The internet (and the world, for what it’s worth) is a messy place. Many industries oftentimes have hundreds or even thousands of businesses competing against each other.
That, in turn, creates a lot of complexity for customers. Just imagine having to sift through dozens of websites, trying to uncover the information you need, and then assessing and ranking it in a dissectible manner.
This complexity as well as the worldwide adoption of internet bandwidth has given prominence to a new category of businesses: aggregators. I, myself, have seen this first-hand, having worked for iPrice, an e-commerce aggregator out of Southeast Asia.
The following guide will take a closer look at how aggregators can be defined, what pros and cons they have, how they make money, how they track success, and what types of aggregators are out there.
Aggregator Business Definition
An aggregator business collects data from a variety of sources to display complex information in a structured manner.
Aggregator businesses are either app- or web-based and can thus be accessed via a functioning internet connection.
Data aggregators are normally needed in industries that are characterized by a great number of available goods and services.
For instance, there are over 5,000 airlines in the world. Instead of having to visit all of their websites independently when booking a ticket, businesses like KAYAK aggregate the best offers in one single platform.
To run such a business, aggregators oftentimes need to partner with the businesses they promote on their platform. These partners then compensate the aggregator for sending traffic or purchases their way.
Consequently, the item or service itself is provided by the partner and not the aggregator itself. The aggregator essentially acts as another marketing channel for the partners.
However, in some instances, aggregators scrape data without another company’s consent, mostly in order to fill the platform up with information – and thus create a better user experience.
Aggregator businesses do not rely on any physical equipment. Instead, the only things needed are servers and skillful employees (such as software developers or business developers).
Aggregator Business Model Pros & Cons
Aggregator Business Model Advantages
Operating cost. As previously stated, running an aggregator app or website does not require you to purchase heavy equipment, store physical goods, or even operate big offices for that matter. All you technically need are servers as well as skillful employees. Therefore, the cost of running an aggregator business can be extremely low. Plus, should the business not perform as expected, then cost can be quickly decreased, for instance by laying off employees (as opposed to physical goods, which can’t be moved as fast).
Potential pricing power. In a selected few industries, aggregators have become so powerful that they can quite literally squeeze out every bit of margin for their partners. One prominent example is the airline industry where platforms like Google Flights, KAYAK, or Skyscanner have amassed so much customer goodwill that many travelers don’t even consider visiting the airline’s website.
Various opportunities for monetization. Another major advantage is that aggregators can monetize their traffic in a variety of ways. They can get compensated for every click to an offer (Cost Per Click, or CPC), for every sale (Cost Per Acquisition, or CPA), through sponsored placements (e.g., banner ads), or even by selling access to data (such as through APIs).
Aggregator Business Model Disadvantages
High level of complexity. The reason why aggregators are necessary is that they simplify industries with a great level of complexity and competing offers. Hotel booking platform trivago, for example, has over 5 million hotel partners. While it hasn’t built customized data imports for each and every one of them, it nevertheless requires a great deal of collective brainpower to figure out how to onboard millions of different partners that all have different data structures, pricing models, and more.
Amount of competition. Being a low-cost business that can be operated from almost anywhere in the world also means that competitors can enter a certain market much quicker. Take Skyscanner, for instance. Within a few years of operation, without much venture funding, the flight aggregator managed to make its website available in 30 languages, thereby targeting every corner of the world.
Potential dependency on other platforms. Some aggregators heavily rely on third-party platforms, primarily Google, for most of their traffic. Especially when it comes to goods that are purchased infrequently, such as insurances, customers often begin their comparison search on Google. The search giant itself has used that power to push its own products on top of the search results, including Google My Business, Google Maps, or Google Flights. Yelp co-founder Jeremy Stoppelman even publicly accused Google of using its dominance to push out competing services.
How Do Aggregators Make Money?
Aggregators make money whenever a user clicks on an offer (CPC), purchases any of those offerings (CPA), through various sponsored placements, as well as providing other businesses with access to its data.
Let’s take a closer look at each of these in the section below.
The vast majority of aggregators monetize their platforms via a cost-per-click model. This means that its partners pay the platform whenever a user clicks on their offering and is being redirected to their own app or website.
Most of the time, the CPC rate is pre-negotiated between the aggregator and partner. Furthermore, partners are able to set maximum budgets to determine how much traffic they want to have sent their way.
In some cases, aggregators have also implemented a bidding process. Hereby, partners bid on a specific slot or keyword. The highest bidder is then shown on top of the search result.
The most prominent example is likely Google’s AdWords. Advertisers can bid on a variety of keywords, with the highest bidder being shown on top of the search results.
Another source of income that aggregators normally have is being compensated for every order facilitated through their platform (also referred to as cost-per-acquisition).
Similarly, whenever a user clicks through and ends up making a purchase, the aggregator is being compensated with a percentage of the purchasing price.
The actual percentage compensation is dependent on a variety of factors. For instance, promoting products in the electronics category often only yields single-digit CPA rates while credit cards or insurances might yield as much as 50 percent.
As previously stated, some aggregators are now considered one of the world’s most-frequented websites. KAYAK, for instance, is able to attract around 100 million people to its platform every month.
Therefore, being displayed on these platforms (especially on top of any search result) can be considered extremely valuable virtual real estate.
Many platforms have thus implemented different options to allow other businesses to advertise on their platforms. Examples include:
- Sponsored search results, which appear above organic listings
- Banner ads, normally shown in the header, on the browser’s sidebar, or within the content
- Written content that is highlighting a partner’s products and services
These sponsored placements are monetized in a variety of ways. Apart from the usual CPA and CPC compensation, aggregators can also command a fixed fee or be compensated for every ad impression (i.e., whenever a user sees an advert).
Selling Access To Data
Last but not least, aggregators can also provide other businesses with access to the troves of data they collect and display. This can be done in a variety of ways.
The most common option is to sell aggregated and anonymized data for a fixed fee. Businesses can then utilize that data to improve existing offerings or evaluate whether to enter new markets and industries.
Another possibility is to grant access via APIs and then charge a licensing fee for every data pull. One of the most common examples of this is Plaid, which offers standardized access to hundreds of banks.
Aggregator Business Model Examples
There are dozens of aggregator businesses that now dominate the business world. Technically speaking, even tech giants like Amazon and Google can be understood as aggregators of information.
The following section will highlight a few of those examples as well as the companies that dominate their respective industries.
Travel Aggregator Business Model
Booking a vacation normally requires you to select a flight and hotel as well as maybe even car rentals or train rides. Now imagine you had to visit every airline’s, hotel’s, or car hire’s website on your own, note down each deal, and then select the best ones to book.
Instead of having to sift through all of these websites (or, God forbid, even call them to make a booking), travel aggregators have made it possible to organize a complete itinerary through their platforms.
Some of the world’s biggest and most frequented websites are now in the travel space. Examples include Agoda, Booking.com, TripAdvisor, Hotels.com, KAYAK, Skyscanner, Expedia, and many others.
The millions of monthly visitors have, furthermore, allowed some of these platforms to become full-fledged travel platforms (Expedia, for instance, offers anything from airline tickets all the way to cruises or day trips) and to branch out into other product offerings (Skyscanner now offers customers travel insurance against Covid-19 sickness).
Search Aggregator Business Model
In essence, search engines are also a form of aggregator business. They scout the world wide web and display the most relevant websites for any given customer query.
Google, as you would’ve guessed, is by far the world’s most well-known aggregator of information. Nevertheless, given that search is a three-digit billion a year market, there are a variety of niche offerings serving different customer needs.
The most popular alternative to Google (at least as measured by traffic) is Microsoft’s Bing. Other options include privacy-focused DuckDuckGo, Ecosia (the search engine that plants trees from its ad revenues), subscription-based Neeva, and thousands more.
E-Commerce Aggregator Business Model
E-commerce aggregators, which can be split up into a variety of categories such as electronics or fashion, allow customers to compare products across dozens of shops.
Take, for instance, Idealo. It became one of Germany’s most visited websites by allowing customers to compare prices for almost any available e-commerce category. The platform works together with a variety of partners, such as marketplaces like eBay and big local retailers like Kaufland or Media Markt. As such, customers often have the option to choose among multiple offers.
It has to be emphasized that platforms like Amazon, eBay, or Etsy are not aggregators but online marketplaces. While e-commerce aggregators often only list available products, marketplaces actually allow customers to purchase them (while also handling aspects such as payment or shipment).
Finance Aggregator Business Model
Another form of aggregation can be found in the financial industry. This includes a variety of product categories, such as credit cards, savings accounts, personal or student loans, mortgages, IRA rollover accounts, auto insurances, and many more.
Being in the finance space is certainly lucrative as well. Mint.com, for instance, was acquired by Intuit for $170 million back in 2009. Credit Karma, which began life as a free credit score improvement tool, was bought by Intuit as well. The software giant paid a whopping $7.1 billion to acquire the platform, which now aggregates deals across dozens of categories.
Aggregator Business KPIs
Likely the most essential KPI that an aggregator business needs to track is the traffic, primarily how many people visit the site over a given timeframe. Since aggregators often get compensated on a CPC basis, more visitors equate to more clicks, which in turn means more revenue.
Traffic can be measured in a variety of ways. The three most common KPIs are users, unique users, as well as page views. Users are the total number of people visiting the platform. Unique users only take one single person into account (for instance, a user can visit the platform 10 times but would then only be counted as one). Lastly, page views take into account how many pages a user has seen during his/her visit.
Traffic is often measured on a daily, weekly, monthly (30 days as baseline), as well as yearly basis. This allows aggregators to compare its development over different periods of time.
Conversation Rate (CR)
The conversion rate indicates what percentage of the visitors a platform attracts end up completing a transaction (such as buying an airplane ticket or insurance policy).
It is calculated by dividing the number of sales by the total number of visitors over a given time period.
Conversion Rate = Total Sales ÷ Total Visitors
Similarly, the Click Through Rate (CTR) indicates how often a visitor clicks on a certain page, link, or banner out of the total number of people visiting.
Both CR and CTR can help businesses to understand how effective they are at promoting certain aspects of their platform. Consequently, you’d want your CR and CTR to be as high as possible.
Nevertheless, the actual percentage may vary greatly depending on the industry. After all, an expensive airline ticket may be less likely to convert than a cheaper rental car.
Gross Merchandise Value (GMV)
GMV is the total value of goods and services transacted on a platform. It is calculated by multiplying an item’s average price by the number of items sold.
GMV = Average Order Value x Total Sales
If a platform facilitates ten million sales with an average value of 10 USD, then its GMV is equal to $100 million.
GMV, much like the above traffic metrics, gives prospective partners as well as investors an indication of how big the platform is.
In all likeliness, the more is transacted on any given platform, the greater its negotiating power with potential partners.
The take rate (also referred to as Rake) gives platforms a little more insight into how great its negotiating power has actually become.
The take rate indicates how much a business makes (in percentage terms) from every transaction conducted on its platform.
It is calculated by summing up all revenue generated via the platform (such as commissions or referral fees) and dividing that by the total amount of sales.
Take Rate = Fees ÷ Total Sales
Let’s assume an airline aggregator sells a total of 1,000 plane tickets within a day. It consequently generates $100 from these sales. As such, the take rate is equal to 10 percent ($100 divided by 1,000 sales).
It has to be noted that many aggregators operate on a hybrid model, meaning they generate revenue from both clicks as well as conversions. As such, the number may be a little skewed depending on how the business is monetized.