We may well groan, but irritating middlemen are here to stay
We can finally cut out the greedy bankers out of the deal. We won’t ever have to listen to a used-car dealer trying to hustle us into buying an old banger that is about to fall apart. And we won’t have to try and decode an estate agent’s blurb to work out that the delightful scenic property with idyllic country views was actually right next to the M5, had a leaky roof, and flooded every time there was anything more than a slight rain shower.
The internet promised us many things. But one of the greatest prizes was getting rid of the middlemen that had been driving us all crazy.
Cazoo had been planning to make the car dealer nothing more than a bad memory, but now its share price has crashed and it is laying off staff. Purplebricks, which was meant to transform the way we buy and sell homes, has put itself up for sale. And the peer-to-peer lenders have long since worked out that the only way they can survive is to turn themselves back into something that looks exactly like, er, a bank.
The middlemen are a lot more useful that the tech disruptors realised. They know the market, and they know where the customers are and how much they will pay. And those skills will still be valuable for a long time to come.
When it listed its shares in New York in 2021, reversing into a Special Purpose Acquisition Vehicle, Cazoo had a market value of $1 billion. The used car company was on a roll, expanding across Europe, and promising to transform the way we buy and sell cars.
There was an opportunity there. Very few of us buy a car brand new – more than 7m used vehicles are sold in the UK every year, compared to 1.7m new ones – and the experience is often bewildering. Plenty of us have driven away from the forecourt wondering if we have been ripped off, and later found that we have been.
And yet, only two years later, the company is in a sorry state. The shares have dropped by 95pc over the last 12 months, and this week it announced that it would have to raise fresh cash simply to stay alive.
It is far from alone. Purplebricks should be good at selling stuff, even if it is a bit ropey, but the UK’s leading online estate agency put itself on the market last month and, as one of its agents might put it, is ‘still taking viewings’.
The shares are down by 70pc over the last year as the company has struggled to make any money. It turned out that we like the old-style, traditional estate agents after all, even if they get on our nerves occasionally.
Likewise, rewind a few years and the pioneers of peer-to-peer finance, such as Zopa and Funding Circle, which aimed to cut out the bankers and connect lenders and borrowers directly, have stopped taking retail deposits, and turned themselves into something that looks very like a bank.
In industry after industry, it seems the middleman is not about to get ‘disrupted’ out of business after all. Instead, they are chugging along as prosperously as ever, while it is their tech challengers that are falling by the wayside.
Why? It is not as though estate agents or used car dealers were exactly popular. Surveys regularly show that they are among the professions least trusted by the public (along with journalists, of course, and funnily enough we are still in business as well, while most of the citizen bloggers have given up). Nor are there any huge barriers to entry.
Banking is a little tricky, but it is fairly easy to crash into the estate agency business or the motor trade. All you need is a slick website and off you go. Despite all that, however, the traditional middlemen have two big things going for them – and which their tech competitors missed.
First, the middlemen have valuable local knowledge about the market. An estate agent knows what prices are like in an area, which schools people want to be close to, how long a walk to the train station is acceptable, and all the other intangible factors that make one house or apartment more valuable than the next one.
Likewise, a car dealer has years of embedded knowledge about what makes one vehicle worth buying, while another one will be in and out of the garage every few weeks. The same is true of bankers, who build up plenty of experience with their
customers, especially small businesses.
Next, they know who their customers are. They have a sense of who to call to buy a house, or which kind of car will suit a certain customer, or who can afford a bigger loan, and can take on more risk, and who will find it overwhelming.
An algorithm doesn’t replace any of that. Our home is usually our most valuable asset, and the car comes second, while the mortgage is our biggest liability. For most people, it is not something you can take chances with.
True, all of that may change. Just because the first wave of tech disruptors didn’t overturn the property, finance, or automobile industries it does not mean that the second or third wave won’t be more successful. The new generation of smart AI programmes may well be able to replicate the embedded knowledge in many professions in the way that a simple website with buyers and sellers could not. We will see.
And yet for now, one point is surely clear. We may not like them very much. We may well find them irritating. But the car dealers, estate agents and the bankers are all going to be around for a while longer – and all the other middlemen are safe in their jobs for at least another decade.