Media Startups Venture Capital

Disintermediation is Eating the World

Venture capitalist Marc Andreessen coined the term “Software is eating the world” nearly 10 years ago. His argument that software would be at the heart of every business moving forward could not have been more astute. For example, Amazon’s not a retailer; their primary capability is their software technology enabling sellers around the world to get their products to consumers. The same could be said for their AWS cloud business; again a software play. Uber, Google, Facebook, Netflix, and to some extent Apple’s app store business, are all examples of companies that are fundamentally software first. Interestingly, this same software has empowered a foundational shift in business model. It has enabled disintermediation. The complex network of intermediaries that have existed historically have been circumvented which has led to the world of everything being direct-to-consumer (D2C) or direct to source. Many think of D2C as mainly having an impact on consumer goods, but the theme permeates into numerous industries.  Here are some examples:


Airlines historically sold tickets primarily through travel agents. The OTA’s (Priceline, Orbitz, Expedia, etc) then came in and used software to disintermediate the agents. The airlines then decided they should sell direct so they didn’t have to pay $ commissions to the OTA’s. This began with building the functionality to buy flights directly from the carrier. Alongside this, they created massive loyalty programs that could only be accessed by booking on the airline website as well as other perks.  Today, direct bookings account for the majority of ticket revenue with the OTA’s now representing only ~20%.


Similarly to airlines, hotels followed a virtually identical playbook. Circumvent the OTA’s as much as possible and get customers to transact direct. Today, if you try and book a room at a Hilton, for example, on Priceline you don’t get the hotel’s loyalty points along with benefits like free parking or access to the lounges. The large hotel chains have spent billions becoming customer/guest first by using software to build a shoppable experience for bookings as well as on marketing to create a scalable brand behind their flag. 

Media and Content:

The relationship between content providers and pay TV operators has been contentious for years. At stake is a massive risk to the operators’ business model. Historically, content providers such as ESPN, TNT and others collected carriage fee’s from distributors like Comcast, AT&T, Dish and Charter but over the years the content providers became unhappy with how their products were bundled with other networks as well as having little control over retail pricing. As a result, most of the content companies have invested heavily in disintermediating the distributors by creating streaming apps that allow customers to pay for programs ad-hoc vs. as part of a bundle. Disney+ and Peacock (from NBC) are a couple examples of how these offerings are taking shape. Netflix used to be an aggregator of 3rd party content (movies, shows, etc) and realized that if they continue with that business model they would essentially be another Comcast. So they pivoted and focused billions of dollars creating their own content. Compare this model with Spotify.  While Spotify is an extremely popular music service, it’s not the darling of Wall Street like Netflix for one simple reason. Spotify is beholden to the music labels and the royalties they want to charge. When you don’t own the content you have less control and ultimately decreased defensibility. 

On a more macro level, barriers between individual content creators and consumers are dissolving. If version 1.0 of internet monetization was essentially advertising based, then we are entering phase 2.0 – direct from content creator to consumer, also known as the creator economy. Companies like Substack, Cameo, Patreon and OnlyFans have empowered content creators to make a living by disintermediating traditional platforms and going direct to the customer at a much more attractive margin. This has proven quite lucrative during Covid as consumers stuck at home looked for other entertainment and artists/creators searched for ways to make up for lost income.   


When Warner Bros or Disney releases a new film, movie theaters get first dibs. They have exclusivity for a period of time before it can be offered for sale or rent directly to the consumer. The cinema chains have wielded a tremendous amount of clout in making sure this model continues. That is until a pandemic hits. With movie theaters closed, Disney made the decision to release one of their major motion pictures, Mulan, via their Disney+ app and bypass the theaters in the US altogether. This is unprecedented and sets up a future in which consumers can access the latest movies on their terms which inevitably serves a major blow to the exhibition world. 

Ad Agencies: 

Advertisers have long relied on advertising agencies to place their media buys with publishers but as software companies like Facebook and Google grew, they hired sales people to sell ad placements directly thereby circumventing the agencies. The result is the global agency market has been in decline for years as brands disintermediate and go directly to the source. Not only does this save money on agency fees but it also allows one less party to be involved in the sharing of confidential customer data. 

Healthcare – 

The consumerization of healthcare is here which is leading to a more patient-centric experience. Numerous startups have built telehealth platforms that empower patients to take control of their health by creating the convenience of care from your own home. They have built business models that allow customers to seek treatment for a variety of conditions without having to go into a doctors office or pharmacy. Furthermore, this model is a welcomed change for those suffering from chronic conditions. I recently got swimmer’s ear and decided to give Teladoc a try. The entire experience was seamless. After entering my insurance information in the app I was prompted to select a time I’d like to speak virtually to the doctor. I chose immediately, and within seconds I got a prompt to join a call. I was then video chatting with a doctor who quickly diagnosed the condition and within an hour I had prescription drops sitting on my door step. This is the power of telehealth and yet another example of the disintermediation of traditional healthcare. 

Financial Services/Insurance – 

When Jack Bogle created the Index fund at Vanguard, he set in series events that would cause major disruption in wealth management and stock trading. By creating a vehicle that tracked the S&P 500 index with extremely low fee’s, he was able to show that investors’ gains were often similar, if not better than, many actively managed funds that charged hefty commissions. His model disintermediated money managers and today these index funds account for $4T in assets. Like most every industry, disruption in financial services is happening everywhere with the vast majority gravitating around reducing intermediaries in the supply chain between producers and consumers. Even venture capital hasn’t been immune to disruption. Many of the LP’s that have historically contributed to VC to get diversification, have realized that instead of paying a 2% management fee and giving up 20% returns to GP’s at venture firms, they could invest in startups directly thereby eliminating the middleman. Today, numerous mutual funds, SWF’s, hedge funds and even family offices like Soros are bypassing VC’s and making direct investments. Lastly, insurance has been reinvented. Companies like Lemonade have not only upended the rental insurance market by eliminating brokers and passing the savings on to the customer, but they’ve created a digital user experience that simplifies a lot of insurance verbiage thereby helping a traditionally opaque business model become more transparent.     


CPG has gone through multiple business model iterations over the years with direct to consumer manifesting itself in various formats. The original catalog business was one attempt to start selling direct by disintermediating the retailer.  Then came the development of owned and operated brick and mortar retail stores. More recently, a new wave of digitally native vertical brands like Harry’s, Warby Parker, Casper, Peloton and Away have created entire businesses by being mostly non-reliant on wholesale distribution. The margin they would have lost selling to Walmart or Target could now be used to offer customers a better buying experience and conceivably lower prices. Ironically, however, there’s a ceiling selling online and many of these DNVB’s are now starting to sell through wholesale channels to capture more of the addressable market. Sound familiar? Yes, this is the same model they meant to disrupt, coming back full circle. 

In the examples I’ve shared, there was always a legacy part of the business that was worth protecting so companies had to tread lightly in their efforts to go direct. Airlines haven’t stopped doing business with Priceline, Warner Bros hasn’t stopped releasing movies in theaters, you can still get your hotel room on Expedia, my Comcast still has my favorite TV networks and I can always shop at Target for razors, but ever increasingly the distribution of power has been shifting and consumers are the ultimate beneficiaries. Startups who are building business models around disintermediation can hopefully learn from similar frameworks in adjacent industries. At Casper, when we were building brand content for social channels like YouTube, it was helpful to look at the dynamic of the TV industry to learn ways that we could monetize that by licensing to other platforms. Therefore, what originally looked like a cost, could also be seen as a revenue driver. 

Always be studying the business models of other sectors because you may find it could be applicable to yours as well.

Share this: