MYTH NO. 6: It leads to disintermediation. (Myths And Realities of Web commerce Part six)

The theory was simple: The Web provides an instant global sales channel to all producers of goods and services, so why use conventional distributors, resellers, and other middlemen when you can sell directly? Well, it simply hasn't happened, for three main reasons: the actions of producers, the actions of distributors, and the rise of dozens of new intermediaries on the Web, giving rise to the second-generation buzzword "reintermediation."
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The only trend partially validating this myth is the fact that some producers that always bypassed reseller channels, notably Dell, have done very well selling on the Web. (Dell sells $10 million worth of PCs per day on its Web site--triple what it sold online last year.) But most successful E-commerce players are using the Web to enhance their existing distribution channels, not circumvent them. Even Cisco, one of the most successful E-commerce practitioners, makes 70% of its online sales to resellers, not end customers.
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Other examples abound. Consumers can't buy a motorcycle on Harley-Davidson's Web site, but the manufacturer's dealers can access a Harley extranet whose features include a repair-parts information database and speedy processing of reimbursements for warranty repair work. General Motors' BuyPower Web site lets customers configure and order cars online, but the sale is directed to a dealer in the customer's area. The only companies that can buy direct from Parker Hannifin's Compumotor unit are the very largest customers, such as Boeing and Universal Instruments, that have already bought direct before. In these cases and countless others, the goal is to aid the channel, not bypass it--at least for now. Meanwhile, conventional distributors are embracing the Web. W.W. Grainger Inc., the largest business supplies distributor in the United States with revenue of more than $4 billion, is building an electronic catalog to let customers buy online directly from their SAP R/3 applications. In the computer industry, Dell and Gateway aren't the only companies that let customers configure and buy their PCs online; No. 1 distributor Ingram Micro is adding that capability to its extranet for resellers and retailers. Few companies have leveraged the Web earlier and more effectively than semiconductor and electronics distributor Marshall Industries, whose E-commerce site helped boost sales 24% in fiscal 1998.

But perhaps most notable of all is the rise of new, usually industry-specific Web intermediaries. Almost every industry has one: Chemdex for chemicals, MetalSite for steel, pcOrder.com for computers, PlasticsNet for plastics, Instill Corp. for food services. Because the Internet makes it easier to aggregate information and commerce capabilities for an entire business community, these new intermediaries are bringing buyers and sellers together online.

"As long as you have an industry with a fragmentation of suppliers, you will always have middlemen," says Venky Harinarayan, VP of business strategy at Junglee Corp., a content aggregator acquired earlier this year by Amazon.com. Adds Chemdex president David Perry, "If you have only three or four suppliers, you certainly don't need an electronic marketplace. But most industries have a lot more than that."