No middleman is safe in the digital economy

Don Tapscott on today’s digital economy

Elderly couple booking holiday, talking to female travel agent

The traditional travel agent is one of the most visible jobs disintermediated by the Internet. But the “agent” class still has a foothold if you know where to look. (Bob Thomas/Getty)

When Don Tapscott’s The Digital Economy: Promise and Peril in the Age of the Networked Economy was published in 1994, travel website Expedia was just a skunkworks project within Microsoft. Twenty years later, the company is the perfect example of a phenomenon that Tapscott detailed in his book: the disappearance of the “agent” class.

Disintermediation cut out the middle man in industries where the Internet could allow service providers and consumers to deal with each other directly. Tapscott reflected on how this dynamic has played out over the last 20 years in a talk earlier this week titled “The Digital Economy—A 20 Year Retrospective and Perspectives for the Future” as part of the Big Ideas Speaker Series at the University of Toronto’s Rotman School of Management.

“You have the word ‘agent’ in your job title? You’re going to have to create new value, or you go away,” says Tapscott, who is an adjunct professor of management at Rotman. “And we saw that, of course—all the travel companies that we deal with today, none of them existed back then.”

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The companies that booked tours and flights, arranged hotel rooms, and issued travellers’ cheques are now gone, or relegated to being niche players in the travel business. Industry giants like Thomson sold their travel holdings or pivoted into the guided tour space. Websites that aggregate quotes from multiple airlines and providers now dominate the travel business.

One sector that has seen old middlemen rendered obsolete only to have a new class arise is the private investments industry. Tapscott points to funds with low fees that track stocks algorithmically rather than trying to beat the market using human investment managers’ wiles as a case of the first. At the same time, “there are all kinds of other institutions that have been very successful creating these wealth management services, where they help you figure out not just your investments but also all the other financial services that you have.”

The Internet presents challenges for companies around issues like trust and identity—determining that a person with whom you are transacting is indeed who they say they are requires some kind of independent verification. “So we have trusted third-parties—banks, PayPal, Apple now is getting into that whole thing,” observes Tapscott,  speaking at an event marking the launch of the 20th anniversary edition of his book, held at the Rotman School earlier this month. Developments like Bitcoin, however, could fix this problem of trust by enabling true peer-to-peer transactions that are verified by the technology itself rather than an independent entity.

But there is still room in the digital economy for intermediaries. “The opportunities to create new value in the middle can be as big as the old middle,” Tapscott says. “I’m not convinced that everybody is going to be wiped out. If you can create new value you can succeed.”

WATCH: Don Tapscott in conversation at the Rotman Big Ideas series: