The internet, and the entire world for that matter, is messy. There are often hundreds, if not thousands of businesses in many industries competing with each other.
This creates a lot more complexity for customers. Imagine having to search through dozens upon dozens of websites to find the information you are looking for, then ranking and evaluating it in a logical manner.
These issues, along with the widespread adoption of internet bandwidth worldwide, have given rise to an entirely new type of business: aggregators. This is something I have personally experienced as a result of my work for iPrice (an e-commerce aggregator based in Southeast Asia).
This guide will provide a detailed look at how aggregators work, their pros and cons, how they make money and how to track their success.
Aggregator Business Definition
A business that aggregates data comes from many sources in order to present complex information in a structured way.
Aggregator businesses can be accessed via an internet connection.
In industries with a large number of goods and services, data aggregators are often needed.
There are more than 5,000 airlines worldwide. Businesses like KAYAK combine the best deals on one platform, instead of visiting each airline’s website individually when booking a flight.
Aggregators often need to partner with businesses that they promote on their platform in order to run such a business. The aggregator is then compensated by these partners for sending traffic to their site or purchasing from them.
The aggregator does not provide the service or item, but the partner. The aggregator acts as a marketing channel for partners.
In some cases, however, aggregators may use data from other companies without their consent. This is mostly to populate the platform with more information and create a better user experience.
Aggregator businesses don’t rely on physical equipment. Servers and skilled employees are all that are required (such as business developers or software developers).
Aggregator Business Model Pros & Cons
Advantages of Aggregator Business Model
Operating costs. Technically, all you need is servers and skilled employees. The cost of running an aggregator company can be very low. If the business does not perform as expected, it can be easily decreased by, for example, laying off employees. This is in contrast to physical goods which cannot be moved as quickly.
Potential pricing power. Only a few industries have aggregators that can literally extract every last bit of margin from their partners. One example is the airline industry, where platforms such as Google Flights, KAYAK or Skyscanner have built so much customer trust that many people won’t even consider visiting the airline website.
There are many opportunities to monetize. Aggregators have many options for monetizing their traffic. They can be compensated for each click to an offer (Cost per Click, or or CPC) and for every sale (Cost per Acquisition, or or CPA), via sponsored placements (e.g. banner ads) or by selling data access (such as APIs).
Advantages of Aggregator’s Business Model
Complexity. Aggregators are essential because they simplify complex industries and offer a variety of offers. For example, trivago has more than 5 million partners in the hotel booking platform. Although it doesn’t have customized data imports built for every partner, it still requires a lot of collective brainpower in order to successfully onboard millions of partners with different pricing and data structures.
Competition. Competitors can also enter a market faster by being low-cost businesses that can be run from anywhere in the world. Skyscanner is an example. The flight aggregator was able to launch its website in 30 languages within a few years, without any venture funding.
Potential dependence on other platforms. For most of their traffic, some aggregators heavily depend on third-party platforms like Google. Customers often start their search for goods they are not likely to purchase, like insurance, on Google. Google has made use of this power to promote its products at the top of search results. Jeremy Stoppelman, Yelp‘s co-founder, publicly accused Google of using its power to promote competing services.
How do Aggregators Make Money
Aggregators earn money when a user clicks on an offering (CPC), buys any of those offerings through sponsored placements (CPA), and provides other businesses access to its data.
Let’s take a closer glance at each one in the section below.
Most aggregators make money by monetizing their platforms through a cost per click model. It means that the platform’s partners pay for each click on its offering, and users are redirected to their app or website.
The CPC rate is usually pre-negotiated by the aggregator with the partner. Partners can also set maximum budgets that will determine how much traffic they wish to send their way.
Sometimes, aggregators also implement a bidding process. This is where partners compete for a particular slot or keyword. The search results will show the highest bidder first.
Google AdWords is the most well-known example. Advertisers have the option to bid on many keywords. The highest bidder is shown at the top of 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).
The aggregator receives a percentage of any purchase made by a user who clicks through.
There are many factors that affect the actual percentage of compensation. Promoting products in the electronics sector often yields a single-digit CPA rate, while credit cards and insurances can yield up to 50 percent.
Some aggregators have been ranked among the top websites in the world, as we’ve already stated. KAYAK is one example. It attracts around 100 million people each month.
These platforms, especially the top search results, can be considered valuable virtual real estate.
Different options have been provided by many platforms to allow businesses to advertise on their platforms. Examples include:
- These results are ranked higher than organic listings and can be referred to as sponsored search results.
- Banner ads are usually displayed in the header, the browser’s sidebar or within the content.
- Written content that highlights the products and services of a partner
Sponsored placements can be monetized in many ways. In addition to the CPA and CPC payments, aggregators may also be paid a fixed fee for each ad impression (i.e. every time a user views an advert).
Selling access to data
Last but not the least, aggregators may also be able to provide access to data troves they have collected and displayed for other businesses. You can do this in many ways.
Most businesses will sell anonymized and aggregated data for a fee. The data can be used by businesses to improve their offerings or to evaluate the feasibility of entering new markets.
Another option is to grant API access and charge a licensing fee per data pull. Plaid is one of the most popular examples. It allows for standard access to hundreds banks.
Example of Aggregator Business Model
Numerous aggregator companies now dominate the business market. Even tech giants such as Google and Amazon can technically be described as aggregators.
This section will focus on a few of these companies as well as those that are leaders in their respective industries.
Business Model for Travel Aggregator
You will need to choose a hotel and a flight, as well as car rentals or train rides. Imagine that you were to go to every hotel, airline, and car rental website, then take notes on each deal and choose the best to book.
Travel aggregators make it easy to create a complete itinerary without having to go through each of these websites.
Travel is a hot market. Agoda and Booking.com are just a few examples.The Top 10 Business Podcasts
These platforms have seen millions of visitors each month, which has allowed them to grow into full-fledged travel platforms. Expedia offers everything from cruises and day trips to airline tickets, while Skyscanner offers travel insurance for Covid-19 sickness.
Search Aggregator Model Business Model
Search engines can also be described as a type of aggregator. They search the web for relevant websites and present the best results to any customer query.
As you might have guessed, Google is the most popular aggregator of information in the world. However, search is a market that generates three-digit billion dollars a year. This means there are many niche options to meet different customer needs.
Microsoft’s Bing is the most popular alternative to Google, at least according to traffic. Other alternatives include the privacy-focused DuckGo, Ecosia, which uses ad revenue to plant trees, and subscription-based Neoeva. There are many more.
E-Commerce Aggregator Business Model
Customers can compare products from dozens of shops using e-commerce aggregators.
Idealo is one example. Because customers can compare prices for virtually any e-commerce category, it became one of Germany’s most popular websites. It works with a number of partners such as marketplaces such as eBay, and large local retailers like Kaufland and Media Markt. Customers often have the choice of multiple offers.
It is important to remember that online marketplaces such as Amazon, eBay and Etsy do not function as aggregators. Although e-commerce aggregators may only list products available, marketplaces allow customers to buy them while also handling payment and shipment.
Finance Aggregator Business Model
The financial industry is another example of aggregation. This can include a wide range of products, including credit cards, savings accounts and personal or student loans. Mortgages, IRA rollovers accounts, auto insurances, as well as credit cards.
It is definitely lucrative to work in finance. Intuit bought Mint.com back in 2009 for $170 million. Intuit also bought CreditKarma. This tool was originally created to improve credit scores. Intuit paid $7.1 billion for the platform that aggregates deals from dozens of categories.
KPIs for Aggregator Business
The most important KPI an aggregator company needs to monitor is traffic. This refers to how many people visit the site in a certain time period. Because aggregators are often compensated on a CPC-based basis, more traffic means more clicks which, in turn, leads to more revenue.
There are many ways to measure traffic. Users, unique users, and page views are the three most popular KPIs. The total number of people who visit the platform is called a user. Unique users are only one person. A user could visit the platform 10 times, but then only one would be considered. Page views are the number of pages a user has viewed during a visit.
Traffic is measured often on a daily basis, weekly basis, monthly basis (30 days as the baseline), and yearly basis. This allows aggregators compare traffic’s development over different time periods.
Conversation Rate (CR).
The conversion rate is the percentage of visitors to a platform that complete a transaction (such buying an airline ticket or insurance policy).
This is done by taking the total number visitors and dividing it by the number of sales.
Conversion Rate = Total Sales / Total Visitors
The Click Through Rate (CTR), in the same way, indicates how many people click on a page, link or banner, based on the total number of visitors.
Businesses can use CTR and CR to determine how effective they are in promoting certain features of their platform. Therefore, it is important to have a high CR and CTR.
However, this percentage can vary depending on industry. A more expensive flight ticket might not convert as well as a less expensive rental car.
Gross Merchandise Value (GMV)
GMV refers to the total value of all goods and services that are transacted through a platform. This is done by multiplying the average price of an item by the number sold.
GMV = Average Order Value x Total Sales
A platform that facilitates 10 million sales, with an average value of $10 USD, has a GMV equal to $100 millions.
GMV, just like the traffic metrics above, gives potential investors and partners an indication of the platform’s size.
It is a common occurrence that the more transactions on any platform, the greater the potential partner negotiation power.
Platforms can get a better idea of how powerful their negotiating power is by looking at the take rate (also known as Rake).
The take rate is a percentage of the revenue a business receives from each transaction made on its platform.
This is done by adding up all revenue from the platform (such a referral fee or commission) and then dividing it by the total sales.
Take rate = Fees / Total sales
Let’s say that an airline aggregator sells 1,000 tickets in a single day. These sales generate $100. The take rate is therefore equal to 10% ($100 divided by 1000 sales).
Many aggregators work on a hybrid model. This means they can make revenue from clicks and conversions. The number could be slightly off depending on how the business has been monetized.