Last week, I wrote Disaggregating the Aggregator, explaining how I was viewing the possible AI agent-led disaggregation of companies that currently aggregate demand in the smartphone era.
These are companies like $Uber(UBER)$ ( ▲ 0.34% ), $Alphabet(GOOG)$ ( ▲ 1.62% ), $Netflix(NFLX)$ ( ▼ 1.16% ), $DoorDash, Inc.(DASH)$ ( ▲ 3.83% ), etc. My shorthand is that it’s the apps that we choose to interact with every day.
But in that article, I came away relatively bullish on companies that had some kind of tie to the physical world. Uber with drivers, $Zillow(Z)$ with homes, etc.
As I’ve thought about this more, I think we’re going to go from a world of aggregators to a world of network effects. Here’s why.
Why Aggregation Won the Smartphone Era
Aggregation starts with a human choice.
Billions of people choose to interact with Facebook apps every day.
200 million people choose to call an Uber for a ride every month.
300+ million people choose to pay for and watch Netflix.
That choice is about demand. These companies are aggregating, or pulling together, millions of points of demand.
And where demand goes, supply is forced to follow. That’s why aggregators have power.
So, websites are bent to work with Google. Brands learned to advertise and reach customers on Instagram and with Twitter posts. Content producers had a choice: sell to Netflix and potentially have a global hit on their hands, or sell to a media company with less reach.
This created a world of winner-take-all companies.
$Lyft, Inc.(LYFT)$ is worth $6 billion, but Uber is worth $140 billion.
$Snap Inc(SNAP)$ is worth $9 billion, but $Meta Platforms, Inc.(META)$ is worth $1.9 TRILLION!
Aggregation worked on a local level prior to the smartphone, with newspapers a great example of winners that took it all on a local level.
But the smartphone brought those winner-take-all dynamics to a global scale. And it’s the concept that explains the biggest winners for investors over the past two decades.
As agents enter the picture, this dynamic will change. Some aggregators will be replaced, but some may gain power.
Why Aggregation Won’t Win the Agentic Era
For aggregators, owning the customer relationship is the power.
People open Netflix and look for something to watch.
If you want to be watched, you have to sell to Netflix.
The negotiating power resides with Netflix.
But in an agentic era, the agent is more of a portal to the digital world that can see and do many things at once. It’s not a walled garden someone chooses to enter.
I can go to my agent and say, “My wife and I want to start a new show we can watch for an hour before bed. Nothing too intense, but we want it to be bingeable. Give me your best ideas.”
5 shows. 5 streaming apps (Schitt’s Creek is on both Hulu and Max).
This is just looking for something to watch, but imagine how this looks in shopping or search.
Current aggregators will lose their position of power because the point of demand now sits on top of them. That doesn’t mean their businesses will be toast, but they won’t have power in the market the way they once did.
But I do think some aggregators will adapt.
Why Network Effects Will Win
What I think we’ll witness is some aggregators becoming network effect businesses. Some of these concepts are adjacent to each other, so it’s not black and white going from one to the other. But when the point of demand changes, I think it’s important to see who has a valuable network underneath.
The term network effect refers to any situation in which the value of a product, service, or platform depends on the number of buyers, sellers, or users who leverage it. Typically, the greater the number of buyers, sellers, or users, the greater the network effect—and the greater the value created by the offering.
Harvard Business School
Social networks or messaging apps are great examples of network effects. Even an app like Slack benefited from virality and the network effect it created.
But I think the network effects that will matter in the future will manifest in the physical world. Being on the largest network will allow the former aggregator to surface the most supply to any agent. And I think there will be many agents to serve!
Aggregation is a story of demand being in one place.
Network effects is a story of supply being in one place.
Uber is a great example of this. If you buy a car and want to make some money driving people around, who do you sell your supply to?
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You could start a taxi service and take your own calls (old school).
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You could start a website that shares your location and pricing and hope AI agents find you.
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Or you could just plug into Uber.
For a driver, staying busy is more important than getting slightly higher margins. Test out some numbers for yourself in this model. 👇
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Autonomous vehicles will be the same. Own an autonomous vehicle, and you want to work on the site with the most customers. The customers attract supply.
And when supply is available, it attracts more customers.
Uber’s power in an agentic world may not be people opening the app, it would be the value it provides to agents and customers by having the most demand.
The same dynamics hold in food delivery, too.
And maybe my most controversial network opinion, Zillow.
More customers make Zillow more attractive to agents and home sellers, which allows Zillow to develop technology to improve listing and information available to agents, which attracts more home buyers, which attracts more sellers, and so on.
Zillow is an aggregator today, and that’s why agents have to post on Zillow. But tomorrow, its value may be more of a network that agents can trust.
From Here to There
I say all of this as my thesis on how tech will play out over the next decade.
Another reason I think a lot of these aggregators with a product in the physical world will survive is the slower speed of changing customer and supplier behavior.
Maybe it would be optimal for Lucid/Nuro to create their own autonomous vehicle ride-sharing network that could be surfaced to agents, but what happens when 90% of riders are still using Uber and Lyft?
Giving up on legacy demand to chase future demand will only get you so far.
Even if 50% of demand is on those apps, are you going to give up half your revenue just to be first to the agentic world?
The opportunity cost of underutilization in the physical world is real.
If agents do take over our digital interactions, the point of aggregation may not matter. But the network effects of some of these businesses will.
Markets are always moving - and sometimes, the best move is knowing what works for you.
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