We talked recently about Ben Thompson’s Aggregation Theory framework and how it helps to bring context to the positioning and strategy of Zalando.
Following up on his original take and on a term coined by CNBC host and former hedge fund manager Jim Kramer, Ben Thompson delved deeper into how similar the companies behind Kramer’s FANG acronym are: Facebook, Amazon, Netflix and Google have more in common than just being growth stocks.
Each of the FANG companies is in a similar position in their respective industries: they haven’t so much disrupted incumbents as they have subsumed them. (…)
Amazon: While the biggest driver of Amazon’s increased valuation has almost certainly been AWS, the e-commerce side of the business continues to grow like gangbusters as well, taking over half of every additional dollar spent by U.S. consumers online, and a quarter of all retail growth online or off. The vast majority of those sales are actually from 3rd-party merchants using Amazon as a discovery and fulfillment platform, but these merchants’ market power relative to Amazon is not unlike publishers relative to Facebook, because Amazon.com is where the buyers are.
All four companies are the entry points for customers to the categories they dominate (or compete in). This control over the access to those customers gives these companies immense market power. Also, all four companies started in an controlled, small-ish environment that you could call a niche:
Facebook: Facebook didn’t launch to the world: it launched to Harvard only. (…)
Amazon: Amazon’s roots were equally humble: the company sold only books and held no inventory; when an order was placed Amazon would order the book from pre-existing book distributors and then ship it on using pre-existing parcel shippers to the end user.
Interestingly from a strategic point of view, and with an eye towards how to evaluate new entrants, none of the FANG companies went at what at the time of their entry was considered to be the most valuable pieces in their industries (as in where the money and the moats are being made):
None of the FANG companies created what most considered the most valuable pieces of their respective ecosystems; they simply made those pieces easier for consumers to access, so consumers increasingly discovered said pieces via the FANG home pages. And, given that Internet made distribution free, that meant the FANG companies were well on their way to having far more power and monetization potential than anyone realized.
BUT without access to customers nothing in any industry matters:
By owning the most important choke point in each of their respective industries the FANG companies have been able to modularize and commoditize their suppliers, whether those be publishers, merchants and suppliers, content producers, or basically anyone who needs to be found on the Internet.
None of the FANG companies are disruptors in the original sense of the theory:
Note that none of these companies are “disruptors” in the Christensen sense. They are not offering low-margin good-enough products that appeal to customers who are over-served by incumbent companies. Rather, they are “aggregators” who start with the best customers and don’t really compete with incumbent companies, at least in the beginning. In fact, incumbents nearly universally benefit from the presence of aggregators, at least at first (publishers benefited from Facebook, merchants from Amazon, content makers from Netflix, web businesses of all types from Google). It is only when the aggregators’ consumer base becomes dominant that the inevitable squeeze on incumbents — specifically, on their profit margins — begins, and it is in the long-run irreversible.
All of this does not only fit perfectly with Zalando and fashion but also with Uber and transportation. Which might hint at Uber already being well on its way to become amongst other things the solution to the logistics of the last mile of delivery.
Or maybe not, because the customers will not be at Uber but at Amazon and Zalando et al and therefore the latter both will have the power?
There is little to no doubt that the battle for the last mile of delivery will lead to a substantial part of the last mile being coordinated by P2P on-demand services and similar. The question in my mind is not whether this will happen or not but rather if a generalist transportation platform company like Uber will become a dominant player or more specialist transportation companies like Instacart and Postmates or Shopwings will turn out to be the dominant form. And another important aspect is the question how big online retailers, large enough to operate their own coordination platforms, will play into all this. In the western world the candidates to watch here are Amazon in general and Zalando for fashion.