Aggregation Theory

Aggregation Theory is an explanation of how power relationships arise on the internet. It comes from the American business writer Ben Thompson and was published in 2015. Its core claim: whoever controls the relationship with the customer has more power than whoever manufactures the goods. A hotel portal owns not a single hotel, yet it determines which hotels guests see first. Thompson calls exactly this position an aggregator, that is, a bundler. The theory describes how one arrives at this position and why it is so hard to challenge.

Why platforms are more powerful than their suppliers

Before the internet, the most expensive part of a business was often distribution. A newspaper needed printing presses and delivery trucks; a retailer needed stores in good locations. Whoever owned this infrastructure controlled the market. Digital copies, by contrast, cost almost nothing, and sending a file is practically free. This caused the old source of power to lose its value.

Today, something else is scarce: users' attention. There are millions of videos, but each person has only a few hours in the evening. Whoever controls the homepage where the selection begins effectively decides on the success of the providers behind it. A restaurant without good ratings on a major platform simply does not exist for many guests.

This is relevant for investors because it explains why some companies have extremely high profit margins. An aggregator bears almost no costs for each additional user, yet can charge fees to the providers. This bargaining power is the real value of such companies. Antitrust authorities in the EU and the US have been focusing on exactly this for years.

The three ingredients according to Thompson

Thompson names three conditions. First, the company must have a direct relationship with the user, without intermediaries. Second, the cost of an additional user must be close to zero. Third, it must be cheap to keep adding new providers. If all three are met, a self-reinforcing cycle emerges.

This cycle works as follows: more users make the platform more attractive to providers. More providers mean a larger selection, which in turn attracts more users. Experts call this a network effect. The decisive point in Thompson’s argument is that this effect runs through the user experience, not through the ownership of factories or warehouses.

A common misconception is to consider every large internet company an aggregator. Apple, for instance, earns most of its money from hardware that it manufactures and sells itself. Classic platforms like eBay also fit only partially, because there both sides negotiate directly. A true aggregator controls above all the selection and the order in which things are displayed.

From the search engine to the AI chatbot

The best-known examples are Google for information, Amazon for goods, YouTube for videos, and Booking.com for accommodation. None of these companies produce what users are actually looking for. They organize the selection and take a cut in the process. That is why they regularly appear in news about antitrust proceedings.

Since 2023, the theory has increasingly been applied to AI systems. A chatbot that answers questions directly takes over the search engine’s role as the entry point. Newspapers and blogs fear that users will no longer visit their sites at all. When the answer appears in the chat window, the bundling shifts one step further forward.

Anyone reading stock market news often encounters this idea in shorthand form. Sentences like “the platform owns the customer interface” or “the provider becomes an interchangeable commodity” come directly from this school of thought. The theory, however, is not a law of nature but an explanatory model. It helps interpret market movements, but it does not predict prices.