Distribution: Pressure in the Middle

One big theme that we continue to see unfold is the pressure on the distribution part of the value chain.  The whole value proposition of the Internet is that it allows you to connect with all of the customers you care about instantly, assuming you know where to find them or  they know where to find you.  That assumption, of course, does not hold for many and leads to many successful intermediaries.  But we are seeing a ton of examples of people in the middle getting squeezed across industries:

  • FOX withholding rights to content from Cablevision is a great (but not unique) example in the content arena.  After getting killed in the advertising and market meltdown of 2008, many of the content producers now want to be a part of that lovely predictable subscription revenue stream.  After a game of chicken, FOX got its deal.  The recent Netflix deals are a great example from the opposite end of the spectrum.
  • Online e-tailers versus brick and mortar retailers. The explosive growth of companies like Gilt Groupe, Bonobos, J. Hilburn, ModCloth and others are great examples of people choosing to either design directly to a captive audience base or bypassing the traditional fulfillment hubs.  Reducing or eliminating distribution at large retailers who require their markups allows much better pricing as margin savings can be passed on and therefore value to end customers.
  • American Airlines in its recent dispute with Orbitz as they push AA Direct Connect instead of going through traditional GDS systems.  Initially, the aggregators and online pricing engines had better deals than airlines did at their own sites.  Quickly, the airlines moved to low price guarantees for their own sites.  And now this is the first salvo stepping into the traditional supplier link setup.

A number of people wind up benefitting from this trend.  Many companies have grown on the backs of helping brands and retailers find those customers online.  Fulfillment and logistics for physical items winds up being far more important, as the idea of buying and sending back gets ingrained in the psyche.   As we continue down the path, however, we’ll continue to see increasing pressure on people who solely sit in the middle.

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One thought on “Distribution: Pressure in the Middle

  1. Pingback: Lot18, Wine, And Next Gen Retail « Just Getting Started

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