As new services begin to appear online, companies with a distinctive business model always seems to follow suit — online aggregators. Aggregators have sprung up for virtually every transactional vertical including real-estate, flights, hotels, household storage, event tickets, etc. Do these aggregators add value to the ecosystem or are they just parasites on the final providers of the services? Let’s take a look at two examples to see how these aggregators fit into their larger contexts.
Online apartment search spans back to the early days of the web. The structure of the industry is relatively straightforward. Internet Listing Services (ILSes) establish relationships with property management companies that manage apartment complexes. The ILS markets the properties and provides the property management companies with contact information of prospective tenants in exchange for a monthly subscription fee. The property managers get to focus on managing their units, and the ILSes focus on what they do best, namely marketing.
ILSes list available units online but only for the particular properties that they represent. They are reluctant to list other properties because doing so would obviate the need for those other properties to pay a subscription fee. Enter ApartmentList. ApartmentList struck deals with most of the ILSes, and was able to develop a huge database of available inventory. Because they are property-agnostic, they can list any available property and not worry about which listings are from paying property management companies. For example, ApartmentList offers over two thousand apartments in Denver, and many of those are provided via feeds from their ILS partners. Each individual ILS, however, offers only a subset of units that ApartmentList provides.
ApartmentList’s deep inventory dramatically exceeds that of any individual ILS, and therefore, users are much more likely to find a suitable apartment. Since users usually consider multiple apartments in their searches, they may express interest in several listings. On the other hand, the limited inventory on ILS sites, means that consumers are less likely to find an apartment that fits their criteria.
In the case of ApartmentList, all the constituents are better off:
- Prospective tenants are delivered a richer experience due to listing breadth.
- ILSes are provided with an alternative marketing channel and their listings reach a broader audience.
- Property management companies get high quality tenant leads.
- Shareholders of ApartmentList make a positive return on their investment in the company.
Flight aggregators, such as Kayak, Travelocity and Priceline offer flights from all airlines that will partner with them. A visitor to one of these aggregators, for example, is more likely to find a flight that meets their requirements. Continuing with the Denver example, even though Denver is a hub for United Airlines, Kayak offers substantially more flight options to and from Denver than a direct visit to United’s website. An interesting byproduct of this listing breadth is that even though Kayak sells its leads to airlines, it can often outbid airlines in online ad auctions (like Google AdWords). Because the conversion rate of a visitor to Kayak exceeds that of a direct visit to an airline website, Kayak can surprisingly outbid (and outrank) the very businesses that they sell leads to.
Just like in the apartment vertical, flight aggregators add value to all constituents:
- Greater listing number offers a better experience for consumers.
- Airlines are able to purchase leads at a lower price per lead than direct marketing efforts.
- The aggregators are able to build profitable businesses that provide positive returns to their shareholders.
Note that in verticals that have powerful network effects, there may be a single dominant winner. In such cases, aggregators do not usually appear. Ebay, for example, has dominated online auctions and obviated the need for an aggregator. In most other transactional verticals, however, we have seen that aggregators can add value to all interested parties..
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