aggregator-business-model

The Aggregator Business Model

An aggregator business model can be classified as a sort of platform business model, however, with its specific features. For instance, the aggregator might act as a middleman. Still, it monetizes the eyeballs on the platform (advertisers subsidize the aggregator) while keeping a tight control on the whole experience of users.

The birth of the aggregator

There isn’t a single way to define aggregator business models. The person who most popularized this term was Ben Tompson from stratechery.com, as he explained in the graphic below:

Aggregation theory explained visually by Ben Thompson of stratechery.com

This is a great way to classify aggregator business models.

In this guide, we’ll look at a few key differentiators, to define an aggregator business model, but also to distinguish it with the platform business model based on my observations.

Is the aggregator a platform?

Before looking at how an aggregator might be different from a platform, let’s specify that the aggregator can be comprised within the platform business model, however, it has very specific features.

Middleman vs. invisible hand: intermediation rather than interactions

In an aggregator business model, the company which acts as the aggregator doesn’t work to make users on the platform interact freely. Rather it has tight central control. In short, the aggregator controls how the company will scale.

Therefore, while in a pure platform business model the platform scales by becoming invisible (a smooth experience is one of the keys to trigger network effects).

In an aggregator model, it’s the aggregator that keeps interacting with the two or more parties involved (Google shows users a search result page, and the same Google handles the ad inventory; users and advertisers don’t interact with each other to set the price).

For instance, Google as a search engine is more of an aggregator, where the company centrally enriches its index and builds up its rankings. As a side effect, there is still an ecosystem of publishers and advertisers born as a result of this aggregation process but it’s not proximate.

Therefore, the aggregator acts like a middleman but rather than monetizing directly by getting a cut it might monetize via advertising.

Central control vs. Network effects: top-down vs. bottom up

One of the key elements of platform business models is network effects. Or put it shortly, for each additional user joining the platform, that becomes more valuable to the next one.

While in a platform business model this is the essence, in an aggregator business model instead, it’s the aggregator that centrally scales up the platform. Going back to Google’s case, the company performs wide and core algorithms change to substantially influence how the search engine will give back results, at scale.

Subsidized and asymmetric vs. taxed and symmetric

The aggregator might leave the service free forever, and sell the eyeballs through a sort of attention-based model. Thus, advertisers or companies pay to get visibility on top of the aggregator’s platform.

The pure platform instead acts like a government, getting a tax on each transaction. While the aggregator makes the service subsidized by a key customer (companies paying for visibility on the platform) and the service is free.

A platform business model by acting more like a state – once it makes sure some key guidelines are followed (safety of the network, lack of spam on the platform, stable and liquid infrastructure, and so on) – the rest is left to the key players’ interactions.

Key takeaways

  • It’s not always easy to differentiate between aggregators and platforms and in some cases, the two might overlap. Indeed, an aggregator is a platform, but with specific features.
  • An aggregator might act more like a middleman, however, rather than monetizing directly by getting a cut, it might monetize the eyeballs on the platform.
  • A pure platform business model instead acts more like a state, and as such it will collect a tax for enabling the key players to interact almost freely (key guidelines are set by the central platform).

Related Business Concepts

Platform Business Model

platform-business-models
A platform business model generates value by enabling interactions between people, groups, and users by leveraging network effects. Platform business models usually comprise two sides: supply and demand. Kicking off the interactions between those two sides is one of the crucial elements for a platform business model success.

Marketplace Business Model

marketplace-business-models
A marketplace is a platform where buyers and sellers interact and transact. The platform acts as a marketplace that will generate revenues in fees from one or all the parties involved in the transaction. Usually, marketplaces can be classified in several ways, like those selling services vs. products or those connecting buyers and sellers at B2B, B2C, or C2C level. And those marketplaces connecting two core players, or more.

Network Effects

network-effects
A network effect is a phenomenon in which as more people or users join a platform, the more the value of the service offered by the platform improves for those joining afterward.

Asymmetric Business Models

asymmetric-business-models
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus have a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility.

Attention Merchant Business Model

attention-business-models-compared
In an asymmetric business model, the organization doesn’t monetize the user directly, but it leverages the data users provide coupled with technology, thus having a key customer pay to sustain the core asset. For example, Google makes money by leveraging users’ data, combined with its algorithms sold to advertisers for visibility. This is how attention merchants make monetize their business models.

Wholesale Business Model

wholesale-business-model
The wholesale model is a selling model where wholesalers sell their products in bulk to a retailer at a discounted price. The retailer then on-sells the products to consumers at a higher price. In the wholesale model, a wholesaler sells products in bulk to retail outlets for onward sale. Occasionally, the wholesaler sells direct to the consumer, with supermarket giant Costco the most obvious example.

Retail Business Model

retail-business-model
A retail business model follows a direct-to-consumer approach, also called B2C, where the company sells directly to final customers a processed/finished product. This implies a business model that is mostly local-based, it carries higher margins, but also higher costs and distribution risks.

B2B2C

b2b2c-business-model
A B2B2C is a particular kind of business model where a company, rather than accessing the consumer market directly, it does that via another business. Yet the final consumers will recognize the brand or the service provided by the B2B2C. The company offering the service might gain direct access to consumers over time.

Crowdsourcing Business Model

crowdsourcing
The term “crowdsourcing” was first coined by Wired Magazine editor Jeff Howe in a 2006 article titled Rise of Crowdsourcing. Though the practice has existed in some form or another for centuries, it rose to prominence when eCommerce, social media, and smartphone culture began to emerge. Crowdsourcing is the act of obtaining knowledge, goods, services, or opinions from a group of people. These people submit information via social media, smartphone apps, or dedicated crowdsourcing platforms.

Open-Core Business Model

open-core
While the term has been coined by Andrew Lampitt, open-core is an evolution of open-source. Where a core part of the software/platform is offered for free, while on top of it are built premium features or add-ons, which get monetized by the corporation who developed the software/platform. An example of the GitLab open core model, where the hosted service is free and open, while the software is closed.

Open Source vs. Freemium

open-source-business-model
Open source is licensed and usually developed and maintained by a community of independent developers. While the freemium is developed in-house. Thus the freemium give the company that developed it, full control over its distribution. In an open-source model, the for-profit company has to distribute its premium version per its open-source licensing model.

Freemium Business Model

freemium-business-model
The freemium – unless the whole organization is aligned around it – is a growth strategy rather than a business model. A free service is provided to a majority of users, while a small percentage of those users convert into paying customers through the sales funnel. Free users will help spread the brand through word of mouth.

Freeterprise Business Model

freeterprise-business-model
A freeterprise is a combination of free and enterprise where free professional accounts are driven into the funnel through the free product. As the opportunity is identified the company assigns the free account to a salesperson within the organization (inside sales or fields sales) to convert that into a B2B/enterprise account.

Franchising Business Model

franchained-business-model
In a franchained business model (a short-term chain, long-term franchise) model, the company deliberately launched its operations by keeping tight ownership on the main assets, while those are established, thus choosing a chain model. Once operations are running and established, the company divests its ownership and opts instead for a franchising model.

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