DEATH OF THE MIDDLEMAN
The rise of Web 3.0 is democratising business processes, forcing the world and India to adapt to a fundamental reset. EPISODE #46
Dear Reader,
A very Happy Monday to you. And a very Happy Diwali too.
Scrolling through my twitter timeline last week I stumbled upon an extremely insightful thread by one Ryan Breslow on the structural changes triggered by the emerging world of Web 3.0. Struck by his insight I checked out his bio to discover that Breslow is precocious. He is just all of 27 years and has already built two unicorns: @bolt and @eco. Wow! If that was not enough he is a former student of @balajis aka Balaji Srinivasan, the ex-CTO of Coinbase and General Partner at Andreessen Horowitz and someone I believe is among the most exciting voices (like Nandan Nilekani) on the power of the new Internet era.
In the twitter thread Breslow elaborates on the power of the new Internet with its plug-and-play capabilities to tap the potential of individual creativity and bypass the traditional gatekeepers to directly access consumers:
“The businesses of yesterday consolidated power. The businesses of tomorrow distributes power. Understand this and the future is yours.”
Pithy but insightful. Breslow is making a strong case of democratisation of power by eliminating middlemen and empowering the stakeholder.
Unpacking this in the context of India—with its inglorious history of rent seeking behaviour—is revealing. Indeed we are already seeing the death of the traditional rent-seeking gatekeepers after the union government initiated direct benefits transfers for its welfare programmes, including the Rs1 trillion rural employment guarantee scheme. Accordingly this week I explore this intersection of politics and economics and the attendant consequences.
A big shoutout to Rajit, Pradeep, Gautam, Premasundaran, Vandana and Aashish for your informed responses, appreciation and amplification for last week’s column. Gratitude also to all those who responded on Twitter and Linkedin. Reader participation and amplification is key to growing this newsletter community. And, many thanks to readers who hit the like button 😊
WEB 3.0
Over the last one year we have seen our world turned upside down. Not just because of the covid-19 pandemic. Instead because of the speed at which Web 3.0 has blurred the distinction between the producer and consumer of goods and services. In fact even this silo has collapsed with consumers also lining up as producers and vice versa—think of D2C (direct to consumer), P2P (peer to peer) and so on. And the pace at which this is happening is both staggering and overwhelming. More importantly in this new context status quo is not even an option.
The era of Web 3.0 is described as that of the creator economy—which allows for the creation of paid content wherein the dynamics favour the content creator over the distributing platform. One manifestation of this is the shift from advertising to a subscriptions-based economy. Similarly the rise of blockchain technology is enabling trust and thereby creating a new decentralised supply chain for value transfer and consequently an enabling environment for new entities and startups. This is unlike Web 1.0 which was about the Information economy (read Google) and Web 2.0 which was about the Platform economy (read Facebook or Meta).
As mentioned earlier a recent share on Twitter spelt out this makeover and rather bluntly at that. With several examples Ryan Breslow (who tweets at Breslow) says that a new decentralised world is rapidly taking root. And that those who adapt to this change will thrive and those who don’t will struggle. Breslow’s thesis is that in the new era there is little or no space for intermediaries or gatekeepers. To argue his case he cites examples from a range of sectors including entertainment (rise of TikTok, OTTs), finance (Fintechs), media, commerce and so on.
Sharing the link to his Twitter thread below:
It is my case that India is witnessing a similar trend. It has been happening for some years, but has witnessed an unprecedented acceleration in the last one year.
The first example of this trend in disintermediation was the bank ATM. While the Millennials and Gen-Z have been spared this pain, I am sure you recall how withdrawing or depositing money in a bank was an exercise in both time and patience. The launch of the ATMs ended the tyranny (and sloth) of bank clerks and empowered us in an incredible way. Now my visits to the bank are a rarity—probably once a year.
We had a similar experience with our transactions for other utilities like cooking gas, electricity and phones, all of which went online. It was not just reduced friction, disintermediation also precluded retail corruption by middlemen.
Now this process of disintermediation has changed gears as it were. This is because it is now about scale, which in turn triggers the network effect. A trend that has been enabled on the foundation of Aadhaar—the 12 digit unique identity number issued to about 1.3 billion residents of India. It is the bridge that connects the one billion plus cell phone connections, 600-800 million Internet users and the one billion bank accounts (including the 430 million Jandhan no-frill bank accounts owned by the poor).
In turn this digital infrastructure has allowed for the creation of APIs (Application Programming Interfaces)—the most high profile of which is the Unified Payments Interface (UPI). This inter-operable platform enables payments in real-time. Fintechs have been quick to adapt this technology to disrupt the lending business with a host of offerings like Buy Now Pay Later or BNPL catering to small ticket transactions. As a result a generation of new borrowers have accessed credit through formal channels.
In September the UPI platform reported 3.65 billion transactions worth Rs 6.5 trillion. And as the graphic below shows that while the volume of transactions has steadily risen their average value has dropped below Rs2,000. What this is telling us is that there has been a democratisation of access to credit—as Fintechs continuously test the boundaries of lending.
If you recall I did write recently in the context of India’s jab project on how the country has mastered the business of delivering on scale. One very prominent example is the Direct Benefits Transfer (DBT). To be sure this was initiated by the Congress-led United Progressive Alliance but taken to scale by the incumbent Bharatiya Janata Party (BJP)-led National Democratic Alliance.
Beginning with the subsidy for cooking gas, the DBT was expanded to pensions, payments for the massive rural employment guarantee scheme and recently to undertake the distress transfers to cushion the impact of covid-19 on livelihoods for those at the bottom of the pyramid. At the end of March 2020 the resulting savings in leakages was a staggering Rs1.7 trillion.
The corollary of this disintermediation has been the elimination of friction enhancing the CX or consumer experience no doubt. At the same time as pointed out earlier it has also weeded out the middlemen, who in the past would have claimed illegal rent incomes to facilitate the transaction. Implicitly these are baby steps towards a rules-based regime—to replace the existing exceptions-based regime which has not only fostered corruption but cramped creativity and productivity of the economic agents. As the cliche goes it is an idea whose time has come.
Recommended Reading
Last week one big news development was that the Indian Premier League raised the bar on the business of cricket yet again when it auctioned the Lucknow franchise to the RP-Sanjiv Goenka (RP-SG) Group’s for a staggering Rs 7,090 crore. The big question was whether the RPG group had over extended itself and would suffer the winner’s curse.
No says K Shriniwas Rao. Sharing his twitter thread which breaks down the lucrative business of IPL wherein all stakeholders make money and the fans enjoy viewing top cricket action. Amazingly a win-win for all!
Sharing his twitter thread below:
Till we meet again next week. Stay safe
The reach of the individual has increased or the freedom to express or engage has undergone a dynamic change. The role of middlemen in the real estate sector is set to be hit, to an extent that their survival may become difficult in the coming years. In a way it is good, as the middle man is neither a producer or consumer. So noncontributors will be eliminated and that will be good for the economy. The kitchen today is able to serve food on many dining tables, without requiring the space of a restaurant. These are small examples of a huge change in the future. Thanks for bringing an important development to our notice. Very well presented Anil.
Dear Anil,
Excellent and indepth analysis of a complex issue !! You are absolutely right structural changes are required for India to emerge out of the current situation.