The Digital Transformation Playbook: Rethink Your Business for the Digital Age

Disintermediation and Intermediation
One of the biggest impacts of digital technologies has been on the relation-
ships of businesses to the partners in their supply chain—the companies 
that supply critical inputs for the primary businesses’ own products or that 

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create additional value and distribute or sell those products to their even-
tual consumers.
This disruption and reconfiguration of business relationships is mostly 
talked about in terms of disintermediation—the removal of an intermediary 
or middleman from a series of business transactions. The Internet is widely 
known to have been a powerful force for disintermediation, as it has made 
it much easier for goods and services of all kinds to reach any audience that 
wants them.
Newspapers were disintermediated by classified websites like Craig-
slist or Monster.com. Individual advertisers were able to skip the middle-
man (an expensive print ad in the local newspaper) and reach the desired 
audience directly by posting a cheap or free ad on one of these popular 
websites. Retail bookstore chains like Barnes & Noble and Borders Books 
were disintermediated by the arrival of Amazon.com, which for the first 
time offered publishers another path by which to sell books to consumers 
(Borders eventually filed for bankruptcy). In these cases, a new, digital-first 
challenger arrived to act as intermediary, letting the supplier sidestep its 
traditional channel for reaching customers.
In other cases, companies trying to reach their ultimate consumers 
may build their own digital channel to sidestep, or disintermediate, their 
traditional partners. The insurance industry in many countries was built 
on an agency model, in which insurers sold their policies to individuals 
through independent agents. This reduced the employee overhead for 
the insurance companies but put a barrier between them and the users of 
their products, which inevitably reduces how much they know about those 
consumers and how effectively they can market to them. Insurance com-
panies are extremely beholden to the intermediary, their agents, and this 
dependency hampers them in many markets when responding to consum-
ers’ increasing desire for self-service and online shopping and purchasing 
options. Newer insurance companies, such as Geico (owned by Berkshire 
Hathaway), have entered the market that are selling directly to consum-
ers online. Allstate Insurance has maintained its insurance agents while at 
the same time acquiring Esurance, which sells directly to consumers like 
Geico does. Allstate is, in essence, maintaining and disintermediating its 
sales partners at the same time.
Digital platforms are also fueling a reverse phenomenon, which is 
best described as intermediation. In these cases, a new business manages 
to insert itself as an intermediary between the customers and a company 
that used to sell directly to them. Intermediation happens when a platform 

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builds such a large customer base and becomes such a valuable interface to 
customers that other businesses cannot afford to skip the opportunity to 
reach customers through that platform. The benefit to the new intermedi-
ary is that it inevitably extracts a toll or platform benefit, often capturing a 
great deal of value.
Facebook, for example, has managed to insert itself as an intermedi-
ary between news readers and news publications that previously reached 
them directly, whether through printed editions or their own websites 
and apps. With social media driving over 30 percent of all traffic to pub-
lisher websites and Facebook delivering 75 percent of that social traf-
fic, no publisher, from BuzzFeed to The New York Times Company, can 
afford to skip using Facebook as a means to promote its content.
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That 
gives increasing leverage to Facebook, which is able to greatly influence 
the prominence and visibility of publishers’ articles in the News Feed of 
its users. (In fact, Facebook became such a huge driver of publisher traf-
fic only after reconfiguring its algorithm in December 2013 to give more 
priority to news stories.) As Facebook’s leverage over publishers grows, it 
is expected to extract a share of the advertising revenue from the readers 
it delivers to news publishers.
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The same phenomenon of intermediation can be seen with other 
increasingly powerful platforms. Apple Pay, the mobile payment system for 
iPhones, iPads, and Apple Watches, was able to enlist Visa and Master-
Card as partners for its launch, despite the fact that Apple Pay is inserting 
itself as an intermediary between these credit card companies and their 
own cardholder customers. Apple’s huge and affluent customer base and its 
track record in designing digital interfaces that customers use make it too 
powerful to ignore in the growing mobile payments sector. When a consor-
tium of 200 German publishers complained that Google was stealing value 
from them by including their articles in its search results, Google decided 
to simply exclude them from its searches. When they experienced a loss of 
traffic that they said could cause member publishers to go bankrupt, the 
consortium reversed course and asked Google to put their articles back in 
its search results.
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Tool: The Competitive Value Train
As the locus of competition expands from rivalries among similar firms 
to include asymmetric competitors and a firm’s own suppliers and 

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intermediaries, managers need new ways of visualizing their competitive 
landscape. The Competitive Value Train is a tool I designed to analyze com-
petition and leverage between a firm and its business partners, direct rivals, 
and asymmetric competitors.
Let’s avoid any confusion with two related terms. Porter’s value chain 
is a popular tool for examining the various processes that add value to a 
product or service within a company’s own operations (e.g., how the R&D, 
manufacturing, marketing, and sales departments each add value). The