The cult of the middleman

Everything is just ticket clipping now

One of the big stories of the last week has been the drama surrounding Great Jones, a company that flogs pleasingly designed, Instagram-friendly cookware for substantially lower prices than the likes of Le Creuset. Business Insider did a big writeup [$] about the turmoil inside the company, which features mismanagement, largesse, a dog allergy subplot, and the usual sort of bickering between founders and entrepreneurs that substitutes for palace intrigue in the culture these days.

But one element of the story, something of a sideline to the thrust of the BI investigation, caught the eye of many commentators. It’s the fact that Great Jones, despite its huge online presence and buzz among the kind of elevated home chefs produced by the NYT Cooking app and Bon Appetit videos, only had six full-time employees. At one point, thanks in large part to the reverberating effects of the founder dispute, there were no full-time employees — but the company still managed to have its best sales quarter to date.

Kyle Chayka writes at the New Yorker that this revelation exposes “the gulf between the messaging and the reality” of a certain type of online brand. “As an avid follower of Great Jones’s Instagram, I certainly assumed that it had more than six employees,” he writes. “I never would have guessed that at one point it had none.”

As Albert Burneko puts it at Defector:

The absolute most generous true description you can apply to Great Jones is that it conducts arbitrage on cheap pastel-colored cookware with flimsy enamel cladding, made by other companies with less robust brands. But the truest thing you can say is that Great Jones, like so many other companies, is a skimming operation: It launders somebody else’s actual manufacture through its own aggressive branding, and takes a cut of the proceeds. The company can have the best quarter of its existence despite having no full-time employees, despite having literally no capacity to do anything other than exist as a legal fiction, because it never actually did anything.

Or, as this tweet from Chris Person suggests, the utopian 2010s startup promise of cutting out the middleman and going straight to the consumer with a simple, direct offering has been replaced by “dropshipping scams by inbred Vanderbilts.”

This is what a large portion of the online economy — and, therefore, general human effort — goes to now: an escalating series of value-adds which, when you take a bird’s eye view, actually don’t add a lot of ‘real’ value at all. What you tend to get instead is an accretion of marketers, ticket clippers and algorithms which thrive in the black box of the supply chain.

In 2015, Silicon Valley journalist Marina Krakovsky published a book named “The Middleman Economy: How Brokers, Agents, Dealers, and Everyday Matchmakers Create Value and Profit”. It sought to answer a simple question: why, when the internet theoretically allows buyers and sellers to communicate directly, do we still need to involve middlemen in our transactions? After all, it was Bill Gates himself who promised in 1995 that the internet would enable “frictionless capitalism” by acting as “the ultimate go-between [and] the universal middleman” in commerce.

Krakovsky basically points to two things that justify the existence of middlemen: connections and trust. In a highly networked world, the argument goes, there’s inherent value in someone trustworthy who can accelerate a connection and reduce the overall cost of a transaction. That’s why, for example, so much of eBay’s sales traffic goes through big sellers with thousands of transactions and a solid reputation, or why hiring managers still use recruiters on LinkedIn rather than just fishing for talent directly. Wedding planners, if we think beyond the internet for a moment, also have obvious utility. It’s worth paying extra for the happy couple not to have to deal with an array of individual suppliers.

That all makes sense, at least initially. You can even think of much of the platform or ‘sharing’ economy, from Airbnb to Uber, as just enormous middlemen themselves. Or so the narrative goes — you’ve no doubt by now seen that somewhat asinine Powerpoint slide about how “the biggest taxi company owns no taxis” and “the biggest hotel chain owns no hotels”, which gave everyone an a-ha moment in 2017 or whenever it was.

But, as I pointed out toward the end of my last newsletter, the initial promise of the sharing economy seems less clear now the dust has settled, with the platforms acting less like middlemen or marketplaces and much more like de facto employers, just without the traditional protections you would expect from one. Your average Uber driver is basically just a full-time cab driver whose boss is an algorithm and a chatbox. It’s no longer surprising if your Airbnb host is either a corporation masquerading as a friendly landlord, or someone running a stress-inducing rental arbitrage scam.

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Krakovsky’s book was released in 2015, and its mildly amusing to look at the state of the internet now, six years later.

Let’s return to Great Jones, or at least the world it represents. The reason the company was able to chug along successfully without staff was because it was a well-oiled ticket clipping and marketing operation which didn’t really need do a whole lot but look pretty for social media. It would push all the nasty elements like ‘holding stock’ onto someone else so it could focus on its main value: being a beautiful shopfront.

Shopify, one of the world’s most popular e-commerce platforms, has an extensive guide on its website to running a dropshipping business. Calling the practice “retail’s version of cloud computing”, the guide says it is “a highly accessible way for enterprising founders to connect customers with products on-demand — without the need to stockpile inventory.”

Over on YouTube, there are tens of thousands of guides to setting up a dropshipping business using platforms like AliExpress. It’s pitched as incredibly easy money. You don’t even need to have to do any of the hard stuff, these tutorials say. You just need to figure out how to market cheaply manufactured, already existing Chinese stuff well enough that there’s decent margin in it for you.

This produces amusing outcomes. As influencers and content creators attempt to get in on the gold rush and run their dropshipping storefronts, the narratives they weave around the cheap garbage they’re hawking often veers into outright lies. One Australian influencer, Olivia White, sold distinctive-looking champagne flutes she said had an “identity” and “message” inspired by her mother. Of course, her followers soon realised the glasses — which White was pushing for $40 each — were readily available on AliExpress and Wish for only a few dollars.

“I never said they were designed by me,” she told Business Insider Australia. “Simply that the identity and message behind the glasses was inspired by them.”

The BBC did a solid dive into this world last year which is worth a look:

Dive into the world of affiliate marketing, and it all looks even stranger. In the original telling, affiliate marketing was simple: websites that recommend products can receive a cut of the sale if someone clicks through and buys. Many news publishers have turned to it as a moneymaker as traditional ad dollars dry up. It’s the reason why an august publication like The New York Times snapped up product recommendation platform Wirecutter in 2016.

Wirecutter offers value on Krakovsky’s trust principle. You can be pretty assured that anything the website recommends as best-in-class is genuinely very good. But not everybody follows the same rigorous review process as Wirecutter, obviously. As with dropshipping, a cottage industry of instructional videos has emerged teaching people how to start monetising links to products as a form of passive income.

Platforms like TikTok are absolutely polluted with these kinds of videos, all essentially promising the same thing: you can get rich with minimal effort, just by inserting yourself into online transactions which were already likely to happen anyway as a middleman, clipping the ticket along the way. Insane claims feature heavily. Videos often feature affiliate marketers and dropshippers showing off (allegedly) huge incomes on their chosen dashboards, with figures in the tens of thousands of dollars per month quite common.

It’s as if there’s a fresh category in David Graeber’s taxonomy of bullshit jobs – and people are doing it freelance.

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Of course, outsourcing manufacture to cheap labour in the developing world while focusing on marketing to the consumer is not a unique feature of the new economy. In fact, it’s largely how the world’s wealthy service economies have worked since the 70s and 80s. As user ‘CrayonEater’ (lol) comments on the above-linked Defector writeup:

So essentially they're connecting consumers to goods they may like, which is pretty much the same thing any store front does.... just without the store front... and with very cheap Asian suppliers. If I walk into the dozens of kitschy places that make south street, passyunk ave, etc shopping districts interesting its essentially the same concept.  A store owner contracts with a supplier for a number of goods, which they then list at a mark up.  This is generally referred to as commerce. 

This is true. But it’s hard to shake the feeling that the system is not really working even as those who designed it might have hoped. As I wrote in my newsletter about NFTs (remember those!) back in February, it feels like we’re sitting atop a vast, infinitely networked shadow economy where ‘value’ does not seem to correspond to much concretely at all. If we think about a supply chain as x → y → z, then ‘y’ seems to contain a huge array of people, businesses and algorithms, taking their cut for increasingly minute reasons and value-adds, enabled by the frictionless commerce of the internet.

And, as we’re pushed towards digital currencies, tokenisation and smart contracts — where the role of institutions like central banks become less clearly defined — it seems like that is only going to become more and more the case. Everything is ticket-clipping now.

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