Author: Ben Thompson Publication: Stratechery Date: September 26, 2017 URL: https://stratechery.com/2017/defining-aggregators/
"Defining Aggregators" is a September 26, 2017 essay by Ben Thompson on Stratechery that refines his earlier Aggregation Theory (2015). Where the 2015 essay set out to explain a phenomenon, this essay states a precise definition intended as a future point of reference that later analysis can cite without ambiguity. It supplies a three-characteristic test for what counts as an aggregator, a three-level classification by relationship to suppliers, the Super-Aggregator subset, and a set of arguments about why aggregators are difficult to address through traditional antitrust.
Three characteristics of an aggregator
Thompson states that an aggregator must have all three of the following characteristics; the absence of any one disqualifies a company:
- Direct relationship with users — payment-based, account-based, or regular-usage-based.
- Zero marginal costs for serving users — no cost of goods sold, distribution, or transaction cost per marginal user.
- Demand-driven multi-sided networks with decreasing customer-acquisition costs — a virtuous cycle running from users to suppliers to users to suppliers.
By this test, Apple hardware and Amazon's retail operation are not aggregators, while Amazon Merchant Services and the App Store are.
Three levels by relationship to suppliers
Thompson classifies aggregators into three levels according to how they obtain supply:
- Level 1 — Supply Acquisition. The aggregator pays for or acquires its supply, as Netflix does. Thompson describes Level 1 aggregators as slower-growing and vulnerable to deeper-pocketed competitors.
- Level 2 — Supply Transaction Costs. The aggregator does not own supply but bears onboarding and transaction friction, as with Uber and Airbnb in some jurisdictions.
- Level 3 — Zero Supply Costs. Suppliers come for free and often actively work to be discovered, as with Google's SEO ecosystem and the user-generated content on social networks.
Super-Aggregators
Thompson defines a Super-Aggregator as a three-sided market — users, suppliers, and advertisers — with zero marginal cost on all three sides. The only two examples he identifies in 2017 are Facebook and Google.
Regulating aggregators
Thompson argues that aggregators pose three difficulties for traditional antitrust:
- Users choose aggregators because they offer superior service, which undercuts a consumer-welfare standard.
- Aggregators are, in his account, inevitable, so breaking one up may simply seat a new aggregator in its place.
- Aggregators expand the addressable market for downstream suppliers, such as YouTube creators and Amazon merchants, and he argues regulators should preserve that ecosystem.
Provenance and relation to other work
The essay is positioned by Thompson as the definitional companion to his Aggregation Theory (2015) essay, and the three-level classification provides vocabulary for applying the framework to specific companies. The AI-applied version of the framework is treated separately in Aggregation Theory. As an essay, it advances Thompson's own arguments and is treated as a position rather than as evidence.
Relationships
- depends-on: Ben Thompson
- supports: Aggregation Theory
- related: Aggregation Theory — Ben Thompson (Stratechery, 2015) — original 2015 essay
- related: The FANG Playbook — Ben Thompson (Stratechery, 2016) — application to Big Tech