Since the internet has spawned there have been a some new major business models that have come along that have changed the way things are done, and more importantly, enabled entrepreneurs to cash in by capitalizing on the up and coming trends.
As the open Web has gained popularity, a new generation of content aggregators has emerged, offering consumer-oriented subject matter. These aggregators offer much lower price points than the traditional aggregators and typically target the home, not corporate, user. Interfaces reflect users’ broad familiarity with Web search; some actually use the same search engines that deal with intranet or Web content.
The zealots who came out of this age believed that the intelligence, energy, and alignment among these pioneer companies and their customers increased awareness of online access to useful electronic content, which eventually led to the Internet and today’s World Wide Web. While this may be true, it is clear that the Web’s incredible popularity and pervasiveness has rocketed past the traditional industry in terms of both number of users and number of searches. Why is this so? Even with a significant head start the traditional companies have, at best, experienced incremental growth, while the Web moves forward on a completely different, almost logarithmic, scale.
The digitization of data is affecting the way products are created and delivered, which, in turn, is encouraging new participants to enter the fray at every point in industry value chains.
This has helped organizations to migrate from a Physical Enterprise to a Virtual Enterprise.
As today’s companies grow ever larger, the traditional market segments they serve continue to splinter and shrink. For many multinational corporations, fractured “long-tail” markets, coupled with the need for ever-larger customer segments to sustain growth, mean that the game has changed—fundamentally. Long accustomed to targeting huge, geographically distinct mass markets, companies must now focus on aggregating sales across and among these arenas to generate the sales volumes they need to grow and thrive.
Meanwhile, two other technologies—mobile connectivity and online social media—will allow these companies to connect with customers wherever they are located and spot themes shared among individuals worldwide, respectively.
These technologies are helping companies target and serve consumers across the street or around the world with nearly equal ease. But they aren’t by themselves fostering the global market integration opportunity that’s currently forming. Instead, these technological developments are driving three shifts in the competitive landscape that are ushering in the new Age of Aggregation.
Electronic commerce business model where a firm (that does not produce or warehouses any item) collects (aggregates) information on goods and/or services from several competing sources at its website. The firm’s strength lies in its ability to create an ‘environment’ which draws visitors to its website, and in designing a system which allows easy matching of prices and specifications.
The convergence of marketing and payment acceptance is arguably one of the most powerful draws for micro merchants to merchant aggregators.
Look at these leading examples, many of whom have become game changers :
- Uber, the world’s largest taxi company owns no vehicles.
Uber: The San Francisco startup serves more than 25 major domestic and international markets, including New York, Chicago, Los Angeles, Berlin, Milan and Singapore. Consumers launching Uber’s mobile app are shown available licensed car services for hire in their area. Cars are reserved through Uber’s mobile app, which can also track a car’s proximity to the consumer. Uber keeps the consumer’s credit card on file for each booking and pays the service provider.
- Facebook the world’s most popular media creates no content.
Founded in 2004, Facebook’s mission is to give people the power to share and make the world more open and connected. People use Facebook to stay connected with friends and family, to discover what’s going on in the world, and to share and express what matters to them.
After registering to use the site, users can create a user profile, add other users as “friends”, exchange messages, post status updates and photos, share videos and receive notifications when others update their profiles. Additionally, users may join common-interest user groups, organized by workplace, school or college, or other characteristics, and categorize their friends into lists such as “People From Work” or “Close Friends”. Facebook had over 1.3 billion active users as of June 2014.[
- Alibaba, the most valuable retailer has no inventory & so does Snap Deal & Etsy
Alibaba is China’s — and by some measures, the world’s — biggest online commerce company. Alibaba is the most popular destination for online shopping, in the world’s fastest growing e-commerce market. Transactions on its online sites totaled $248 billion last year, more than those of eBay and Amazon.com combined. Taobao is Alibaba’s biggest shopping site. It’s home to seven million merchants selling everything from tiger-striped leather jackets to origami decorations. It’s free for users, but sellers can pay for ads to stand out from the crowd. It’s a search engine, market place & a bank – all in one.
Etsy: Co-founder Rob Kalin conceived of the online marketplace in 2005 as an alternative to marketplaces he felt had become cluttered with overstock electronics and secondhand appliances. Etsy has 25 million members, attracts 42 million unique visitors a month and has more than 850,000 active shops listing more than 18 million items. In 2012 merchandise sales totaled $895.1 million, up from $525.6 million in 2011.
- Airbnb the world’s largest accommodation provider owns no real estate
Airbnb: Founded in 2008, Airbnb connects consumers looking for rental properties across a variety of price points in more than 33,000 cities and 192 countries. Accommodations can range from an apartment or condo to a castle or villa. In 2012, the aggregator launched Neighborhoods, a series of online travel guides to help tourists identify places to see and things to do while at their destination. The site has more than 300,000 listings worldwide and consumers have booked more than 10 million nights since its launch.
- Apple with sales of over 200 million smartphones and tablets does not own a factory.
Apple is the world’s second-largest information technology company by revenue after Samsung Electronics, and the world’s third-largest mobile phone maker. On November 25, 2014, in addition to being the largest publicly traded corporation in the world by market capitalization, Apple became the first U.S. company to be valued at over $700 billion. As of 2014, Apple employs 72,800 permanent full-time employees, maintains 437 retail stores in fifteen countries, and operates the online Apple Store and iTunes Store, the latter of which is the world’s largest music retailer.
Steve Jobs and Apple Computer once built a “factory of the future” in Fremont, California. They spent $20,000,000 and then closed it after just two years. Tim Cook recently made the point that Apple’s forte is Product Design and Marketing and the company is better off leaving the manufacturing to companies like Foxconn whose forte is manufacturing. This is a compelling argument, It is certainly supported by Apple’s experience at Fremont.
- Whatsapp with 3 Billion messages a day does not own servers.
WhatsApp Messenger is a cross-platform mobile messaging app which allows you to exchange messages without having to pay for SMS. Because WhatsApp Messenger uses the same internet data plan that you use for email and web browsing, there is no cost to message and stay in touch with your friends. In addition to basic messaging WhatsApp users can create groups, send each other unlimited images, video and audio media messages.
Its an instant messaging app for smartphones that operates under a subscription business model. The proprietary, cross-platform app uses the Internet to send text messages, images, video, user location and audio media messages.
In January 2015, WhatsApp was the most globally popular messaging app with more than 700 million active users, with India alone having a user base of more than 70 million. In April 2015, WhatsApp reached 800 million active users and was acquired by Facebook on February 19, 2014, for approx. US$22 billion.
- WyzAnt is the largest online Tutoring company but does not hire any tutors
WyzAnt.com: This tutoring marketplace has boot-strapped its business from inception, eschewing venture capital. The company serves all metropolitan markets in the United States and represents tutors across more than 250 subjects. WyzAnt is testing an online application tutors can use to supplement their regular practice. Since WyzAnt.com’s inception in 2005 more than 1 million hours of tutoring have been booked through the site.
Grofers is an on-demand delivery service that connects consumers with local merchants in the neighbourhood. Grofers offers a wide assortment of groceries, bakery items, fresh fruits & vegetables, personal care and baby care products, pet care items, electronic accessories and much more. Users can order through the app and get everything delivered to their doorstep.
Consumers can order products from shops around them and Grofers’ delivery team will deliver in less than 90 minutes. The company operates in cities like NCR, Mumbai, Bengaluru, Jaipur, Ahmedabad, and Chennai. Chief Technology Officer Varun Khurana’s of Groffers has said that traditional mom-and-pop shops have completely missed out on the opportunities thrown open by e-commerce. “We are now connecting these local merchants with consumers around them,” said Varun. “We are emptying their shelves faster than they can refill them”. He said while e-commerce has solved many of the problems that bogged down traditional retail, it has still not solved the problem of delivering low-margin products to consumers. This is what local commerce startups are attempting to do.
What these organisations have achieved is un-thinkable in the traditional brick & mortar world. By sheer use of technology & leveraging the internet and wise use of their resources they have been able to create a niche for themselves and disrupt the market and ultimately change the rules of the game.
It’s a new form of economic undertaking where several actors associate their strengths to provide specific products and services traditionally provided by a single enterprise. Disruptive, innovative and collaborative consumption is shifting the lines of the economy. Digital revolution has resulted in the usage of objects being valued more than ownership.
What these organisations have done is that they have showed the path to others. They have shown that without huge capital, without owning inventories, we can still set up a huge Revenue Model by aggregating suppliers and focusing on distribution and servicing. They have shown that with little initial capital and other resources one could start a commercially viable venture. It has also shown that geographies are shrinking. The whole world is a “Global Market Place” and leveraging the world wide web & the internet, the doorstep to the Global Market Place is widely open.
No wonder we have seen organisations (Flipkart, Snapdeal & Amazon) racing to the Billion Dollar club in India in a span of 3-4 years something unthinkable.
Giving micro-merchants tools to manage and expand their business is becoming a bigger focus for merchant aggregators. For several aggregators, this means making their application programming interface (API) codes available to merchants to create mobile or online-payment applications.
Ad hoc alliance of independent experts (consultants, designers, developers, producers, suppliers, etc.) who join to pursue a particular business opportunity. Virtual enterprises have little or no physical presence or infrastructure, rely heavily on telecommunications and networks such as internet, and usually disband when their purpose is fulfilled or the opportunity passes. Agile, flexible, and fluid, they are extremely focused and goal driven, and succeed on the basis of little investment requirements, low startup and overhead costs, and fast response time. Geographically dispersed members of a virtual enterprise collaborate on the basis of their core strengths from wherever they are and whenever they are able to do so, and may become competitors in pursuit of another opportunity.
Regardless of how sophisticated the technological tools are that merchant aggregators offer, if merchants don’t embrace them, the aggregator will fail. The key to success then is for the aggregator to understand all the needs of the merchant segment it is targeting.
Despite all their new bells and whistles, merchant aggregators are not without their critics. A big concern is profitability and slack risk management as aggregators compete for business from small, unproven merchants.
“There are a lot of aggregator business models popping up that are not viable,” says Henry Helgeson, chief executive of Merchant Warehouse, a Boston-based ISO. “Transaction processing is a hyper-competitive business and aggregators that do not add value around processing have to compete by selling their service below cost, and that’s a slippery slope.”
“There is always a risk that processing will be treated as a commodity, but the aggregators that only offer commodity pricing won’t be able to compete long-term,” says Jason Pavona, executive vice president for Lowell, Mass.-based Litle & Co., an acquirer for e-commerce merchants. “Market leaders are innovators, and many aggregators are providing products and technology that were not thought possible. Aggregators have not only proven they can co-exist with traditional processors, they’ve shown they are here to stay.”
Raising funding for tech startups has never been so easy. Some of this flood of money has been because of mutual funds and hedge funds. There are nearly 50+ active Venture Capitalists besides scores of Angel Investors in India itself besides the 100s in the Silicon Valley. This is altering not only the funding landscape for tech startups, but also valuation expectations.
There are many concerns that valuations for businesses are confounding rationale. Entrepreneurs and their investors are deviating from more traditional valuation and performance metrics to more unconventional ones. Another cause cited for increasing valuations is the trend of protections for late investors that cause valuations to inflate further. The combination of a number of these factors has put the sector into a state of artificial valuations.
Meanwhile, the companies themselves are burning through cash like there is no tomorrow. Throwing money at marketing, overheads and, in particular, remuneration has become the accepted investment strategy for startup growth. All this does is perpetuate the vicious cycle of raising more money and spending more money. For the amounts that some of these businesses have raised, the jury is still out on actual profitability.
Their valuations are mind boggling and many a times appear artificial. Companies are being valued in Billions without any solid Assetts. Remember the Housing bubble or the Credit Card bubble in 2008 in the US.
The fact that we are in a tech bubble is in no doubt and everyone is joining the bandwagon and having a party. There are genuine concerns that the bubble is about to burst and no one would want that to happen. The good times the sector is enjoying are becoming increasingly artificial. The tech startup space at the moment resembles the story of the emperor with no clothes. We have to be vigilant and need to raise our voices persistently to foresee the imminent danger looming at large, with the hope that the majority will finally listen.
Ramesh Ranjan is the Founder & Chief Editor of Human Engineers.
His credo in life is “I pass through this world but once, any good thing that I can do, to any being let me do it now, for I may not pass through this world again”.
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