Defining Aggregators – Stratechery by Ben Thompson

An “aggregator” is a company which aggregates demand in a vertical and has three key features: 1) it has a direct relationship with its customers, 2) it has effectively zero marginal costs for serving users and 3) its costs to acquire customers fall over time. Level 1 aggregators acquire supply (Netflix). Level 2 aggregators don’t own their supply ... See more

Market-making is certainly a characteristic of Aggregators; Google, for example, is a one-stop shop for users, advertisers, and content suppliers. What makes Aggregators unique, though, is their infinite scalability, driven by the effectively zero marginal and transactional costs necessary to serve one more user, advertiser, or supplier.

Super-AggregatorsWhat makes Facebook and Google unique is that not only do they have zero transaction costs when it comes to serving end users, they also have zero transaction costs when it comes to both suppliers and advertisers.Start with supply: not only is the vast majority of online content accessible to Google’s search engine (unsurprisingly,... See more

Ben Thompson described this phenomenon in his signature aggregation theory. Pre-internet, you captured profits by controlling supply. Now, post-internet, you capture profits by aggregating demand.

What followed was probably my first clear articulation of Aggregation Theory, albeit without the name. The point about effectively infinite competition, though, is a critical one. Neither reach nor timeliness were differentiators, but rather commodities; the companies that dominated on the Internet were those — Google and Facebook in particular — t... See more

This is one key insight in Ben Thompson’s famous Aggregation Theory: modern marketplaces get their power from aggregating the demand side. And that’s a much better position than the old way of trying to own the supply side.