Integrator vs Aggregator Growth5 min well spent
“Aggregation Theory,” a term coined by Ben Thompson, describes how disruptive internet companies channel demand based on superior user experience and free distribution and transaction cost. All FANG companies (Facebook, Amazon, Netflix, Google) became successful based on the principle of Aggregation.
“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.“
For the first in history, the Internet allows companies to truly serve the whole world in “realtime” – and often for free! Google is free; Facebook is free. The key, though, is not the consumer price point but the superior user experience. FANG companies became incredibly successful because of “one-hour delivery” or access to unlimited shows and movies (it’s actually ~15,000). Granted, there are many reasons for the success of FANG companies, but user experience is key. It’s unrivaled convenience.
In Systems Thinking 101, I explain the different components and change agents that make up a system. In Aggregation Theory, the input is superior user experience, and the output is more users. The goal is to sell more inventory: ads in the case of Google and Facebook, subscriptions in the case of Netflix and Spotify, products in the case of Amazon.
The system has strong feedback loops, or Network Effects, between users and the experience: the more users, the better it becomes. The more Facebook users, the more friends you can find. The more Google Searches, the better Google understands what we want. The more products we buy on Amazon, the more reviews we get. The more shows we watch, the better the recommendations. That’s why Aggregators want to get as many users as possible.
Integrators, on the other hand, have a strongly differentiated product that they directly distribute to customers. Disney is a perfect example: before the internet and Disney+, the company had to work with movie theaters and other partners on getting content to the people. Wandavision, a tv show with the production value of a movie, is a powerful demonstration of bringing this experience into consumers’ homes without 3rd parties or intermediaries. Disney went direct-to-consumer with Disney+.
Integrators like The New York Times, Apple, or Peloton own the whole value chain: suppliers, production or creation, and distribution. The goal of integrators is to maximize margin by integrating vertically, but they don’t have the same type of network effects that Aggregators have. Instead, the input for Integrators is production value, and the output is content.
Growth for integrators vs. aggregators
Growth for Aggregators and Integrators looks fundamentally different. I tapped into the nuances of SEO in the difference between inventory-driven and content-driven sites and centralized versus decentralized sites. But there are differences way beyond SEO.
The common denominator for Integrators and Aggregators is strong Product/Market Fit. It’s non-negotiable. From there, we find vast differences in the growth channels and levers they use.
Aggregators can leverage the power of network effects that result from consolidating demand. They benefit from aggregated instead of self-created “inventory”: products, users, businesses, or ads. That lends itself to technical SEO and product-led growth loops, as I describe in How Social Networks Drive Billions of Search Visits with SEO.
The genius business model of Google, for example, consists of two basic growth loops: search results that stimulate more searches and searches that create a more attractive ad marketplace.
Aggregators are typically marketplaces that commoditize supply: ads, search results, etc., look the same. That commoditization drives scale. In Systems Theory, that would be considered a homogenous system.
On the other hand, integrators create content themselves with the goal of increasing margins from production to distribution. Their levers are production value of content, consumer experience, differentiation, and distribution efficiency.
The same should be said about their approach to Growth: Integrators should strive for content-market fit and compounding trust and brand effects. All factors that make great content great are the result of production value and utility. Done right, Integrators can build powerful content moats that differentiate and defend the business. The strongest Growth levers for Integrators are content marketing, paid acquisition channels, Word of Mouth, and referrals.
- create the product themselves and distribute it directly to the customer
- Examples: Apple, Peloton, Disney
- Growth focus: Content Marketing, Paid Acquisition, Word of Mouth, Referrals
- consolidate supply to control demand
- Examples: Google, Amazon, Facebook, Netflix
- Growth focus: Network Effects, Technical SEO, Product-led Growth Loops
You don’t have to be Google to leverage Product-led Growth or Disney to integrate vertically. In theory, every blog can be an Integrator or every marketplace and aggregator. I worked for different companies over my career: Atlassian was an Integrator, G2 an Aggregator. Each of them has different strengths and weaknesses. The art is to know how and when to use them.
There is a third type of company: platforms. Shopify, WordPress, and Stripe build platforms for other companies to build on. They grow with their user base and share the approach to Growth with Integrators (with a few differences that I’ll leave for a future post). Sometimes, companies shift between the models. Netflix, for example, invests heavily in its own content to differentiate from other aggregators and become an Integrator.