Month: April 2006

The Aggregation Paradox

Yaron GalaiLeave a comment

With the incredible ease of data aggregation that the web has introduced, an increasing number companies are now involved in the "Aggregation Paradox".

In this aggregation world, a company is either:

  • A Source – Sites that are creators of original content, whether it’s news articles, real estate listings, job postings, etc.
  • An Aggregator – A site that aggregates original content from multiple Sources, and combines all those sources into a single user experience.

A few examples of these relationships:

The dynamics of the Aggregation Paradox:

  • Sources are eager to attract users, regardless of who sends them over and how they do it. If the entity sending them traffic isn’t charging them anything – the Sources become even more ignorant to the entity handing them traffic.
  • The Aggregator’s value proposition to the user is almost always better than that of any single source it aggregates. Why search 1 source — the aggregator rightly claims — when you can find data from 100 sources at once?
  • The content production costs fall almost exclusively on the Sources. This means that aggregators can be extremely flexible with how they monetize their service. For example, sticking a couple of AdSense ads around the aggregated content can usually create a very healthy and high-margin business for the Aggregator. This is a luxury the Sources hardly have due to the high production costs involved in creating the content.
  • The more Sources are aggregated into an Aggregator, the less significant each Source becomes. For example, a news aggregator that has only one Source for financial news will be severely affected if that source pulled out of aggregation. But if the Aggregator has 100 financial news Sources, the dropping of one Source would be practically an un-noticeable event.

 

Combine all of the above and we get the Law of Aggregation:

Galai’s 1st Law of Aggregation: A Source that’s being aggregated will see short term benefit while ceding long-term power to the Aggregator.

 

…which leads to the Aggregation Paradox:

The Aggregation Paradox – If a Source is aggregated, the Aggregator will prevail. If a Source is NOT aggregated, it doesn’t matter and the Aggregator will prevail. 

 

I don’t envy Sources having to deal with the dilemma that the Aggregation Paradox introduces to their business. And with Google becoming very aggressive as an aggregator (shopping, movies, autos and travel just to name a few) many companies that serve as Sources are in real jeopardy of going out of business if they don’t quickly become aware of the Aggregation Paradox and its implications to their business.

Fortunately, not all is doomed for Sources. I’ll cover all the options at their disposal for dealing with the Aggregation Paradox in a followup post.

Disclosure: Chicago Tribune and Realtor.com are both clients of Quigo which I have founded and where I am currently employed. I highly recommend clicking those two links and enjoying their wonderful news and real-estate services.

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The personal value factor in viral apps

Yaron GalaiLeave a comment

David Beisel talks about what makes an online service viral and proposes 3 variables that determine the viral adoption of an online service:

Viral adoption = (how inherently sharable x how easily sharable) x (integration of sharing into content/service)

Agreed on all 3, but I think David is missing the #1 factor that determines the success of the viral adoption: the personal value factor.  Both LinkedIn and IM would score similarly on David’s formula above (both are inherently sharable, both are easy to share and in both examples the sharing is extremely integrated into the service). However, the personal value derived by having my friends on the same IM service as I use is 100x greater than the personal value I gain by having each and every one of my friends on LinkedIn (and btw – I’m a big LinkedIn fan). That’s the primary reason for ICQ, AIM, etc having quite a few more active users than LinkedIn…

Or as Joshua Porter noted a while back:

From now on I’m going to call this idea the “Del.icio.us Lesson”. This is the lesson that personal value precedes network value: that selfish use comes before shared use. We’re seeing it more and more everyday in services like Del.icio.us, Flickr, and is an interesting aspect of networked applications. Even though we’re definitely benefitting from the value of networked software, we’re still not doing so unless the software is valuable to us on a personal level first.

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Idea(l) flow

Yaron Galai1 Comment

John Moore of Brand Autopsy posted an excellent story a couple of weeks ago on how Rite-Solutions harvests ideas from its own employees. The quote (of a quote) which I personally liked the best is from James Lavoie, one of Rite-Solutions co-founders:

“We’re the founders, but we’re far from the smartest people here. At most companies, especially technology companies, the most brilliant insights tend to come from people other than senior management.”

Being a founder of a company, I could not agree more. The founders may have the best ideas at the early stages of the company, and they definitely usually have lots of other qualities such as persistence, leadership, foresight, luck, etc which are as important for the survival of a young company as are its ‘ideas’.
But as the company grows, I truly believe that “the most brilliant insights tend to come from people other than senior management” (excuse the repeat quote… I simply couldn’t have said it better…).

Moreover, I think that external outsourced “experts” are probably the worst possible source for ideas for the company (though they’ll show great powerpoints arguing to the contrary, and will charge enough $$’s to make it seem like they know what they’re talking about), as are in most cases the company’s clients. But I’ll keep these two groups for a different post… In the mean time, if you haven’t done so already, head to the always excellent Brand Autopsy to read about Harvesting Collective Genius.

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