Irrespective of which industry you are in, the best business to be in, in terms of share of the pie, is that of the middle man. The producer takes most if not all of the risks associated with the product and ends up with the smallest share of the pie. The retailer whose role is largely limited to making available the product where the customer wants it gets a small percentage of the final price paid by the consumer, and takes only minimal risks. Even that is sometimes not there, because in most cases, unsold stocks are returnable. It is the middle man, whose role is often limited to reaching the product to the consumer in the quantity and packaging that they want, who keeps the lion's share of the pie.

Let me give you some extreme examples. Some time back, on a weekend evening, I was at a beach in South India. The Sun was just about to set and a couple of thousand people had gathered along the beach strip to watch. Just before the orange orb of the Sun dipped below the horizon, a small boat with local fishermen came ashore an a fairly large crowd gathered around. Being the curious type, I too joined it. The fishermen had netted two dozen fairly big fish - a variety that you would buy for upwards of a hundred rupees a kilo in the local fish market - each weighing ten to fifteen kilos. Having secured their boat, the fishermen started selling the fish there and then itself. And the asking price was a paltry five hundred rupees a fish. So, there it was, fish that would cost a thousand to thousand five hundred rupees once it reaches the city market and is cut into smaller pieces, was being sold fresh off the sea for one third the price! Obviously, there would be be huge crowd eager to buy up the fish in no time. Right? Now that is the funny part. There was a crowd alright, but no one was buying. It took the fishermen quite a while to finish off the catch, and that too, after the average price had come down to four hundred rupees per fish! If the same fish were to be stored in ice and carried to the local market the next day, where it would be cut up into smaller pieces (the person who cuts charges five to ten rupees per fish), it would have sold out in next to no time at a thousand rupees if not more! The fishermen would not have taken them to the market. They do not have the time, the skills or the ability to do so. They would ave sold all the fish to some middleman (at an even lesser price than five hundred rupees, as they were selling in bulk) who would have made all the money.

 Let me now move to an example from the other extreme. The Internet. Who is the biggest middleman on the Internet? Google! Before I tell you how Google plays middleman, I am sure that you do not have any arguments about whether Google makes money off the Internet or not! So, how is Google a middleman on the Internet? In two ways. First, people (like me writing this blog entry in the middle of the night and posting it over a patchy Internet connect from the middle of nowhere) spend a lot of time, money and energy creating content that they put up on the Internet. Remember that almost nobody (other than porn websites) make money from content put up on the Internet. Along comes the Googles of the world and indexes all this content and shows it up when someone searches for information. And like any other middleman, the search engines make money by putting in ads into the search pages. Google goes one smarter than the other search engines and keeps on increasing its take by making advertisers continuously up the money they pay Google by creating a continuous bidding process. They have an good name for this. It is called Adwords. Thus like any good middle man, Google makes it easy for consumers to find what they want (information), where they want it (in their browser)and pockets all the money made in the process, giving nothing to the original producer (of the content). If anything, they make some producers pay for displaying their content up front, before the others. And that is only half the story. Turn this model on its head (or extend it,if you please) and you have Adsense. There are a lot of people who have content - Remember that Google and other search engines by themselves produce almost no content - and would like some ads on their pages. But they have no sales force that would go out and sell ads. And then there are the folks who would like to put their ads in those content pages, but do not have the wherewithal to reach out to all those content creators. Enter Google Adsense which plays matchmaker between the two. And like any good middlemen, Google keeps most of the money put in by advertisers into Adsense. And they make advertisers put in more and more money by using the same bidding process as in Adwords.

Do not get me wrong. I am not saying that middle men or Google for that matter are evil. No way. There are two points that I am trying to make. First, whether we like it or not, middlemen are an integral part of all business chains. There is almost no way we are going to get rid of them. And second, given an option, it makes more sense to be a middleman than the producer or the retailer, because that is where the money is. If you look around, you will see that businesses at either end of the chain - producers and retailers, tend to gravitate towards replacing existing middlemen and becoming middlemen themselves as they seek cost efficiencies and better profits. Remember the huge full page ads that Big Bazaar ran some time back? The ones about the huge volumes of merchandise they buy directly or produce - so that it does not pinch your wallet. This is exactly what Big Bazaar was doing - becoming the middleman along with being retailer.