#23 - Learning From Ben Thompson & Bill Gurley on Marketplaces, Platforms & Aggregator Businesses
June 5, 2020: A medley of learnings from the Invest Like The Best podcasts’ interviews with Ben Thompson of Stratechery and Bill Gurley of Benchmark. Learning about what makes a platform vs. aggregator, the moats that make these businesses thrive, building a media business and mental models for identifying ‘potentially’ successful marketplace businesses.
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Episode Notes:
Ben Thompson – Platforms, Ecosystems, and Aggregators – [Invest Like the Best, EP.176]
Aggregators control demand. On the internet, you want to control demand rather than supply => SPOT, FB, GOOGL, AMZN
High churn for SHOP is good => survival of the fittest + high churn = more feedback for more testing to improve product
Value will flow to the ends of chain: 1) Captivating demands as aggregators or 2) Independent creators like Stratechery. This kills the middlemen like publishers as they no longer control distribution
Aggregators have three traits: 1) 0 marginal cost, 2) Lower CAC as it scales (marginal user improves value of product over time), 3) Direct relationship w/ customers
Compared to aggregators, platforms are companies that control the API. Their moat becomes the API (i.e. Microsoft, SHOP)
Aggregator moat = Ease of use, ability to connect w/ users easily and individually (i.e. FB)
Netflix = aggregator. Company increases in value with more customers because more cash adds to more evergreen content library to increase value for customers
For most companies, it gets harder to acquire new customers over time. Each marginal acquisition gets more expensive (diminishing return). Easier to get the early adopters. Not the case for aggregators.
Internal Network Effects = Aggregators (i.e. FB/GOOG). The users are suppliers and they are commoditized. Instagram commoditizes photos and Google commoditizes websites for SEO
External Network Effects = Platforms (i.e. Microsoft). Want differentiated suppliers. Unique products on the platform increase its value
You win by either 1) Have highly differentiated products on platform (i.e. SHOP/Automattic) or 2) Being the place everyone does to (i.e. AMZN)
Publishing houses (i.e. Atlantic) used to make money on their distribution methods. Now, this is a cost centre and the writers are the profit centre as they need to focus on creating differentiated content.
Don’t sell content. Sell a service.
Bill Gurley – All Things Business and Investing – [Invest Like the Best, EP.137]
Liquidity Quality
Depth of fans = how much customers love what you do
The value of unscaleable things to build any sense of a network. But 90% of what you have to do is unscaleable
Glassdoor => founders interviewed people at Cisco in person in coffeeshops
Yelp => Founders want to night clubs w/ t-shirts for reviewers. Focusing on night clubs to build depth
Marketplace businesses need a behaviour of promiscuity (i.e. restaurants, sex?) and not monogamy (i.e. barbers, babysitters)
Most are built on highly fragmented marketplaces w/ focus on markets with new/recent SMBs
One’s that fail => ones that continually need to spend money on marketing for customer acquisition => no organic growth.. think TRIP vs. Booking