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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.

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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.

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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.

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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.

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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.

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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.

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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.

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Modularity and integration happens throughout the value chain, and is the key to providing a superior user experience and extracting profits.

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.

Apple’s New Market

If the importance of an integrated experience matter more with your phone than your PC, because you use it more, how much more important is an integrated experience that touches every detail of your life?

Apple at Its Best

Apple’s original competitive advantage — the integration of hardware and software — is more durable than disruption theory would suggest.

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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.

Chat and the Consumerization of IT

What does the consumerization of IT even mean? Workplace by Facebook, Skype Teams from Microsoft, and Slack offer three definitions.

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.

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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.

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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.

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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.

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What a company makes — and how it makes it — in indelibly tied up into how the company is structured.

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.

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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.

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.

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.

Why Facebook Shouldn’t Be Allowed to Buy tbh

Facebook is acquiring tbh, another burgeoning social network; regulators erred in allowing the Instagram and WhatsApp acquisitions, but there is no better place to start enforcing the law than now.

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The Internet generally and the business models of consumer tech companies specifically mean that the default outcome is the end of privacy.

The Facebook Brand

The Facebook brand is, due to Facebook’s strategic choices, about not respecting privacy. That is why the Cambridge Analytica story is such a problem for the company.

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.

Privacy is Dead

The nature of the Internet and the business-models of social networks means that privacy as commonly understood is dead; tech companies need to learn to self-regulate or governments will do it for them.

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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.

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Ethical dilemmas and changing societal mores

Susan Fowler: Tech’s Person of the Year

Susan Fowler is tech’s person of the year, both because of her impact on Uber and on the tech industry broadly.

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.

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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?

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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.

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Evolution of Technology

To understand where technology is going, it is helpful to know where it has been.

The State of Technology at the End of 2016

The annual Stratechery review of the state of technology, and call to build products that unlock human potential.

Andy Grove and the iPhone SE

Andy Grove passed away the same day that Apple announced the iPhone SE. One of Grove’s best decisions reminds me of this launch.

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.

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To figure out the future, first understand the structures being built — and destroyed — today.

Everything as a Service

We have likely reached Peak iPhone, and if not, it’s only a matter of time; physical goods can only scale so far. The future, thanks to the Internet, is everything-as-a-service.

Airbnb and the Internet Revolution

Airbnb gets less press than Uber, but in some respects its even more radical: understanding how it works leads one to question many of the premises of modern society from hotels to regulations. It’s an important marker in the Internet Revolution.

Cars and the Future

A massive revolution in cars seems right around the corner. However, I think it will take longer then most technologists think, but when it comes it will come quickly.

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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.

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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.

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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.

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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.

Dear Zoë Keating: Tell YouTube to Take a Hike

Zoë Keating is an example of a new kind of content creator who can best maximize their revenue by going direct to consumers.

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Figuring out how to make money in media in the future.

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.

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.

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The media is fundamentally shaped by the Internet, especially Facebook.

Facebook Versus the Media

Facebook is in trouble with the media again, guilty of stupidity by apathy. Still, the media itself hasn’t exactly caught up with the reality of the Internet.

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.

Inspired Media

The key for products and politicians used to be maximizing paid and earned media. What matters on the Internet, though, is inspired media.

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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.

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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.

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Building a sustainable company means having a mechanism to acquire customers efficiently.

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 explain why the Uber job is still an attractive one.

Stitch Fix and the Senate

Stitch Fix is a perfectly fine company that is a big startup success, in part because it paid attention to costs. It is very problematic that the Senate is threatening that, and potentially entrenching incumbents.


Building and managing platforms is extremely difficult, and extremely rewarding.

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.

How Google Is Challenging AWS

AWS seems to have a dominant position in enterprise computing, but Google is trying to change the rules to favor their inherent strengths.

Alexa: Amazon’s Operating System

Money is made at chokepoints, and the most valuable chokepoints are operating systems; Amazon is building exactly that with Alexa.


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.

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The most important business model for consumers.

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.

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.

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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.