will replace “trusted advisor” or “expert advice supplier” functions and suppliers of those values. “Personalization” and “AI customization” will be analogous outcomes. 

Industry / Value Chain Stage	Traditional Intermediary Role	How Agentic AI Enables Disintermediation	Agentic AI Scenario
Retail and E-commerce	Online marketplaces (Amazon) aggregate sellers and handle logistics	AI shopping agents directly compare sellers, place orders, and track delivery	Consumers’ personal AI negotiates bulk discounts from multiple retailers and arranges delivery without using a central platform
Financial Services	Brokers, financial advisors, loan officers	AI evaluates options, performs due diligence, and executes trades or loans	A consumer’s AI portfolio manager automatically reallocates investments across platforms using live market data
Real Estate	Real estate agents and mortgage brokers	AI agents handle property search, valuation, negotiation, and contract execution	Buyers use AI that identifies undervalued homes, negotiates price, and manages closing paperwork
Supply Chain & Procurement	Procurement agents, sourcing platforms	AI autonomously sources suppliers, evaluates risk, and executes contracts	A manufacturer’s AI identifies suppliers worldwide and directly contracts best-value inputs without human brokers
Healthcare	Primary care gatekeepers, medical schedulers, or insurers as coordination intermediaries	AI triages symptoms, recommends providers, and books care directly	AI health assistant evaluates symptoms, finds available doctors, and schedules an appointment — skipping insurer’s pre-authorization layers
Entertainment / Media Distribution	Streaming platforms, music labels	AI agents match creators directly with audiences and handle rights/licensing smart contracts	Artists’ AIs distribute content directly to audience AIs, who pay micro-royalties automatically
Travel & Hospitality	Travel agents, comparison websites	AI directly plans and books multi-leg trips, comparing prices and reliability	A traveler’s AI negotiates with airlines and hotels’ AIs to assemble the best route and price
Legal & Professional Services	Lawyers, notaries, consultants	AI creates, reviews, and files contracts autonomously	SMEs use AI to draft and file incorporation paperwork directly with government APIs
Education / Training	Universities, training marketplaces	AI tutors create personalized curricula and credentialing directly	Learners use AI tutors that build custom programs, verify mastery, and issue credentials via blockchain
Advertising & Marketing	Agencies, ad brokers	AI agents buy media and tailor campaigns autonomously	A small business’s AI negotiates ad buys with media outlet AIs in real time, eliminating agency fees

So among the “dangers” or challenges for e-tailers are new value compression issues, with the correlating danger of profit margin compression. 

The danger for e-commerce platforms is a loss of gatekeeper power as more peer-to-peer or agent-to-agent interactions develop. 

Brands might also find they face some diminution of “brand value,” just as price comparison sites will shift buyer evaluations in the direction of “lower price.”