In an earlier edition of the newsletter, I introduced a new framework to explain the difference between different ecosystem positions.
Over the course of the next few editions of the newsletter, we dive deeper into each of these business models.
Let’s start by looking at aggregator business models and the specific strategy of playing in the primary demand.
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Aggregators are consumer-facing business models, which
(1) aggregate consumer demand by
(2) building engagement and capturing data at scale through
(3) provisioning consumer-facing services.
Aggregators succeed through serving consumers at scale, capturing that demand, and then acting as a conduit (and consequently a bottleneck) allowing the rest of the ecosystem to serve these consumers.
Consumer brands offering integrated brand experiences across multiple channels and services are one of the best examples of aggregator strategies.
Consumer brands pursuing this strategy typically look to move from the secondary demand to the primary demand.
Consider the problems solved by brands like Nike and Sephora.
For Sephora, the primary demand for grooming and beauty drives the secondary demand for cosmetics.
For Nike, shoes constitute secondary demand, health and fitness are the primary demand.
By serving the primary demand of the customer, aggregators command right of customer relationship and can intermediate the customer’s relationship with third parties which serve this secondary demand
It also engages its user community through social networks like Beauty TIP (teach, inspire, play), an integrated experience workshop, where customers learn via group beauty classes, using Sephora’s Virtual Artist technology, Beauty Board, and its gallery of products.
Nike’s first generation connected ecosystem involved the Nike+ iPod kit, launched in 2006, which allowed Nike+ compatible connected shoes to share data with the Apple iPod nano, allowing runners to receive audible alerts on their running statistics during the run.
Nike’s subsequent launches, including the Sportband kit and the “Nike+iPod for the Gym” were all launched as connected devices, primarily in partnership with Apple. In 2008, Apple added a native capability to receive Nike+ signals in the iPod and iPhone without requiring a receiver, further deepening the integration.
Nike subsequently launched several connected devices, some in partnership with other companies like Polar (Polar WearLink+). However, between 2014 and 2018, Nike has progressively moved away from connected devices and instead focused its integrated brand experience on membership-based services, including the Run Club and Training Club.
Nike creates same-sided network effects by allowing users to connect with other users and engage in competitive challenges. It also creates cross-sided network effects between master trainers and users on the TrainingClub, where trainers provide content to train and engage users.
Nike’s growing consumer engagement, through the integrated brand experience, increases consumer connect with the brand. It also drives direct transactions through D2C channels like SNKRS. The platform enables Nike to capture rich user data, ranging from sizes, fits, profiles, activity (use of footwear), preferences etc. This data enables recommendation of the most appropriate products and services to users. As of 2021, more than 30% of Nike’s revenue was driven by digital channels, which constitute an integral part of the integrated brand experience.
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