Aggregators like Amazon, Seamless, Google and Expedia connect buyers & sellers (i.e. producers & consumers) on a common platform
Aggregators monetize an informational/data advantage they hold – mostly at the expense of the producer, but often the consumer as well
The Aggregator business model is lucrative and scalable, but now faces challenges from both sides
Blockchains present a better future for the relationship between these three roles: Producer, Aggregator, and Consumer
I recently ordered delivery through Caviar… or maybe it was Seamless. As I unpacked the food, I found a card, which reminded me that the restaurant appreciated my business, and implored me to purchase directly from them next time. The phrasing was something like:
“don’t support corporate greed, buy from [restaurant].com.”
“Still, he would rather opt-in than out. Third-party apps are too big to ignore… They broaden Smoke’s geographic reach, expand its customer base and keep the restaurant visible… Hagler can’t afford to lose the service. As costly as it can be to run a restaurant off third-party delivery apps, it would be even costlier to drop them.” (Berkeleyside News)
This sentiment is real, and it’s not unique to restaurants, nor even small businesses. Marriott’s public website includes the phrase:
“Take the stress out of travel and book your hotel reservation direct.”
Both the restaurant and Marriott are expressing a preference for direct purchase of their product/services. One might ask, as opposed to what?
What is the Aggregator Business Model?
Of course most of us are familiar with aggregators of different stripes – Seamless, Caviar and others for purchasing food, Expedia, Booking.com, and more for travel.
What Do These Aggregators Do?
Broadly speaking, aggregators provide connections between producers and consumers with a uniform experience for consumers to consume. Another familiar example isAmazon.com for which consumers are people ordering items to be delivered, and producers are sellers of goods. Netflix has streaming subscribers as consumers and movie and tv creators as producers. Spotify is similar for audio. Google has searchers as consumers, and those wanting their content to be found as producers. (And AdWords purchasers are their paying customers).
Outside of technology, funds in financial services have an aggregator structure with investors as consumers and companies as producers of equity. Department store retailers are also aggregators.
Why Do These Aggregators Exist?
1. Discovery (Search & Recommendation)
When I was hungry, I wasn’t specifically seeking to order from the restaurant I ended up with. I was just hungry!
I didn’t know what I wanted to eat just yet. So I searched and discovered that restaurant on Seamless/Caviar.
Similarly, when booking travel – I usually just want to get from point A to point B. I’m not intending to book with any specific vendor. I may prefer one vendor to another, but it really isn’t the primary consideration.
Moreover, I don’t want to learn a new interface each time I consume a product or service. It involves navigation, finding purchase buttons, potentially re-inputting credit card information, etc.
2. Quality Control and Value Added Services
I can usually assume something listed by an aggregator has a minimum level of quality.
Aggregators also sometimes take on risk to assure quality of service:
Airbnb provides general around the booking (insurance, sometimes refunds)
Credit card companies and the underwriting banks process chargebacks if the consumer is unsatisfied
Seamless/Caviar will refund the consumer if the food doesn’t arrive, etc.
Amazon doesn’t just let you buy the goods, it makes sure they get to you
Individual travel agents are also aggregators in their own right, providing a variety of value added services
management of complex itineraries
looking after clients if they are stranded, etc.
Even department store lets you try on the clothes before you buy them – a value added service we may miss nowadays.
Why is the Aggregator business model so lucrative?
Usually, the aggregator builds a durable advantage by knowing more about the producers and consumers than they can reasonably know about each other.
This information advantage helps to build consumer preference towards the aggregator versus trying to aggregate on their own.
So we can keep lists of vendors we like, or ask friends for recommendations, but the aggregator can usually do it better.
Eventually, this also deters other aggregators from entering the market. To reach consumers, producers are then forced to go through aggregators.
Why don’t producers always like aggregators? After all, they can outsource some of their sales and marketing costs to the aggregator.
The problem is usually around the percentage of the transaction captured – directly or indirectly – by the aggregator. This varies greatly by industry, but upwards of 30% is not uncommon.
The aggregator is taking a large fee on a transaction that could/would have occurred without the aggregator.
This is found money for everyone. Without the aggregator the transaction would not have occurred at all.
Of course, the truth likely lies somewhere in between
How do producers maintain market pull?
1. Product Differentiation
Ensuring their products are not commodities tends to shift the value to producers versus the aggregator.
This is especially visible in areas like pharmaceutical distribution, where patent medications are high margin for manufacturers and low margin for distributors. Conversely, the margins have a somewhat opposite relationship for generics.
2. Distribution by Direct Purchase
Remember Marriott? Having a direct relationship with the end customer can remove the need for the aggregator entirely; or lessen their transaction fee.
3. Loyalty Programs/Volume Discounts
One way to encourage the same customer to keep doing business with the producer is to give ongoing benefits for the continued business – like volume discounts.
Loyalty programs, similarly, can gamify and reward repeat business, produce fantastic reviews, and give more to the producer’s most loyal customers.
Blockchain and Aggregation
Blockchain technology provides a new path for aggregation.
I do not expect aggregators to disappear or their services to be less necessary.
The technology can reduces the information advantage that the aggregator builds over time – due to producer’s and consumer’s greater access to the underlying data.
Blockchains standardize key data models, which allows consumers a uniform experience transacting with producers, and also naturally eases the discovery process
Blockchain’s secure data sharing allows consumers greater trust in the data available about producers.
Granular information about producer’s products and processes can be shared through the blockchain – including ethics and sustainability.
Reviews and ratings may not be owned by the aggregator or producer but rather the consumers themselves. They are portable across platforms, producers and contexts.
Producers and aggregators would not be able to remove negative reviews!
Producers could even bidirectionally review consumers and comment on reviews.
This levels the playing field – in which aggregators still provide value around Experience and Value Added Service, but may not have the same degree of structural advantage they’ve enjoyed to date.
Aggregators of the future
Aggregators of the future can monetize greater trust in the data in the system into more business.
High quality data increases trust around transactions and can also enable access to financing – both increasing overall business volume. Which, in the end, is what everyone wants.
About the Author:
BlockApps President & CEO
Kieren is President and CEO at BlockApps. He architected and implemented BlockApps RESTful API and surrounding products and components, including the authorization framework, peer to peer networking code, Node.js client, and third party integrations.
BlockApps was the first company incubated out of ConsenSys in 2015 and has created several industry innovations including the launch of the best, easy-to-use, most powerful Blockchain as a Service (BaaS) platform on the market called STRATO. Since launching STRATO on Microsoft Azure in 2015, BlockApps has become the first blockchain company to partner with all major cloud platforms (Azure, Amazon Web Services, Google Cloud Platform) and is a founding member of the Enterprise Ethereum Alliance (the world’s largest open standard blockchain organization). Today, we continue to expand our partner network and the enterprise-grade capabilities of STRATO.
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