How to Make Prospects Chase You!
Leveraging Amazon and Apple's business model in your Company.
"Uber, the world's largest taxi company, owns no vehicles. Facebook, the world's most popular media owner, creates no content. Alibaba, the most valuable retailer, has no inventory. And Airbnb, the world's largest accommodation provider, owns no real estate. Something interesting is happening."
Tom Goodwin, SVP, Strategy & Innovation, Havas Media
Traditionally, companies that sought monopoly power sought to control all the layers within an industry. From R&D to Marketing, From Distribution to Sales, they wanted to do it all. But now, companies have been able to control the interface, and with it, manage the marketplace.
In 2015, a tech analyst named Ben Thompson coined the term "Aggregation Theory" to explain the changes in the market that allows new players to earn outsized market profits and market capitalization without owning the means of production or the sales channel.
Apple, Amazon, and others have become the masters of integration, placing themselves and their interface between buyers and sellers, and commoditizing all the pieces below.
The benefits of integration:
- Creation of a superior user experience.
- Maximizes the likelihood of success for new products
- Successful integration is a monopoly, therefore, incredibly profitable.
Examples of the power of integration:
- GM has about $200M in assets and a valuation of $60M
- Uber has raised $12B and recently had a valuation of over $100B
- Hilton Hotels has about $14B in assets and is valued at $23B
- Airbnb has raised about $5B and was recently valued at $31B
These numbers have become very volatile in the 2020 pandemic era, but they still show the power of the interface.
So, the question becomes how to leverage this idea in your business. It starts with understanding where you are in the value chain:
- If you are a supplier to an aggregator, focus on becoming the low-cost player in your market and on becoming the preferred supplier to your aggregator.
- If you have the opportunity to own the interface and become the aggregator – DO IT! Even if it means you have to raise new capital and take on new partners.