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Aggregation Theory

Aggregation Theory is Ben Thompson's very broad term meant to explain his view that markets for digital products on the internet are fundamentally different from markets for physical goods. Here's Thompson's own gloss:

value has shifted away from companies that control the distribution of scarce resources to those that control demand for abundant ones.

The basic point is that in traditional markets, pricing is based on scarcity—there is only so much oil in the world, which means that people are willing to trade money for oil. When there is less oil (or when more people want it), then the price goes up.

In the physical world, all resources are scarce. And so all our economic and business theories are predicated upon said scarcity.

But digital content is effectively infinite. That's why the effective price for it is zero. (Yes, some outlets charge for content. But you can still find vastly more free content than you could ever possibly consume, even if you were to do nothing else for the remainder of your life.)

In other words, in the digital world, the limiting factor isn't the supply of goods. It's the supply of time available to consume said goods.

There's money to be made in the scarcity of time. But that money doesn't come from the consumers of content. It comes from the publishers of said content. That's why Facebook and Google—Thompson's favorite examples of aggregators—are free for users. The content is infinite, and so has an effective value of zero. It's also why they charge publishers to promote content. Users' time is scarce, and publishers are paying for access to it.

(That's why most publishers are doomed in the long run. Those that provide differentiated content may be able to survive via subscriptions. Everyone else is selling hydrogen to the sun.)

Referenced in

Finding Content Is Changing

There’s a lot of content on the Internet. Some of the most successful businesses of the Internet era are the ones that provide filters to help us wade through all that content. Search (which is to say Google) lets users enter a topic and then returns a set of pages that contain information about that topic. Social media (mainly Facebook) analyzes our personal relationships, interests, and behaviors, then shows us content that it thinks we will want to see.

Digital Gardening

It's not a completely new idea. in 2017, Ben Thompson argued that his daily newsletter/blog had allowed him to develop Aggregation Theory far more fully than a book would ever have allowed. As he argues:

Content Everywhere

But in a world of infinite content, your choices are to become a destination site or to put your content on existing destinations. Very few can do the former.