Reintermediation

Fishpond sells online to New Zealanders

Recently I've looked at disintermediation in the retail industry.  I've examined the new online daily deal model and the web shopping sites like Mighty Ape and Fishpond, who do a great job of emulating overseas giants like Amazon.

This time I'm going to consider whether there are signs of retail going the other way - re-introducing intermediaries as part of the supply chain, or reintermediation.

I think this has happened quite prominently in the purchasing patterns for home computer equipment.  Let me explain . . .

PC Direct was an NZ success story

When computers took off in a big way here in New Zealand in the 1990s,  a burgeoning new retail sector was born.  There were many small, local computer shops that sprung up to custom-built desktop computers.  Such operations were pretty much classic retail operations, that bought products from various distributors, added value by assembling the computer and selling as a retailer to the general public.

The big players in this new industry though were the mail order companies that sold direct to the customer.  Some were overseas giants like Dell and Gateway but New Zealand created some very successful local companies like PC Direct and PC General.  These companies had impressive buying power and they negotiated cut-throat deals with wholesalers and distributors.  Sometimes their power was such that they became their own wholesalers and usurped the established players.

THE IBM PS/2 (circa 1987)

At the time it seemed that new, more powerful configurations of computers were arriving almost weekly.  This was the era of the Intel 486 (SX or DX), the early Pentiums and Pentium Pros, when a graphics card was measured in kilobytes and a CD-ROM drive was cutting edge.  Assembling the right mix of components took skill and it was very difficult for manufacturers to plan a configuration that would last for more than a few weeks before it changed again.

In this frantic atmosphere of constantly changing configurations the local assembler and the big mail-order computer builders were king.

Fast forward to the last few years and the market has changed.  Most people have little interest in what kind of computer chip or graphics card is in their sleek new laptop or tablet, as long as it's fast and spacious enough to cope with whatever they throw at it.  Let's face it, most users are perfectly happy with any of the configurations that the likes of Hewlett Packard or Samsung provide.  Notebooks and tablets are consumer items and people are happy to buy them from consumer stores.

Most people have long since stopped buying desktop computer equipment.  If I want a lnotebook, a netbook, a sleekbook or a tablet, I want to go and choose it from a shiny display at my neighbourhood retailer.  I want to be spoiled for choice and walk out of the store with a neat little box and a hefty discount.  I appreciate that buying a computer is no longer a scary experience where a confusing array of mismatched components causes a general protection fault (GPF), hardware crash or the dreaded blue screen of death.

Modern laptop retailing (PB Tech Ltd)

For those that want to bypass the retailer option there are plenty of online sellers of computer hardware, some of which have no bricks and mortar retail presence.  They may be able to undercut the pricing of the high street retailers in some segments of the market.  Indeed these guys are still the favourite places for people to buy components, such as optical drives, hard drives, graphics boards.  Consequently they attract a specific segment of the market - technically expert people rather than the regular consumer who will buy an already built device, usually through a high street retailer.

Having the high street retailer provide the millions of notebooks to the general public has removed a nightmare support structure that most assemblers just couldn't afford to provide.

This division between expert and regular user is far more pronounced than before.  Two sets of needs that are today satisfied by two sorts of technology supplier.  At one time, anyone who wanted a desktop computer was mercilessly drawn into understanding at least something about the components that make up the unit.  This is no longer necessary for the regular user because end-user devices are pre-packed plug-and-play.  Generally, only gamers and power users these days are interested in specific components.  Given that they are so finely aware of specifications and they are sourcing high-end specialist components, they are far more likely to be using dedicated suppliers rather than the high street chain.

The big manufacturers have solved those problems for me, have packaged awesome processing power as a sexy, consumer item and have brought back the appeal of the local retailer, who no longer needs to know that much in order to sell me a thoroughly competent piece of technology.

I've seen reintermediation of the retailer into the domestic computer hardware market and I think it's a really good thing.