Recently, a young lady stood at our door, smartphone in hand, and asked if we would be interested in a free (!) sample delivery of breakfast rolls.
I was curious. It really wasn’t a new idea, but so far, such providers had always put us off because the quality of the baked goods couldn’t compare to our last, own real baker in town. They offered mass-produced products, while our baker still works “with heart and hand”, as he proudly writes in his bakery.
This time, the offer seemed different. The provider is a nationwide company with a claimed 140,000 households supplied in Germany and Austria and he declares itself as the market leader. But his local partner, the bakery that supplies him with the bread and pastries, is a baker in a neighboring town. It is a bit bigger than ours, but it also still works ‘artisanal’ and it has a good reputation.
I tried it. On Saturday, we got two different grain rolls, a wheat knot and a croissant. Anyone who knows me, knows that I am demanding – and these pastries surprised not only me, but also our entire family with its great taste and consistency.
A glance at the enclosed price list showed: the prices were perfectly normal, as at the local baker, with only a fee of 1.50 EUR per delivery added. That was acceptable. As a businessman, I immediately suspected, of course, that the group was collecting twice: once through the delivery fee and a second time through the discount on the pastries.

An aggregator for breakfast rolls

Above all, however, the similarity to my customers’ business crossed my mind: after all, this company is simply a so-called “aggregator”. It does not produce anything itself, it probably does not even deliver itself (that is likely also done by local partners). Its service consists of the fact that it has created a platform into which the young girl now typed my address on her smartphone. This prints 140,000 labels a day for the people who then do the actual work. Above all, however, the aggregator was in possession of my business relationship: I would pay by direct debit each month and could change the order on the website at any time.

…and the consequences

What would happen if I were to betray my baker friend Willi and go with the aggregator?
Willi, the last and multiple award-winning baker, would lose a customer. His business was already difficult, and if many households in my area were to choose the aggregator’s offer, then he might even have to close down at some point. I would lose a lot of the bakery’s unique apple strudel, fragrant pumpkin rolls and delicious cakes, which I could also buy at any time during the day from its very friendly sales staff.
Of course, the baker in the neighboring town would be happy about the increased sales. He might have to invest in his bakery and increase production.

The end

But the end would probably also be fatal for the baker in the neighboring town: first of all, once the platform had acquired enough customers, it would put pressure on prices. This baker, who had just invested a lot, would have little to counter the threat of changing suppliers. At some point, the aggregator would then switch anyway, at the latest when the turnover had simply become too large (“you are now too small for our needs” – which managing director does not know this sentence). Then some mass baker – see introduction – would take over, and the customers who had already become accustomed to this service would accept it with gritted teeth – because the alternatives would then be already dead.

What this has to do with news publishers

This is certainly obvious by now. However, a key difference is that news aggregators such as Google can draw on an infinite number of sources that provide articles in a standardized format. Using our example, it would be possible to combine the crispy yeast knot from the bakery in the next town with the unique apple strudel from the local bakery. This is extremely attractive for the user. For the supplier, on the other hand, it means a further dimension of interchangeability – the platform does not have to replace the supplier completely, it can also do so step by step. This increases competition and therefore price pressure. At the same time, the supplier’s brand becomes even more blurred. Fake news are rising quickly, because there is no level of editorial control or quality assurance, and the main selection criteria for a news article is its popularity among other readers.
Nevertheless, many publishers still work with aggregators and think they can win if they are big or important enough.
If you want to know more about this, I particularly recommend the blog “Stratechery” by Ben Thompson: https://stratechery.com/aggregation-theory/