Aggregation Theory — Gaming & AgriFood next?Nikhil BoseBlockedUnblockFollowFollowingApr 2Credits: Emily van den Heever from Noun ProjectThe rise of platform-based business models have led to the rise of immensely successful companies such as Facebook and Uber, and has resultantly spawned a segment of tech strategy called Aggregation Theory — a term coined by one of my favorite writers on the space, Ben Thompson.
He thoroughly unpacks their core components in his piece on Aggregators.
Anuj Abrol also has a great piece detailing their implications on the value chain.
Here, we want to build on their ideas, by asking which areas will aggregation theory touch next?Let’s start by walking through a couple of examples in popular spaces:Travel — Kayak and Google Flights are some of the most popular fare aggregators.
Both do not issue tickets but act as an information portal, allowing users to find the cheapest tickets to a particular destination.
Both sites attract numerous users due to their superior flight browsing experiences, and the aforementioned low prices.
This in turn, attracts suppliers — online travel agents and airlines — who pay the aggregators for referring users to their flights.
Moreover, Kayak/GF further monetizes through promoted listings, as airlines, such as Southwest shown below, pay to advertise on the platform leading to cost-per-click revenue.
Users: Travelers, Suppliers: Travel Agencies (eg.
Priceline) & Airlines (eg.
Delta)Google Flights and KayakNews has provided mixed benefits from the aggregation model.
Google and Apple have both levied their hold on their own mobile ecosystems to create news aggregators in the form of Google news and Apple news respectively.
For users, it provides a personalized news consumption experience, pulling from various content providers across the internet.
For suppliers, both of these products offer the incentive of access to users within their mobile ecosystems to publishers, pushing content providers to accept their rather demanding profit-sharing terms.
Users: Smartphone & Tablet users, Suppliers: Newspapers & MagazinesApple and Google NewsAggregation has benefited users beyond the spaces above, including accommodation, publishing and even workplace software, such as Airtable’s template directory.
Where next ?With its clear value proposition to users and suppliers alike, the question begs to be asked — which space will aggregation affect next?The model works well when where there is an abundance of supply such that the aggregator can easily attract users due to its superior selection and consumption experience.
Later, it can compete over unit economics due to economies of scale and its lack of COGS and distribution costs.
In turn, the ability to reach its large user base is immensely attractive to suppliers, hence making suppliers pay to be on the platform, and even more to be promoted.
Given the above — these are some interesting spaces where aggregation could further benefit users:Game Streaming ServicesCloud-based gaming seems like the logical next step in entertainment aggregation through the means of streaming.
Instead of having play off a console, cloud gaming allows for games to be stored and rendered over the internet, making a laptop or tablet the end point — where the user can play the game.
Crucially related aggregation theory, is the game streaming component of cloud gaming, or in other terms, a “Netflix for games”.
Such a service would allow a user to play games on-demand without having to own gaming PCs or deal with storage issues.
Importantly, users would be able access to a library of games by paying a flat subscription fee, instead of having to pay $60/game.
a Gaming AggregatorCurrently, both Microsoft and Google are working on their individual gaming services, focused on eliminating costly gaming hardware and improving distribution through mobile devices.
It makes sense for Microsoft in particular to pursue this due to their arsenal of game studios and popular franchises such as Halo and Forza — not to mention its existing relationships with game developers through the MS store and Xbox GamePass.
Apple likewise is following suit with Apple Arcade, a mobile-focused game streaming service, capitalizing on its moat surrounding iOS users and relationships with developers from the app store.
Media coverage of the space has consistently pushed the notion of a “Netflix for Games” is near, however, a possible game streaming service has two main challenges ahead of it:How will gameplay issues be overcome?Gameplay issues come down to two problems: user bandwidth and network latency, or in other terms, the rate of data transfer and the time it takes for data to travel from one point to another.
High bandwidth is required for cloud gaming, as the game is fully downloaded from the cloud.
Rates have been improving, yet it is still short of what is needed to have truly reliable 4K game streaming at 60 FPS.
4K UHD movies in Netflix require at least 25 MBPS internet connection for reliable streaming in itself, and cloud gaming is known to be much more complex.
Given that all of the game state, graphics rendering and screen compression have to be transmitted in real-time over the internet, the bandwidth requirements needed for a seamless gaming experience are expected to be much be higher.
Moreover, upload bandwidth is also as important, since user’s state updates are uploaded to the cloud in real-time.
Recently, Google announced such that its service would require 30 MBPS for 60 Frames per second gaming — it remains to be seen whether that baseline is able to be achieved in practice, given the complexity of the above.
Yet, all is not lost, as research from M-lab has has shown that California has a median download speed of ~20 MBPS nearing the requirements needed by a gaming aggregator.
With the further proliferation of gigabit ethernet services, and 5G mobile networks, bandwidth issues could soon be ameliorated.
Median download bandwidths in the state of CaliforniaLatency might even be the more pressing concern as it is behind the infamous “lag”.
While the upcoming services are reportedly offering impressive hardware and graphics computing, the upside will be rendered unusable if the numerous requests made by the cloud gaming services is not able to be completed in a meaningful time.
Latency issues in gaming are of paramount of importance for gamers, as a singled delayed ping could be the difference between winning a race in Forza, or losing a battle in Fortnite.
Therefore in order to minimize latency, numerous geographically-distributed cloud data centers are required to limit the distance requests have to travel — making cloud gaming a space suited only for a Microsoft or a Google to conquer, given their massive networks of data centers.
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How will they price the service?Pricing seems to be a real challenge for a potential gaming service.
Video games are immensely costly to develop and have long release cadences — leading to less new games on a regular basis, at expensive prices.
If the price becomes too high for a streaming service, the incentive to subscribe would wither away, since users can buy the games at regular price — especially considering that most users play a limited number of games.
Yet, if we examine the top of the market games do have similar production costs as movies.
Game titles such as Grand Theft Auto have reported to have development costs nearing $265 M, which is in the ballpark of the production costs of Black Panther, which currently streams on Netflix.
The movie streaming service has a content partnership with Disney valued at close to $300 M / year, providing access to both legacy and new titles.
This is an extreme example, but Microsoft or Google would be able to pursue similar partnerships with studios like Rockstar and EA to push similar games to their respective platforms to populate their libraries.
Furthermore, if we take the precedent of Playstation now and Xbox GamePass, a subscription cost in the excess of $20 / month seems likely.
Since GamePass requires users to download the games before playing, and Now focuses on older games on previous console generations, the next-gen cloud game streaming services would be more expensive.
However, gamers are more willing to displace capital than an average movie-watcher or song-listener, so a slightly higher figure would not seem unreasonable if it could provide access to a large selection of games at flat subscription fee.
Furthermore, In order to shorten development time, it wouldn’t be unreasonable that games would reduce complexity and length to release on iterative development cycles.
Many have argued that streaming has declined the quality of content, especially in music.
Although it is difficult to objectively measure, we can hypothesize that is the result of the vast increase in availability, lower barriers of entry for aspiring musicians and shorter production cycles to effectively monetize over pay-per-stream incentive structures.
I could see a similar pattern play out in gaming industry, where studios would curb quality and build less complex games specific for streaming services to maintain mindshare of the worlds 2.
6 billion gamers and in turn providing more supply for a gaming aggregation services.
AgriFoodsThe Food and Agriculture space currently has a few types of aggregators:Grocery Delivery — eg.
Instacart and Amazon Now.
These aggregate supply from grocery stores and sells delivery through a mobile/web application with a fleet of “suppliers” who are willing to buy groceries and deliver them for a feeFood Delivery — eg.
Uber Eats, DoorDash and Postmates.
These connect takeout restaurants, delivery drivers and hungry usersMeal Kits — eg.
Blue Apron, Plated, HelloFresh.
These are not true aggregators but blend a D2C model of grocery selection, recipe selection and grocery deliveryMeal Kits in particular, have been the focus on much VC expenditure and media coverage.
Currently however, the unit economics of meal kit services have not been working favorably for the companies and its users alike.
Moreover, there are issues surrounding the convenience that the meal kits are supposed to provide — if users are trying to optimize their time cooking and procuring food, it might be to expect them to spend 20–40 minutes cooking their meals, all before the inevitable cleaning time.
It would be much more useful and convenient if users could have a direct relationship with suppliers that make fresh prepared food.
At the same time, the prepared food would have to be healthier and more cost-efficient compared to eating a restaurant or frozen food every day.
Freshly is a company that is working on this problem, as the company delivers fully cooked-meals on a weekly-basis as part of a subscription plan.
However, since the company both prepares and distributes the food itself, they incur many of the distribution and supply chain costs that a traditional restaurant or take-out services would encounter.
Meal AggregatorNow, if applied aggregation theory were applied to this space, a service could pair fresh supplier-made meals with scores of hungry users.
Instead of having to pay the material and delivery costs for every meal ordered on the service, the aggregator would simply pair hungry users with suppliers who are willing to cook and ship individual meals.
The service would simply facilitate the interaction, provide the ordering experience for the user, and generate demand for the food supplier.
The suppliers in this instance could either be professional chefs operating in restaurants, or simply amateur cooks wanting to monetize by selling homemade meals.
It seems to be the logical next step for the gig economy.
There are some early movers in this space, namely Uber Eats and Shef.
Uber has expanded their popular delivery service by incentivizing delivery-only establishments called Virtual Restaurants to join the platform.
These ‘restaurants’ only offer delivery options through the app to save money over running brick-and-mortar storefronts.
Given Uber’s expansive driver network and user base, cooks and small-businesspeople are rushing to onboard into the application leading to the application’s 20% YoY growth and creating a whole new secondary market in the process — Cloud Kitchens.
Shef is a young YC company, that focuses on Peer-to-Peer meal delivery — meaning amateur cooks sell homemade meals to users on the platform.
While this may seem odd at first, the model allows the company to offer a compelling $6.
50 / meal price point — a core consideration for commodities such as food.
It resembles true aggregator-nature by not assuming the cost of production, while still owning the user experience.
However, without Uber’s large driver network, it remains to be seen how the logistics will play out — will the company be able to afford fast delivery to keep the homemade meals to the user?.Furthermore, food safety would be a concern considering that the meals are not made in professional, standardized facilities.
It would be likely that they would have to make a rigorous on-boarding process to alleviate those concerns, at expense of having a slight marginal cost for on-boarding every “Shef”.
Given the increasing VC expenditure in the space, I foresee aggregator-based models allow for further optimization of meal plan services, quickly making scalable, affordable, home-delivered food a reality.
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