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:
- Content: Chicago Tribune (Source) and Google News (Aggregator)
- Shopping: J&R (Source) and Shopping.com (Aggregator)
- Real Estate: Coldwell Banker (Source) and Realtor.com (Aggregator)
- Travel: Orbitz (Source) and SideStep (Aggregator)
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.