Aggregator Business Model
Jul
The aggregator business model has come to disrupt every industry. This model, frequently confused with other kinds of platforms, usually involves organizing, under one brand, a very populated sector, such as taxis, hotels, travel, groceries, food, and more.
To simplify, the aggregator may act as a middleman, but unlike other platforms, it tightly controls the entire user experience. The internet made the disruption caused by this business model possible.
The internet’s disruptive impact lies in overturning the traditional value chain. First, the Internet has made distribution (of digital goods) free, neutralizing the advantage that pre-Internet distributors leveraged to integrate with suppliers. Secondly, the Internet has made transaction costs zero, making it viable for a distributor to integrate forward with end users/consumers at scale.
Chart by stratechery.com
This has fundamentally changed the competition plane: distributors no longer compete based on exclusive supplier relationships, with consumers/users an afterthought. Instead, suppliers can be commoditized, leaving consumers/users as a first-order priority.
By extension, this means that the most critical factor determining success is the user experience: the best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle.
Let’s understand how this business model works in more detail.
Contents
What is an Aggregator Business Model?
It is a networking e-commerce business model in which a firm, known as an aggregator, brings together, in one place, information and data about a particular good or service offered by several competing providers. The aggregator makes the providers its partners and sells their services or products under its brand.
The providers will never become the aggregator’s employees. They’ll continue to be the owners but sign a contract with the aggregator. The aggregator almost always doesn’t have any manufacturing structure or warehouse. It relies on its capability of marketing its partners in a win-win way by creating a single domain that offers uniform quality and price, providing convenience to users.
Aggregator Business Model Canvas
Let’s look at how the aggregator business model can be designed on the business model canvas.
Aggregators Features
- All the goods or services come from the same industry. They are just organized under one brand;
- The partners are never employees. They can accept or reject the aggregator’s proposal;
- The customers are not only the users who will buy the services of the partners. The partners themselves, as the aggregator, have to offer advantages for them to choose this platform rather than others;
- Most of the revenue is invested in developing and marketing a brand. This brand has to mean quality, trust, price, and anything that can attract partners and users;
- The quality of service/goods must be standardized, so the contracts demand that all providers ensure a certain level of quality;
- The contract signed between the aggregator and provider involves a win-win strategy: both parties benefit from offering standardized quality.
How does the Aggregator Business Model work?
Well, the sequence of steps is kind of simple:
- The aggregator gets in contact with the provider and offers a partnership plan;
- Providers and aggregators sign contracts and become partners;
- Aggregator creates a network of partnerships;
- Aggregator invests in a great marketing strategy to empower its brand;
- Users are attracted by the aggregator’s promises to buy through its platform;
- Partners get their customers and the aggregator, and it’s commission.
How Different Companies Apply the Aggregator Business Model
Some of the most successful companies have adopted the aggregator business model, enabling them to disrupt traditional industries and create highly scalable operations. By modularizing key components and integrating user data, these businesses have redefined how value is delivered. Here’s how different companies have applied this model to transform their sectors.
Traditionally, publishers combined publications and articles into comprehensive outputs. Google transformed this approach by modularizing individual pages and articles, making them directly accessible through search. By integrating search results with user profiles and search data, Google created a system to sell highly targeted and effective advertising.
This innovative strategy has established Google as a leading marketplace platform for advertisers and users, harnessing software solutions and e-commerce strategies to effectively identify and address market gaps.
Facebook (and Ad Networks)
Previously, publishers integrated content and advertisements. Facebook modularized advertisements by allowing advertisers to target customers directly, not via proxy. Facebook integrated News Feed ad inventory and profile data, enabling it to sell highly effective advertising. By acting as a business aggregator for advertisers, Facebook combines its app ecosystem with advanced software development to maximize user engagement.
Amazon
In the past, book publishers combined editing, marketing, and distribution into a unified process. Amazon disrupted this model by modularizing distribution through its e-commerce platform and later through e-books. The company has exemplified the aggregator model by integrating customer data and payment systems with its e-book services and Amazon publishing initiative. This approach extends far beyond books, positioning Amazon as an e-commerce, shopping, and delivery aggregator, reshaping numerous industries in the process.
Netflix
Previously, networks integrated broadcast availability and content purchases. Netflix modularized broadcast availability by making its entire library available anytime in any order. Netflix integrated content purchases and customer management, enabling a virtuous cycle of increased subscription demand and content purchase capability. Its app development and ability to aggregate diverse content have solidified its role as a leader in on-demand entertainment.
Uber
Previously, taxi companies integrated dispatch and fleet management. Uber modularized fleet management by working with independent drivers. Uber integrates dispatch with customer management, enabling it to scale worldwide. In addition, Uber has expanded into delivery aggregators, offering new services that leverage its app to connect businesses and customers seamlessly.
Airbnb
Previously, hotels integrated vacant rooms and trust (via brand). Airbnb modularized vacant properties by building a reputation system for trust between hosts and guests. Airbnb integrates property management and customer management, enabling it to scale worldwide. As a marketplace platform and business aggregator, Airbnb helps homeowners identify market gaps, who then, in turn, provide unique lodging options to visitors, thus fostering trust within its community of lodgers and home/estate owners.
How does an Aggregator make money?
As previously mentioned, the aggregator’s revenue stream is commissions. The aggregator provides customers to the partners, who pay a percentage of their earnings. For that, the partners quote a minimum price, and the aggregator quotes the total price to the final consumer. The revenue can vary according to the industry, the season, the place, etc.
The value proposition of an Aggregator
The value proposition to the final customer, the buyer, can be summarized in time, money, convenience, and safety. For example, it’s much more convenient for users to browse just one website and compare prices.
The aggregator also increases the possibility of finding the best offer, and the customer can feel safer by checking the ratings and reviews about the providers. Regarding the partners, the value proposition is reducing business costs. They only pay when they earn. And they don’t have to invest in all the business’s infrastructure or marketing.
Aggregator Business Model Vs. Marketplace Business Model
There are many similarities between both business models, and that’s why they are often mistaken. Aggregators and marketplaces connect vendors and buyers on a common platform, and the service is nearly identical. Nevertheless, some differences can be easily identified, as follows:
- Aggregator doesn’t allow users to interact freely on the platform. In other words, it doesn’t only enable the connection between both sides. On the contrary, the aggregator keeps interacting with the parties involved. It has tight control over the whole transaction;
- On the other hand, a marketplace is a platform that allows sellers to promote their goods or services. It’s a species of middleman between buyer and seller;
- An aggregator has a network of partners organized under a big umbrella of its brand. All services/goods are provided under the same name;
- In a marketplace, the providers are responsible for all the product details, quality, price, shipping process, etc.;
- Aggregator organizes the different providers under one standard. The terms and conditions, including prices, are all defined during the contract.
Types of Aggregators
Some of the most common aggregators are:
- Content: They aggregate news and updates from several online sources;
- Job: They aggregate job postings from various career sites and employer listings;
- Poll: They aggregate poll results from different organizations to estimate public opinion;
- Real estate: They aggregate listings from several sources, making property details and prices available;
- Review: They aggregate reviews of the entertainment business, such as books, games, TV shows, or films;
- Search: The metasearch engines aggregate results from many search engines;
- Social networks: These are websites that aggregate content from various networking websites;
- Shopping: They aggregate results from different shopping engines, displaying price and rating comparisons;
- Video: They aggregate video content from several websites and categorize them into lists.
The bottom line
It’s very common to think that the aggregator business model was born in the digital world because the internet has given businesses scalability (think about Uber or Airbnb) and made all the processes much more manageable, from payment to shipping. However, the aggregator business model existed before the internet.
Many companies in the music industry, for example, controlled artists and CD production (which is just a short distance from today). In spite of that, the digital age has turned the aggregator into a disruptive business model capable of changing the way we do business in any industry. Just be there and watch it!
