In the marketspace of networks, value flows in webs.

Many classic value chains were crowded with intermediaries who distributed a completed product or service. Take the banana wholesalers. Although they physically handled the product and often stored it in inventory at great cost, their primary value to the customer was informational. In theory, small bunches of bananas could be wrapped and sent directly to your home from a particular plantation with fewer intermediaries involved in warehousing and storage, and thus at lower costs. You would place an order directly to Best Bananas in Honduras for one bunch per week, except during the school holidays, and they then would mail them out to you. To do that effectively, though, would require network technology capable of a) finding a plantation you like; b) getting the right bunch to you at the right time; c) shifting to a cooperating planter if the first planter's fruit was not yet ripe; d) tracking the account payable for such a tiny buyer as yourself; and, e) dealing with all the millions of ordinary exceptions and screw-ups that any system as complex as this would entail.

The industrial age had no technology capable of doing that, so it substituted the wholesale system for networked information. Orders were aggregated at the local produce stand, sent to a wholesaler, who aggregated them further, and relayed the combined request through various shipping intermediaries to a farmers' coop, which distributed orders to various planters. Your personal "order" was submerged in a sea of others; the system essentially ignored it. Making their way back to you, the bananas followed a reverse chain of links, sitting in warehouses as a way to buffer the incomplete consumer information they should have had.

It may be a long while before bananas skip the industrial value chain, but other foods, higher priced and not as bulky, already can be bought this way. Food fanatics in cities anywhere can purchase specialty coffees, or authentic maple syrup, or organic beef by linking up with farmers directly and getting their goods right from the farm via the post office, or FedEx networks, bypassing the wholesale and retail intermediaries. When gourmets use web sites and direct-mail catalogs to buy directly from growers, the traditional intermediaries are taken out of the picture.



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This is a blog version of a book of mine first published in 1998. I am re-issuing it (two posts per week) unaltered on its 10th anniversary. Comments welcomed. More details here.
-- KK