Analyzing Market Transformation in the Presence of Internet-Driven Disintermediation: The Case of Online Travel Reservation Providers

This paper proposes a framework for understanding the circumstances under which technological innovations for electronic commerce change industry structures. Initially these changes are to the detriment of traditional product and service providers. However, these players can fight against technological disintermediation. We examine three different scenarios from a long run perspective. The first involves situations in which no traditional or non-technological intermediaries exist. In these settings, upstart electronic intermediaries can interject themselves through innovation. The second is where a single traditional intermediary already is present. The third is a variant on the second, and involves situations where multiple traditional intermediaries form the industry structure. The perspective we propose identifies a recurring pattern of intermediation (I), disintermediation (D) and reintermediation (R) — what we call the IDR cycle. It enables us to explain and predict instances of technological reintermediation, where a once-disintermediated player is able to effectively compete again, by combining technological innovation with highly leveragable co-specialized assets. We build this perspective through the analysis of mini-cases in electronic commerce. We also apply our analytical framework to the corporate travel management industry. The framework reveals that travel firms will not be disintermediated in the long run; instead, we expect them to reintermediate themselves into an even more important and value-added role for their customers as corporate travel management consultants.