Please join me today in welcoming Bay Area journalist

Marina Krakovsky, the author of "The Middleman Economy."

Just published.

Marina's writing has appeared in "The New York Times Magazine,"

"The Washington Post," the "Stanford Magazine,"

"Scientific American," "Discover," "Psychology Today,"

and "Slate."

Marina was also a researcher for Eric Schmidt and Jonathan's

book, "How Google Works."

Marina has earned a BA in English

from Stanford University.

Thank you for coming to Google today.

MARINA KRAKOVSKY: Thank you.

All right.

So I'm here to tell you that we are all middlemen.

I'm a middleman.

You guys are middlemen.

And what I will say is why I say that.

And also, I'll give you ways to think about how you

could be a better middleman.

So if we think back to the day when the internet was still

in its early years and people were all

trying to figure out what's this going to mean for all of us,

a lot of people were saying that the internet's radical ability

to connect everybody would make middlemen obsolete.

Bill Gates actually wrote in his 1995 book, "The Road Ahead,"

that the internet itself would become the ultimate go-between,

the universal middle man.

He foresaw a time in the future when we wouldn't

need to turn to middlemen.

We would be able to do our own buying and selling directly.

But if you look around 20 years later,

you see, very clearly, that that actually has not happened.

In fact, I'll argue that the opposite has happened.

That the internet has made middlemen more prevalent

and more valuable.

So look at the biggest players on the internet.

eBay and Amazon are middleman businesses.

Uber and Airbnb are middleman businesses.

Google is a middleman business.

Right?

And I'm not just talking about tech giants.

I'm also talking about individual middlemen

who are thriving thanks to the tools of the internet.

So think about eBay.

Anybody can buy and sell directly

through eBay being a middleman but most of the trade on eBay

actually flows through resellers,

through trusted middlemen on eBay.

And on LinkedIn, something very similar happens.

It's all about the recruiters.

Recruiters bring in more of LinkedIn's revenue

then all the other LinkedIn users combined.

So the internet clearly didn't do away with middlemen.

It's actually made them more efficient, and often,

more effective at what they do.

So I've been thinking for a very long time

about what is the deal with middlemen, basically.

I mean, it's so strange.

Middlemen have been a part of every society that I know of.

Throughout history we've had middlemen.

And yet, people have often had very strong negative feelings

about middlemen, feelings of resentment,

anger, contempt, sometimes even disgust.

And, at the same time, middlemen are still there.

Or to put it another way, if people

are so eager to eliminate the middlemen,

why have we never been able to do so?

These are the driving questions behind my book

and that those are the questions that I really tried to answer.

So I talked to economists and psychologists and sociologists

who think about such issues.

But also with ordinary-- or you might

say extraordinary-- middlemen, people

who I think do a great job and are doing just fine--

thank you very much-- in the age of the internet.

So it's people that you might expect, like real estate agents

and travel agents and car dealers.

But also people that it might take you

a moment to realize that they are middlemen, too.

So, for example, gosh, a wedding planner is a middleman.

If you pause to think about that, right?

A venture capitalist is a middleman.

A person who started a two-sided market, like Open Table,

that's a middleman.

There are middlemen all over.

Gallerists are middlemen.

Anytime you're dealing with any kind of broker, dealer, anybody

who's connecting two groups of people, that's a middleman.

And what's interesting from talking

to all these different people is that even though they're

from different industries, you start to see patterns.

You start to see what they have in common

that is making them as effective and successful as they are.

And that's sort of what I started to do in my book,

is to tease out those commonalities that

are true everywhere.

And although all the examples that I use throughout the book

and throughout my presentation will

be of professional middlemen-- people who

identify as middlemen in their jobs--

I do believe that all of us are middlemen,

at least in some area of our work or in our personal lives.

So what do I mean by a middleman?

I think we all have an intuition about this.

And we think of a middle man is the person connecting

two groups of people or two individuals, the person

in-between.

But I want to give you a more useful definition that explains

what middlemen actually do.

And this definition comes from a man

named Mike Maples, Jr. He's a venture capitalist here

in the valley.

Started a fund called Floodgate that was an early investor

in Lyft and TaskRabbit-- middleman businesses--

as well as, of course, other start-ups.

And he says this.

A middleman is the person in a network who

connects nodes in the network to increase

the value of the network.

I think it's a useful definition,

and I'm going to talk a lot more about what that means.

But I also want to acknowledge that middleman

is a sexist word.

I realize it's a sexist word.

And I'm using it despite that because I really

think no other word will capture what I'm trying to do,

which is really push against these cultural ideas

about middlemen.

You know, that word has these strong connotations.

We just don't hear people saying,

ah, let's cut out the intermediary.

It's really about the middleman.

So forgive me for using that word.

There's a reason.

So going back to this idea that middlemen

are people who we increase the value of a network

by connecting nodes.

I do think it's a really helpful start,

but it's not a complete definition.

And the reason it's not complete is that not all connectors

are of equal quality.

Right.

We know that.

And if you think about Metcalfe's law--

I would guess everybody in this room knows what that is.

Metcalfe's law, this provocative claim

that the value of a network grows quadratically

with the number of connected users.

Well, that may not be true.

It may be true sometimes.

It's certainly not true for every additional user

you add to a network.

And if you think about it in terms of middlemen--

or if you think of it in terms of any kind of user,

actually-- if you have a network that has a certain value

and you take out some of those nodes,

sometimes taking out a single node

will just decimate the network.

It'll radically decrease the value of the network.

And sometimes taking out a node will

have almost no effect at all.

And sometimes taking out a node will actually

increase the value of the network

because some of these connectors are actually

having a net negative effect on the value of a network.

So if you think about spammers, that

would be an example of something like that.

So it is really important to think

about connectors' quality.

But how do you think about connectors' quality?

What is it that defines the quality of a connector

or of a middleman?

And the way I find it useful to think about it

is in terms of these two dimensions.

One is warmth, and the other is competence.

Warmth and competence.

And these are specialized terms that social psychologists

use when they're talking about how we judge other people.

So this isn't just true about middlemen.

This is true about human judgment in general.

When we meet somebody, we quickly

evaluate them based on our perceptions

of the person's warmth, which is all about their intentions.

Are they friend or foe?

Are they on my side or not?

And competence, which is a separate issue.

And that's really all about the ability

to deliver on those intentions.

Those are totally separate.

And if you combine them, you quickly

generate this nice two-by-two matrix

with four possible combinations.

And I want to talk through each of these

so you know what I'm talking about.

I think that these labels that I've come up

with really capture some of the emotion

and some of the ambivalence that we

have about middlemen because middlemen are not all created

equal.

They really vary in quality across these two dimensions.

So clearly, the worst type is the one

I call the parasite person, who is

low in warmth and competence.

After the financial crisis of 2008, a lot of people

put the bankers on Wall Street in that quadrant.

They've actually done studies on this,

and companies like Goldman Sachs and AIG

landed squarely in that cold, incompetent quadrant.

We don't need to say much about that.

What's more interesting is these ambivalent cases.

So, the predator-- the person who is competent, but really

doesn't have your interests at heart--

this is the person that we tend to resent.

And I don't know about you guys, but this is how

I feel about my cable company.

They're competent.

They're able to deliver high speed internet and video

to my home.

But clearly, they don't have my best interests at heart.

They seem to be taking advantage of their monopolistic power

for their personal gain, not for us.

They have high prices, terrible customer service.

All of that makes me think that they're not warm at all, even

if they're competent.

Now the pet is maybe a little bit better because they're

at least on your side.

But unfortunately, they can't really

deliver on those good intentions.

And, to my mind, a good example would

be the stereotypical mom-and-pop shop.

So the service might be really slow.

You might have to place a special order and wait for it

to be delivered.

The prices are high.

But it's not because they're trying to gouge you.

They're not trying to take advantage of you.

They really mean well.

They just can't do any better, unfortunately.

And this sort of person evokes feelings of pity.

So you might patronize a store like that

because you feel bad for them.

But if the difference in price, or quality,

speed, and all those sorts of things--

if that difference grows to a certain point,

you're going to give up on them.

You're still going to go with the retail giant instead.

So clearly, the best type of middleman to deal with

is the partner.

Both warm and competent, they have your best interests