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Aggregation Theory
Aggregation Theory provides a framework to understand the impact of the Internet on nearly all industries.
Aggregation Theory
The disruption caused by the Internet in industry after industry has a common theoretical basis described by Aggregation Theory.
Defining Aggregators
A precise definition of the characteristics of aggregators, and a classification system based on suppliers. Plus, how to think about aggregator regulation.
The FANG Playbook
The FANG companies — Facebook, Amazon, Netflix, and Google — are far more similar than you might think. Their rise in value is no accident, and it is connected to Aggregation Theory.
The Smiling Curve, originally created to explain the PC market, is one of the best frameworks to understand how the Internet is transforming industries, especially publishing.
Publishers and the Smiling Curve
Publishers used to live at the point of integration. The value of that integration, though, is gone with the Internet, which means value flows to suppliers and aggregators.
Differentiation and Value Capture in the Internet Age
The implication of the Smiling Curve is not only that aggregators have increased economic power, but that differentiated suppliers do as well; Omni Software is an example.
Intel, Mobileye, and Smiling Curves
Intel is buying Mobileye; it’s an acquisition that makes sense once you realize how much value there is in components.
The key economic change introduced by the Internet is the effective elimination of marginal distribution and transaction costs.
The Super-Aggregators and the Russians
Facebook is in trouble — again — for Russian ads about the election; figuring out how to deal with them requires first understanding that Facebook, like Google, is a Super-Aggregator. It faces zero transaction costs in all parts of its business.
The IT Era and the Internet Revolution
The history of technology is of two distinct eras: information technology enhanced existing business. The Internet revolution is destroying them.
Beyond Disruption
Clayton Christensen claims that Uber is not disruptive, and he’s exactly right. In fact, disruption theory often doesn’t make sense when it comes to understanding how companies succeed in the age of the Internet.
Aggregators, by virtue of owning demand, gain power over suppliers which become modularized and commoditized.
The Moat Map
The Moat Map describes the correlation between the degree of supplier differentiation and the externalization (or internalization) of a company’s network effect.
Economic Power in the Age of Abundance
Publishers are trying to threaten Google again, apparently unaware that because of the Internet they have no power: that flows to the platforms that control discovery.
Why Uber Fights
Ride-sharing is a winner-take-all market that depends on controlling demand more than it does supply.
Companies that win in the Internet era do so by owning the customer relationship, which gives them power over suppliers.
The Funnel Framework
The Internet has removed scarcity, meaning business models based on controlling distribution are no longer viable. Instead, the key to success is controlling access to the best customers — and that means being the best.
Disney and Fox
Disney’s rumored acquisition of 21st Century Fox is all about competing with Netflix; whether or not that is a good thing depends on your frame of reference.
Amazon Health
Amazon Health doesn’t seem like much now, but there are hints it could be the ultimate application of Aggregation Theory.
Understanding the differences between Aggregators and Platforms is essential for knowing how to compete, partner with, and regulate large companies.
A Framework for Regulating Competition on the Internet
Understanding the differences between platforms and Aggregators is critical when it comes to considering regulation.
Shopify and the Power of Platforms
It is all but impossible to beat an Aggregator head-on, as Walmart is trying to do with Amazon. The solution instead is to build a platform like Shopify.
The Bill Gates Line
Understanding the differences between aggregators and platforms matters for companies interacting with them and also regulators considering antitrust.
Disruption Theory
The Innovator’s Dilemma is a powerful framework for understand the world, but it doesn’t apply to everything, especially Apple.
What Clayton Christensen Got Wrong
Clayton Christensen continually predicts that Apple will be disrupted because his theory does not incorporate the importance of the user experience.
Apple and the Innovator’s Dilemma
This paper was originally written in 2010 for a Corporate Innovation class at Kellogg Business School, and thus predates Stratechery by several years.
The End of Trickle-Down Technology
Reaching developing markets depends on understanding that consumers with a small budget are very different from consumers who aren’t interested in spending much.
Disruption is still explanatory, but the Internet has changed a lot.
Beyond Disruption
Clayton Christensen claims that Uber is not disruptive, and he’s exactly right. In fact, disruption theory often doesn’t make sense when it comes to understanding how companies succeed in the age of the Internet.
Dollar Shave Club and The Disruption of Everything
Dollar Shave Club is a textbook example of how the new Internet economy will destroy value in incumbent industries.
Obsoletive
Not all products are disruptive: some are obsoletive. They are more expensive but remove the need for entire categories of products.
Modularity and integration happens throughout the value chain, and is the key to providing a superior user experience and extracting profits.
The Anti-Amazon Alliance
Google Shopping is changing its model, suggesting Google is joining the Anti-Amazon Alliance; 3rd-party merchants should do the same.
Email Addresses and Razor Blades
The fate of Harry’s and other DTC companies, particularly relative to companies like Credit Karma, highlight how the Internet elevates the importance of demand over supply.
Integration and Monopoly
Apple has won through integration, but integration combined with network effects and economies of scale can result in bad outcomes that look a lot like monopolies.
The Value Chain Constraint
Companies succeed or fail not based on technology but rather according to their ability to integrate within their value chains.
Intel and the Danger of Integration
Intel is in an increasingly bad position in part because it has been captive to its integrated model. Or, you could simply say they were disrupted.
Netflix and the Conservation of Attractive Profits
Netflix has a lot more in common with Uber and Airbnb than you might think: it all comes back to the Law of Conservation of Attractive Profits, a core principle of disruption.
In consumer technology — and increasingly enterprise — the best user experience wins, and it is the best hedge against disruption.
Best
The key to avoiding disruption is by providing a superior user experience; that, though, requires focus and execution.
Aggregators and Jobs-to-be-Done
Aggregators succeed by being the best at doing the jobs consumers want done.
Divine Discontent: Disruption’s Antidote
Apple has long defeated disruption by focusing on the user experience; Jeff Bezos and Amazon, though, show that user expectations for their experience are ever-changing.
Incentives
Business models are the surest way to understand a company’s motivations.
Apple’s Middle Age
For Apple, hitting middle age means a strategy primarily focused on monetizing its existing customers. It makes sense, but one wonders what happens next.
Facebook’s Motivations
The impact of Facebook’s News Feed changes on the media is far less interesting than what the changes — and their stated purpose — say about Facebook itself.
The Android Detour
Google is at its best when its product focus follows its business model; for too long Android was a detour.
Culture is the product of successful decisions, and it allows a company to scale. When it is time to change, though, it is a straitjacket.
Microsoft’s Monopoly Hangover
There are striking similarities between Microsoft today and IBM in the Lou Gerstner era, but today’s IBM should be a warning to Redmond.
The Curse of Culture
It is very fair to say that Apple is threatened by the potential rise of AI. Google, though, is also threatened by its inability to own customers’ attention. The solution for both companies may entail changing their culture, a very tall order indeed.
Services, not Devices
Microsoft needs to first understand the type of company it is, and choose its strategy accordingly. That means focusing on services, not devices.
Successful companies optimize themselves from one approach; to do something different is often impossible.
Google’s Go-to-Market Gap
Google is unique in that their business was built on being the best. The company, though, benefited from the open web. That is not the case in mobile.
Apple’s Strengths and Weaknesses
Both Apple’s strengths and weaknesses were on full display at its annual WWDC keynote; the HomePod is a perfect example.
Paypal’s Incentive Problem
By winning on the web, PayPal was actually disadvantaged when it came to competing in mobile, because its incentives were already shaped by a different problem.
What a company makes — and how it makes it — in indelibly tied up into how the company is structured.
Intel Problems
Intel is in much more danger than its profits suggest; the problems are a long time in the making, and the solution is to split up the company.
Disney and Integrators Versus Aggregators
Disney’s reorganization reinforces their integrated strategy; there is a lot to learn for anyone competing with Aggregators.
The End of Windows
The Windows division no longer exists at Microsoft, marking the end to a four-year process of changing Microsoft’s culture.
Apple’s Organizational Crossroads
A core part of what makes Apple Apple is its organization structure; Tim Cook has said it will never change. However, if Apple is serious about being a services company, change it must.
The Amazon Tax
Amazon is building a lot of businesses that look like AWS: taxes on major industries that work to everyone’s benefit. The reason, though, is that AWS is a lot like Amazon itself.
Why Microsoft’s Reorganization Is a Bad Idea
Steve Ballmer is reorganizing Microsoft into a functional organization: it is a mistake that misunderstands the company he leads.
Change is hard; the more successful you are, the more difficult it is.
Disney’s Choice
Cable TV created a world where differentiated content could profit from everyone; that is why it will be hard for Disney to make the choices streaming will force on them.
Oracle’s Cloudy Future
Larry Ellison has declared that Oracle is a cloud company, but their customer offering seems more suited to the world that was.
How Technology is Changing the World (P&G Edition)
P&G is cutting product lines, the plethora of which made far more sense in the retail world than online. More change is coming.
Technology and Society
The endgame for Aggregation Theory is inevitably antitrust.
United States v. Google
The Justice Department’s lawsuit against Google is appropriately narrow, and if it fails it gives a template for Congressional action.
Antitrust Politics
Analyzing the politics of the antitrust hearing featuring the CEOs of Apple, Amazon, Google, and Facebook.
A Framework for Regulating Competition on the Internet
Understanding the differences between platforms and Aggregators is critical when it comes to considering regulation
Tech and Antitrust
A review of the potential antitrust cases against Google, Apple, Facebook, and Amazon suggests that only Google is vulnerable.
Where Warren’s Wrong
Senator Warren’s proposal about how to regulate tech is wrong about history, the source of tech giant’s power, and the fundamental nature of technology itself. That doesn’t mean there aren’t real problems — and potential solutions — though.
Antitrust and Aggregation
The European Commission’s antitrust case against Google is likely to be the first of many against aggregators, because the end game of Aggregation Theory is monopoly.
The Internet generally and the business models of consumer tech companies specifically mean that the default outcome is the end of privacy.
Privacy Labels and Lookalike Audiences
Apple’s position on privacy seems unimpeachable, but it ignores trade-offs, and risks a bad outcome for the Internet as a whole.
Privacy Fundamentalism
The current privacy debate is making things worse by not considering trade-offs, the inherent nature of digital, or the far bigger problems that come with digitizing the offline world.
Open, Closed, and Privacy
Just as encryption is only viable on closed systems, so it is that increased privacy regulations will only entrench walled gardens. That should affect thinking on regulation.
Tech is increasingly impacting politics; it is only a matter of time before politics starts impacting tech.
The Voters Decide
An apolitical analysis of what is happening in U.S. politics through the lens of Aggregation Theory.
Tech Goes to Washington
Facebook, Google, and Twitter testified before a Senate committee: it provided evidence of how tech prefers power over decentralization, even if it means regulation.
Qualcomm, National Security, and Patents
The Trump administration blocked Broadcom’s acquisition of Qualcomm, and I think it was the right move. Understanding why means understanding Qualcomm and Broadcom’s plan for the company — and the problem with patents.
Ethical dilemmas and changing societal mores
China, Leverage, and Values
If there is a new tech cold war, it is one with shots fired over a decade ago, largely by China. The questions going forward are about both leverage and values.
The Uber Dilemma
Benchmark’s lawsuit against Uber is extraordinary; that is because Uber, despite everything, remains an extraordinary company. Game theory explains the implications.
Good-bye Gatekeepers
Harvey Weinstein was a gate-keeper — a position that existed in multiple industries, including the media. That entire structure, though, is untenable on the Internet, and that’s a good thing.
The Internet is fundamentally challenging the post-war order.
Friction
The Internet has removed friction: that means a whole new set of possibilities; it doesn’t mean they are all good.
TV Advertising’s Surprising Strength — And Inevitable Fall
TV advertising is having a good week at the upfronts, and it may be more resilient than expected. That, though, means the crash will be even more abrupt.
The Brexit Possibility
Brexit’s downsides are clear; might tech help realize upsides in building something new based on a new world order?
Most tech was made with good intentions; only later do the unintended consequences become clear.
Trustworthy Networking
The problems Facebook are facing today are the result of running into the future without considering unintended consequences, much like Microsoft and the Internet. There are clear solutions for the ad problem, but the filter bubble issue is much more fraught.
The Pollyannish Assumption
Moderating user-generated content is hard: it is easier, though, with a realistic understanding that the Internet reflects humanity — it is capable of both good and evil.
Meltdown, Spectre, and the State of Technology
Meltdown and especially Spectre are vexing vulnerabilities, precisely because processors are working as designed. All we can do is muddle through.
Evolution of Technology
To understand where technology is going, it is helpful to know where it has been.
The End of the Beginning
The beginning of technology was about the shift from batched computing in one place to continuous computing everywhere. That era of paradigm changes may be over, which means the real changes are only beginning.
IBM’s Old Playbook
IBM has bought Red Hat in an attempt to recreate its success in the 90s; it’s not clear, though, that the company or the market is the same.
Venture Capital and the Internet’s Impact
Venture Capital has been transformed by a surprising source: Amazon. Ultimately, no industry is safe from the impact of the Internet.
Humans love to communicate; that makes social the dominant technology of this epoch.
The Facebook Epoch
First came the PC, and on top of the PC the Internet. Then, mobile, but what will rule mobile?
Facebook, Phones, and Phonebooks
There are two types of social networks, and Facebook wants to be both. The problem is that the company already chose public sharing over private communication.
Messaging: Mobile’s Killer App
Messaging is a completely new kind of social networking that is uniquely enabled by mobile.
Mobile took technology from the desk to every part of life.
Beyond the iPhone
Apple’s event may have been lacking on the surface, but it laid the groundwork for innovations that will be revealed in time. And yes, it was courageous.
Digital Hub 2.0
The PC was famously the digital hub; now that is the smartphone.
Apple’s China Problem
Apple had mixed earnings: most of the world was great, but China was bad again. The reason is that in China WeChat matters more than iOS.
Media
Obsolete newspaper business models were predicated on controlling distribution.
Popping the Publishing Bubble
For years publishers haven’t had to worry about business models: they just captured attention and watched the money come in. Those days, though, are over: the publications that survive will start with business models and build journalism around it.
The Facebook Reckoning
Publishers are wringing their hands about whether or not to utilize Facebook’s Instant Articles, but the truth is most have no choice
Newspapers Are Dead; Long Live Journalism
The fundamental economic model of newspapers is broken; for journalism to survive, new business models must be found.
The Internet unlocks new types of media with new business models.
Podcasts, Analytics, and Centralization
The answer to podcast monetization is not analytics: it it true centralization, and it seems unlikely that Apple has it in them.
Blogging’s Bright Future
Blogs may not be the only means of expression on line, but they are a more viable as a business for writers focused on niches than ever before.
Faceless Publishers
The missing piece when it comes to the future of media are faceless publishers. Vox Media’s deal with The Ringer shows the way.
Figuring out how to make money in media in the future.
Disney and the Future of TV
TV is moving from a world where distribution dictates business models to one where business models need to fit the jobs consumers want done. That is the best way to understand Disney’s latest announcement.
The Local News Business Model
Subscriptions are the future of local news: the key, though, is getting rid of newspapers.
Grantland and the (Surprising) Future of Publishing
ESPN’s decision to close Grantland seems to be more evidence that there is no future outside of massive scale or one-man operations. Bill Simmons’ recent successes, though, suggest that the answer could be the exact opposite.
The media is fundamentally shaped by the Internet, especially Facebook.
Publishing is Back to the Future
Journalism cannot afford to be divorced from business realities; that applies to Australia, the New York Times, and even Andreessen Horowitz.
The Idea Adoption Curve
Mapping the technology adoption curve to ideas gives insights as to which business models work on which parts of the addressable market.
The Great Unbundling
It’s trivial to say that the Internet changed media; what is more interesting is unpacking how different types of media were affected, and why — and what might happen to TV.
Strategy and Product Management
Differentiation can equal huge profits, if it can be maintained.
The Lessons and Questions of the iPhone X and the iPhone 8
The iPhone X is a quintessential Apple product, because it is the best; is there a market for iPhone 8?
Google and the Limits of Strategy
Google went wrong in the past by abandoning their horizontal business model; are they repeating their mistake, or does the future give them no choice?
The iPhone 6: From Louis Vuitton to Chanel
The iPhone 6 is going in the opposite direction that Apple’s critics think it should: more expensive, not less. It will work because Apple owns the high-end.
Understanding your strengths helps you decide how to proceed.
The Audacity of Copying Well
Instagram copied Snapchat, and that’s a good thing: differentiation is about far more than features, and this is Facebook’s best shot at holding off Snapchat.
Snapchat’s Ladders
Snapchat is on the verge of conquering the toughest messaging market in the world: the United States. The way they did it is by laddering-up.
How Apple Creates Leverage, and the Future of Apple Pay
Apple attracts loyal customers through a superior user experience and leverages those customers against its partners.
Building a sustainable company means having a mechanism to acquire customers efficiently.
Microsoft, Slack, Zoom, and the SaaS Opportunity
The Zoom and Slack IPOs show what Microsoft is missing in its growth story: a way to acquire new customers.
Lessons from Spotify
Spotify has a marginal cost problem, but while the cause is unique to Spotify, the challenges are more applicable than it seems.
Uber’s New CEO
Uber has a new CEO, and the reason he is a great choice explains why the Uber job is still an attractive one.
Building and managing platforms is extremely difficult, and extremely rewarding.
Stripe: Platform of Platforms
Stripe’s announcement of Treasury — banking-as-a-service — manifests the breadth of the company’s ambition.
Apple and Facebook
Apple and Facebook seem like they are in conflict, but have often been each other’s best partners.
Tech’s Two Philosophies
Google and Facebook represent one philosophy, and Microsoft and Apple represent another; tech needs both, but ultimately platforms are more important than aggregators.
Amazon’s New Customer
The key to understanding Amazon’s purchase of Whole Foods is to understand that Amazon didn’t buy a retailer: the company bought a customer.
From Products to Platforms
Apple was at its best in its most recent keynote: unveiling the sorts of products the company is uniquely capable of creating. The question, though, is whether the company has the vision and capability of making those products into platforms.
The AWS IPO
AWS has long been a question mark when it comes to Amazon: it’s a good idea, and it makes money, but like it’s parent company, will it ever be profitable? The revelation that AWS is already very profitable indeed is a really big deal both for AWS but also for Amazon itself.
Understanding the difference between horizontal and vertical strategies is critical to making smart strategic decisions.
Disney’s Choice
Cable TV created a world where differentiated content could profit from everyone; that is why it will be hard for Disney to make the choices streaming will force on them.
Amazon Go and the Future
Amazon Go exemplifies how Amazon is building its monopoly in three ways: horizontally, vertically, and financially. Plus, why automation is worth being optimistic about.
Jim Barksdale famously said that the only way to make money is bundling and unbundling. The Internet is driving both.
Charter-Disney Winners and Losers
Winners and losers from the Disney-Charter stand-off, as The Great Re-bundling begins
The Rise and Fall of ESPN’s Leverage
Charting ESPN’s rise, including how it build leverage over the cable TV providers, and its ongoing decline, caused by the Internet.
Cable’s Last Laugh
Cable companies survived the great unbundling thanks to selling Internet service; they may be best place to make the bundle of the future.
2020 Bundles
The state of bundles in 2020: Netflix, Disney, Amazon, Microsoft, and Apple. Plus, Microsoft’s purchase of ZeniMax.
Disney and the Future of TV
TV is moving from a world where distribution dictates business models to one where business models need to fit the jobs consumers want done. That is the best way to understand Disney’s latest announcement.
The Great Unbundling
It’s trivial to say that the Internet changed media; what is more interesting is unpacking how different types of media were affected, and why — and what might happen to TV.
The most important business model for consumers.
Digital Advertising in 2022
The advertising has shifted from a Google-Facebook duopoly to one where Amazon and potentially Apple are major forces.
Apple and Facebook
Apple and Facebook seem like they are in conflict, but have often been each other’s best partners.
Data Factories
Facebook and Google and other advertising businesses are data factories, and regulation will be most effective if it lets users look inside
Ad Agencies and Accountability
Google is in hot water again, this time for ads placed against objectionable content. However, ad agencies and brands are just as responsible, and can no longer live in the past.
Manifestos and Monopolies
Facebook has long had too much power, but Mark Zuckerberg’s expressed willingness to use said power for political ends means it’s time to consider countermeasures.
The Reality of Missing Out
Tech is entering a period of inequality where the big winners lift the sector as a whole even as smaller companies suffer. The best example is Facebook, Google, and digital advertising.
The most important new business model in enterprise is software-as-a-service.
The Dropbox Comp
Dropbox has filed its S-1, but comparisons with Box, Atlassian, and Slack demonstrate how difficult it is to tell just how good its business is.
Slack and the State of Technology at the End of 2015
Slack has announced the Slack Platform. It’s an obvious move, but it’s the obviousness that indicates what a huge opportunity it is.
Redmond and Reality
Microsoft’s dominance in enterprise software was built on the difficulty of managing software installations; SaaS removes that linchpin entirely.