Customer Aggregation

Example

Mark Pesce, from the Next Billion Seconds:

"Kogan realized that the value chain created by the large television manufacturers – the Samsungs and Sonys – rested with a few Chinese companies assembling the raw components for flat-screen televisions according to specifications that varied hardly at all from model to model. Kogan knew he could get these Chinese manufacturers to build televisions for him, if he could order them in sufficient quantity. Kogan turned to the Web to create enough demand to overcome the frictions to the transaction. The Web provides a frictionless environment where purchasers can pool their buying needs around Kogan’s capacity to build a value chain.

Gerry Harvey complains that Kogan undercuts his retail business, but the innovation is more fundamental than simple e-commerce. Kogan is using the Web as an aggregation mechanism, not a sales channel. Eventually, others will copy the Kogan model, aggregating demand for almost every imaginable product or service. Groupon and Spreets cut off-price deals with businesses, taking a cut of the sales as the price of customer aggregation. The most disruptive businesses of 2011 identify a demand, build a value chain to service that demand, aggregating demand in sufficient quantity to produce a substantial price differential.

Kogan itself is built upon frictions in the marketplace. It is not easy to go directly to a Chinese manufacturer and order a huge and cheap flat-screen television. Kogan is an at-present-necessary intermediary between the manufacturer and the marketplace, the point of aggregation. This interface between manufacturer and marketplace exists only for as long as the manufacturers hold themselves aloof. One of these manufacturers will develop a value chain which allows them to accomodate single customer orders, and at that point the Kogan model collapses, just as Gerry Harvey’s has already collapsed."