Aggregators and Platforms will swallow the world

What do Apple, Amazon, Alphabet (Google), Facebook, Microsoft, and Alibaba have in common? They are aggregators and platforms.

Of the 10 largest companies in the world, 6 are aggregators or platforms.

And it's quite likely that this number will be even higher in the future.

What is the one thing that Apple, Amazon, Alphabet (Google), Facebook, Microsoft, and Alibaba have in common?

Yes, they are all technology companies. But that's not the key trait that made them so gigantic.

They are aggregators and platforms.

Netflix has the same business model: aggregating movies and shows from various networks and studios (its suppliers) in one place.

The clever trick is that as soon as an aggregator has an interesting user base, its suppliers become more and more interested in joining the aggregator.

And the more suppliers an aggregator has, the more interesting it is to end users.

This creates a virtuous cycle that:

• lowers the CAC (customer acquisition cost) for each new customer
• lowers the operational cost of the business with each new customer

In other words: aggregators have a negative marginal cost to acquire a new customer.

In businesses that are not aggregators and platforms, the more your user base grows, the more expensive it gets to acquire a new customer: usually, the initial customer base has an ideal product-market fit.

As it grows, the further you drift from this audience, the more the value of your product decreases, and it soon becomes negative.

That's why in aggregator and platform business models, the winner takes all.

Competitors find it harder and harder to capture new users and get left behind.