Platforms fail because of disintermediation risk!
Updated: Feb 10
In my previous post, I explained about how clustered network effects can make the platform more successful than a fragmented one. You can read it with the below link.
Today, let us discuss the next criteria which is the ability to avoid disintermediation.
Disintermediation happens when the buyers and sellers on a platform bypass the platform completely and transact offline. In many cases, I have seen my friends taking the airbnb host's contact details which other use to contact directly and avoid paying airbnb's commission. Same is the case with Handyman platforms like Urban Company, etc in India. This happens with Uber and Ola as well. Airbnb tries to do this by masking the host's contact details. But this would not prevent disintermediation from happening. Fiverr doesn't allow exchanging contact detiails. But the more you control and make the transaction difficult, the more new players will come up and allow that transaction. How do platforms try to overcome this problem? Alibaba did this very well when it launched TaoBa. It allowed buyers and sellers chat in real time and negotaite on prices and made money mostly from other sources like apps, etc rather than the transaction fees. Fiverr overcame this by offering complementary services. Once after order for a logo design, buyers would go to register their company and so on. Also, Swiggy and Zomato in India do this well by offering delivery service for food ordered through their apps. They don't offer pick up at the restaurant option to avoid disintermediation. So, the platform needs to ensure there is no risk of intermediation to sustain.