Every successful platform creates its own vulnerability. The better you connect users, the more likely they are to transact directly—avoiding your fees and services.
This threat, known as disintermediation, can undermine even the most established platforms, making it harder to scale and sustain long-term growth and profitability.
Harvard Business School Professor Feng Zhu breaks down the risk in the online course Winning with Digital Platforms, featured in the Credential of Digital Innovation and Strategy program. As he explains, “After using a platform to connect with, say, a pet sitter, sometimes users will hire the pet sitter directly rather than continue to hire through the platform and pay the service fee to the platform.”
Understanding this risk is essential for every platform leader. This guide explores what disintermediation is, why it happens, and how to prevent it.
What Is Disintermediation?
Online marketplaces and platform businesses face the risk of users bypassing them.
“Disintermediation takes place when network participants, after being matched by a platform, begin to transact directly from each other to avoid platform fees,” Zhu says in Winning with Digital Platforms.
Ironically, the very tools that fuel a platform’s success—reputation systems and skill tests—can accelerate its downfall. As trust grows between users, the intermediary can become obsolete.
As disintermediation rises, the firm’s ability to capture value falls. As Zhu stresses in the course, “The takeaway is not that platforms should stop building trust between sides to prevent disintermediation but rather that, as they try to build trust, they need to take disintermediation into account and try to mitigate it.”
To protect your platform from disruption, understand the key drivers of disintermediation and adopt strategies that meet customer needs while supporting growth.
3 Warning Signs of Disintermediation
Disintermediation isn’t random—it follows patterns. The question isn’t if disintermediation will happen, but when and how fast. Identifying these factors early enables you to act before users abandon your services.
1. Relationships That Outgrow Your Platform
Trust builds through every interaction. Yet, the stronger the connections your platform creates, the more likely users are to take those relationships elsewhere.
A customer may hire a personal trainer through an app, but after several sessions, they “develop a personal relationship with them that makes them comfortable taking their transactions off the platform,” Zhu illustrates in Winning with Digital Platforms.
This pattern is evident across every sector. From pet-sitting to tutoring to freelance gigs, convenience and comfort eventually tempt users to wonder if they need your platform at all.
2. Excessive Commission Fees
High commission rates drive users to seek direct arrangements. Even when only one party pays, the cost encourages workarounds.
China’s largest outsourcing platform, ZBJ—featured in Winning with Digital Platforms—learned this lesson the hard way. Early on, they relied on transaction-based commissions to secure revenue and discourage off-platform deals. CEO Zhu Mingyue uncovered firsthand how premature monetization can backfire: “We discovered the internet is like a world without walls. We wanted to use this model before establishing our network effect and making cross-sided users loyal to the platform.”
This commission-based approach failed, warning other platforms not to prioritize profits over genuine value.
3. Transaction Uncertainty
Interestingly, transaction uncertainty can benefit many businesses. As risks escalate, customers tend to gravitate toward platforms that offer additional protection, guidance, and reassurance.
“When uncertainty is high, users may be incentivized to stay on the platform to benefit from the layers of insurance, facilitation, and security,” Zhu says in Winning with Digital Platforms.
In these scenarios, your platform becomes a trusted hub, offering protection that keeps participants engaged.
Resilient platforms foster strong consumer-brand relationships, adopt value-driven fees, and provide the peace of mind that keeps customers coming back.
5 Defenses Against Disintermediation
Preventing disintermediation requires decisive action and strategic thinking. Here are five strategies to guide the way.
1. Leverage Escrow Services
Escrow services position your platform as a trusted intermediary by holding assets until obligations are met. As Zhu explains in Winning with Digital Platforms, they “ensure trust across the two sides and encourage users to keep their transactions on the platform.”
Pair escrow with incentives—lower fees, free trials, or rewards—to build a devoted brand community. Companies seeking revenue beyond commissions often discover competitive advantages that rivals struggle to replicate.
E-commerce giant Alibaba exemplifies this approach through its Chinese shopping platform, Taobao, which was created to compete with eBay’s marketplace. By forgoing commission fees, Taobao prioritized customer acquisition by generating revenue through advertising and software sales to merchant storefronts. This strategy proved decisive: “In fact, Taobao was so successful that eBay shut down its operations in China in 2006,” Zhu says in Winning with Digital Platforms.
By combining escrow services with innovative revenue models, platforms can secure transactions, encourage repeat usage, and differentiate themselves in the market.
2. Control the Information Flow
Strategic information management is a powerful tool to block bypass attempts by disrupting direct connections between buyers and sellers that could enable off-platform deals.
Airbnb provides a real-world example, as featured in Winning with Digital Platforms. The platform withholds exact property locations and host contact details until bookings are finalized.
By restricting access to this information, platforms increase the friction of third-party transactions, ensuring that users engage exclusively through official channels. Without the essential information needed for autonomous deals, users have little choice but to remain on the platform.
This approach not only preserves revenue streams but also reinforces the platform’s unique value proposition. When users can’t dodge the system, the platform is essential for completing successful transactions.
3. Establish Economic Barriers
Upfront fees and contractual arrangements can block disintermediation before it starts.
“Firms may also block or punish disintermediation with contractual agreements,” Zhu says in Winning with Digital Platforms.
Policies, such as advance payments, establish expectations that encourage platform loyalty, though enforcement can be challenging if customers disregard rules.
Thumbtack, a home services platform featured in Winning with Digital Platforms, offers an effective solution: service providers pay immediately when a customer expresses interest. Capturing value upfront reduces the temptation to seek alternative payment methods.
However, excessive barriers can backfire. As discussed in the course, ZBJ experimented with rewarding clients for reporting providers who bypassed the platform. Instead of preventing disintermediation, this strategy hindered growth and strained user relationships.
4. Transform User Data Into New Revenue Streams
Platform user data is an asset competitors can’t access. At ZBJ, Mingyue leveraged this advantage: “We advised our shareholders that by making transactions on our platform free, we would attract a large number of users and gather extensive data,” he shares in Winning with Digital Platforms.
By sacrificing short-term revenue, ZBJ gained insights to shape new products and services. This data-driven approach enabled the company to anticipate market trends and develop thoughtful brand extensions.
5. Increase Control Over Your Ecosystem
Expanding a platform’s offerings keeps users engaged and makes informal alternatives less appealing.
ZBJ responded to growing demand for services like design, trademark registration, patents, and website development—previously sourced externally—by launching new offerings, including the ZBJ Finance and Taxation Service Company. These decisions improved operational efficiency, expanded market reach, and created economies of scope.
Mingyue explains in Winning with Digital Platforms, “We have built several ‘wells’ in trademark registration, patent services, finance, and taxation. These ‘wells’ generate hundreds of millions in revenue annually, addressing our monetization challenges and shaping our business model.”
ZBJ further integrated online and offline experiences through Zwork co-working spaces in over 100 cities across China, raising awareness of ZBJ’s website and connecting local talent and institutions. By combining these strategies, ZBJ reduced disintermediation, strengthened customer trust, and ensured sustained value.
Combat Disintermediation with HBS Online
Reducing disintermediation in your platform business requires proactive, hands-on management. As Zhu emphasizes in Winning with Digital Platforms, “Platforms can try to mitigate the risk by either preventing the various sides from going off platform or by creating enough value during transactions to incentivize the sides to remain on the platform.”
Choosing the right strategy allows you to slow or even stop disintermediation. Some situations require quick fixes, while others demand bold business-model transformations.
Ready to evolve your platform, curb disintermediation, and unlock growth? Explore Winning with Digital Platforms—one of our online digital transformation and AI courses—or dive into our comprehensive six-month Credential of Digital Innovation and Strategy. To explore all our digital transformation and AI programs, download our free course flowchart to find the right fit.
