I was trying to understand if this theory holds up in healthcare. Technology is “disrupting” (at least the work processes), and most administrators require a reboot in the understanding of this “novelty”. (I still refer this to as novelty because traditional industries have adapted to the new scenario to keep their profits intact). They haven’t “changed” over to fully embrace digitisation though.
(These are just rolling ideas and make no assumption of your prior understanding of the concepts).
Aggregation Theory – Stratechery by Ben Thompson (emphasis mine)
What is Aggregation Theory?
Aggregation Theory is a completely new way to understand business in the Internet age. Business schools suggest that with the right frameworks, an executive can understand how to manage all kinds of problems: what happens, though, when many of the inputs to those frameworks are zero?
Zero distribution costs. Zero marginal costs. Zero transactions. This is what the Internet enables, and it is completely transforming not just technology companies but companies in every single industry. Old moats are gone — and new ones can be built — and Aggregation Theory helps you identify both.
Ben has been able to explain the “demand-side” pretty well (for example, Netflix) by claiming that the service provides an “aggregated value” for the consumers. Netflix isn’t doing anything “radical” but taking over the existing medium (movies) to a different platform, albeit, not initially designed for streaming. They exploited the opportunity to get the first-mover advantage to gain attention. The Hollywood side has reacted by aggregating the supply side (in terms of mergers) (and playing catch up). I still hold that the streaming wars will get saturated as there’s only a specific slice of market which will subscribe to them. The supply side gets to nearly zero in terms of cost- once you have made the initial investment for content distribution, the only cost is in maintaining the status quo.
Considering similar input costs (not zero though), the premium they charge is for the convenience. The battle for “eye-balls” (i.e. attention) is a secondary construct for these platforms. Likewise for aggregators like Apple News (it is a non-starter in its current version). It isn’t about “curation” as much as defining signals for what gets the attention (that data is more valuable to Apple as it is unlikely to part away with it to the publications).
Similarly, Amazon hasn’t become dominant in Internet retailing because it offers the lowest prices (I think Walmart achieved that long time back) or it provides a mechanism for “superior products” (its front page is full of pithy recommendations). It became prominent because it offered a differential method of convenience. Its forays into other domains are only because it is disrupting for “convenience”. It makes its money from other advertisers, on its platform, as it singles out those users who are willing to pay (unlike Google ads where users express an intent to purchase).
I needed to make a background case for healthcare. The health-seeking behaviour correlates well with income levels (it has been borne out in many studies/surveys). What differentiates a health provider from another is how well they can grab attention (say, for example, doctor-patient relationship) and provide a “convenient service” (in terms of inpatient admission/outpatient costs, etc.). Hospitals, currently, have become transactional marketplaces (private healthcare) where there have been attempts to provide “star ratings to the doctors”. It may appear to be venal, but it is an attempt to “standardise competencies” for healthcare delivery. The public sector is relatively insulated from market dynamics because of extramural funding (and hence, it ossifies in the absence of competition).
Hospitals will have to jostle for people who are seeking “health-as-a-service” and the best ones to “win” are the ones providing the best disease-matched outcomes. Personalised medicine is a ploy (currently) because there are many unknowns to give a quantifiable result. It is well covered under the “moniker” of “research”; the real reason is that healthcare providers “invented” a new terminology to differentiate themselves from the crowd. Therefore, the emphasis on “bench-to-bedside” holds promise but hasn’t yielded the desired outcomes (in terms of survival).
[On a side note- it is this known unknowns that got me interested in the technology part of healthcare. Although in cancer, there are various unknowns too, that makes it even more challenging). We attempt to “standardise” but in reality, each patient has a different trajectory (outliers)]
The problem I have with the theory is that it implies there is something fundamentally new or unique about the economics of the brave-new-world of tech, when in reality, the old economic rules still work just fine. This, in turn, creates the raw material to rationalize bubble thinking/valuations, instead of more rational analysis.
There isn’t a lot that is novel about that insight, and the truth is, contrary to what Ben argues, demand and supply have always been of equal importance, and remain so. The real reason certain platform companies have become powerful is not because demand has become more important than supply, but because in many cases, the demand side has become more concentrated than the supply side, thereby giving it more market power. Demand has, therefore, become more ‘consolidated.’
Here’s the classical paper (on aggregation economics).