The Meta-Search Paradox and Value of Online Aggregators

Priceline is an online hotel booking service with inventory that is also directly available from Marriott, Intercontinental, Hilton, and many others. Priceline receives a commission for every room reserved, a commission that is less than the profit that the hotel reaps from the booking. However, in online search ad auctions,  Priceline’s ads are somehow able to appear higher than the ads of any of the individual hotels. Considering that Priceline makes less money per booking, how is it able to pay more per visitor than the hotels?

AdWords is Google’s search ad marketplace and is the most prevalent ad auction online. It uses a formula to determine ad position based on the following inputs: advertiser cost-per-click (CPC), a “quality score,” and the click through rate (CTR) of the ad for a particular search term. The quality score is based on ad relevance (to the search term), landing page experience, and expected click through rate (CTR).

Assume that the auction formula inputs for a Priceline ad and a Hilton ad on a search query for “hotel room in Boston” were the same – same CTR, same ad quality, etc. It seems impossible for Priceline to be able to outbid Hilton in this case, but paradoxically, they they are able to outbid individual hotels on a huge variety of keyword queries.

Suppose a simplified scenario where there are only 10 hotel providers in Boston: Hilton, Marriott, Starwood, and 7 others. Each of the 10 have 10 rooms available for a particular night that a user is interested in. Imagine a user who clicked the Google Ads of each individual hotel before making a decision. Each of the hotels would have to pay for the user to click their ad, even though 9 out of 10 got no benefit. Thus, each one has only a 10% chance of attracting this person’s business, given that he is committed to buying a hotel room in Boston. If a hotel has to pay Google for 10 ad clicks to make one room sale, those ad payments start to add up and eat into the profit margin of the room sale. In contrast, an aggregator like Priceline who has deals with each of the 10 direct players, will have 100 rooms in its inventory. It has a much higher chance of actually gaining a conversion since the consumer is likely to find exactly what they are looking for on Priceline. The aggregator has a higher conversion rate and therefore it can pay more than a direct advertiser to attract a user to its site, despite a lower profit margin for a sale.

In addition to this structural benefit that aggregators benefit from, users often appreciate aggregators because they simplify the buying process. The CTR of an aggregator and is often higher than those of direct players which, coupled with the higher purchase conversion rate, means that aggregators can bid even less and still maintain the top ad positions in search. Aggregators are valuable to users as they minimize the need to shop around across a highly fragmented industry. It is much easier for the user to compare amenities, prices and location in one place. The breadth of listings gives consumers the further confidence that they are making an informed decision.

Furthermore, aggregators can seem like an independent third party and thus foster trust. A user that visits a hotel’s website directly, isn’t likely to have full trust in the reviews that are displayed since they might be biased. A third party that aggregates review information is likely to be more trustable. This isn’t to say that a third party is necessarily trustworthy, but rather that consumers are more likely to trust their reviews and/or recommendations.

You might ask why the hotels would continue to support this structure and fund a channel that undercuts their margins. The answer primarily lies in the fragmented nature of the marketplace. The aggregators would only be threatened if a large majority of hotels in an area colluded to pull their contracts. It is not in an individual hotel’s best interest to turn off this marketing channel and they are unlikely to be able to come to a deal with their direct competitors. The result of this fragmented structure is that the aggregators continue to thrive online.

This model works in a surprising number of fields. Flights, hotels, rental cars, apartments, home services, online courses, and many others.

In addition to providing deep breadth of listings for their users, aggregators can further differentiate themselves by helping users in the decision-making process. This is becoming especially important as online consumers seek the simplicity associated with being served an answer on what to do by a trustworthy expert. Unfortunately, some companies exploit this user desire, by, for example, promoting products that bring in the highest affiliate commission rather than the ones that are truly the best.

There is an opportunity for new companies in many fields to step up and take their role as quality raters and custom recommendation seriously. For example, the company bestreviews.com is focused on getting real expert input on specific products and recommending products in all categories on the basis of the combination of expert opinions and public reviews. Similarly, users will value eversence.com, the well-researched science-based supplement recommender.

As the online economy continues to grow and evolve, the role of online aggregators will also have to adapt if they want to stay competitive. I believe that the aggregators will further differentiate by creating more value by providing complimentary services such as deep research and trustworthy recommendations.

By: Liza Yermakova


read more

I relentlessly pursue news updates from multiple sources at all times of the day. From my dorm room in Boston, I enjoy reading about topics ranging from the Chinese real estate market, European political elections, South American football leagues, Silicon Valley, etc. My pursuit continues away from my desktop as I rely even more on my smartphone and digital reader. In total, I likely reference ~5-10 news sources per day across five continents and three languages. If I had more time, I would like to believe that number would be even higher. As I can’t possibly cycle through all of these sites, I rely on news aggregators such as Flipboard, Google Reader, Google News, Twitter, etc. While I have certainly seen improvements in the content procurement and user interface, there remains room for improvement.

The following will attempt to address the current status quo of news aggregators (as I see them), the trends in the market of news aggregators and a possible future.

Status Quo

Today’s global and real-time news is read via online & mobile platforms. Today’s news media ecosystem is comprised of thousands of global sources creating content that is updated in (effective) real-time. We know (and even expect) stock prices, election results, weather updates within seconds. Furthermore, the rising medium through which we consume news with such immediacy is now mobile / online platforms. According to the Pew Research Center’s biennial news consumption survey, almost 40% of Americans now claim to access their news via mobile or online platforms (1).

As online news itself remains a commodity product, the providers of the news can be seen as competing on speed of delivery as well as variety of content.

Online traffic for digital news is concentrated.  Perhaps one of the reasons why today’s news aggregators have been insufficient is because there has still been no real demand for a good aggregator. In the Pew Research Center’s report “State of the News Media 2010 Executive Summary,” the author extrapolates data from Nielsen Net Ratings Data and indicates that 7% of news and information sites hold 80% of online reader traffic (2).  Or rather, online readers access a concentrated number of sources and have yet to access the long tail of news and information sites. If a reader is only accessing a handful of sites per day (NYTimes, CNN, FT), there may *currently* be no need for an aggregator.

Of the aggregators that exist, quality is varied. I have had personal experience with Flipboard, Google Reader, Google News, Flipboard, Twitter and Facebook newsfeeds.  Unfortunately, per my experience, all continue to provide a wide range of news that is of limited and / or sporatic interest.  Content procuration aside, the user experience also suffers as I oftentimes have to go through multiple websites in order to see the actual article (which, on occasion, may even be limited to paying readers).

Trends and a Possible Future.

More demand for the long tail of online news means increased demand for aggregators. If one were to assume that the world’s population is to become more itinerant with time, then demand for more regional and niche specific news sources should also increase, pushing more online reader traffic to the long tail of news and information sites. And as the online readers demand more access to this long tail via mobile and online platforms, news aggregators (online, mobile, digital reader) should also grow in importance.

I see aggregators of the future focusing more on personalizing the procurement of users’ desired content and easing the manner in which users have direct access to the content.  This will undoubtedly, however, create conflict between the aggregators and the original content providers regarding ownership of viewers and traffic.

A separate vision of the future, of course, would be that online readers access an increasingly concentrated number of legacy news sources, in which case aggregators will become even less important.

Sources:

1.       Pew Research Center, “In Changing News Landscape, Even Television is Vulnerable,” http://www.people-press.org/2012/09/27/in-changing-news-landscape-even-television-is-vulnerable/, September 27, 2012

2.       Pew Research Center’s Project for Excellence in Journalism, “State of the News Media 2010, Executive Summary,” [PDF] Available at: http://stateofthemedia.org/files/2011/05/2010_execsummary.pdf [Accessed 5 October 2012]

 


read more

“You guys have let vampires – whether it’s Google or (other) aggregators – take your content. You would think that the vampires run out of victims, because they run out of content. But that never happens in the vampire story. What happens is, someone drives a stake through their heart. That’s the only way to stop a vampire.” – Mark Cuban, Chairman of HDNet, OnMedia Conference 2011

(courtesy of SEOBook.com)

With the rise of internet news, review, video and e-commerce meta-search engines, such as Google, Rotten Tomatoes, Kayak, Rent Jungle and Yipit, this “aggregation economy” claims to improve both quality and pricing of market offerings by reducing information asymmetry between customers and content providers. In an academic vacuum, it is easy to theorize that this disruptive phenomenon delivers overall socio-economic value. However, upon closer inspection of this imperfect two-sided market, not only do aggregators seem pernicious, but they also appear to create a vicious cycle of disincentives for content providers.

Debunking old wives tales…

Although aggregators virtuously claim to monetize the long tail in an online economy, smaller players remain typically underserved in the relationship. The long tail does not increase sales of content publishers much, but it does create massive competition and spiraling downward pressure on prices, resulting in a competition of scale. Unless smaller players can downsize their cost structure, or pivot to adapt to their new competitive environment, abundance of information can destroy value.

Internet trends are equally discouraging. ComScore.com projects online spending to increase 11% this year over last. Yet, in a recent Bing survey, 87% of online shoppers would increase consumption if they could discover deals from one destination instead of from multiple providers. Further, over 50% of online consumers now initiate their product research through aggregators rather than at merchant sites to maximize pricing arbitrage. With escalating data transparency in our post-2008 crisis recessionary environment, online thriftiness is likely to grow.

In theory, online aggregators could be the Web’s Robin Hood; in reality, their wake may be strewn with casualties. As Chris Anderson, Editor-in-Chief of Wired Magazine, points out, “The long tail is all about the shift from hits to niches. But aren’t all those aggregators “hits”? They’re not only the largest players in their category, but they seem to be getting even larger, gaining market share at the expense of their competitors.”

 Going for the jugular…

 Despite enhanced online exposure via aggregation, traditional publishers struggle to monetize original content. Companies are indexed on Google but are unable to convert traffic into advertising or trade dollars. While some value is returned to the original publisher through routed traffic, for most publishers this exchange is not equal, resulting in a net accrual of value from publishers to aggregators.

Aggregators can truncate direct consumer-brand relationships, dent reputations and devalue industries. Not only do original content providers now lack control over pricing, aggregators sometimes offer suboptimal search features which extract incorrect and outdated, or even exclude, critical information from their search results. Aggregators also carry low quality sites as they scrape data from the web. There is simply no way the consumer can verify that an aggregator serves their best interests.

In the worst case scenario, content providers may cease to be motivated to create quality content which ultimately cannot promise a return profitable enough to sustain continued operations, as the balance of power and influence skews towards aggregators. To rediscover market equilibrium, content providers and aggregators must price in the true cost of their interactions to avoid such adverse incentives.

Casting silver bullets…

 To evolve in this turbulent ecosystem, traditional content providers must learn to see adversity as opportunity. Each unit of branded content must be restructured to exist on its own in its disaggregated online ecosystem. Distribution channels must be optimized to convert users who find content via search and other aggregators into subscribers and direct users. Aggregators should solely be considered as a marketing weapon in a content provider’s broader armory, underlying all of which is the key principle of never leaving any money on the virtual table.

Content providers can staunch the bleeding using the following methods:

 ·Share value added by downstream aggregators fairly: Structure legal agreements to charge a fee on all your interactions. If aggregators refuse to play nice, you can threaten to withdraw your content from their platform, and then urge your peers to boycott.

 ·Harness real time information: Share the most up-to-date information critical for decision-making with customers and partners. Eliminate the need for customers to find you on aggregators. Use multiple distribution channels to capture as much mindshare as possible, e.g. allow customers to browse, research or purchase in stores, mobile apps or online. Push viewers to associate with you outside of what they see on aggregators.

·Allow free trials, but erect a pay wall: Leverage aggregators to drive traffic to your site, and then present an ultimatum to join a password protected community. Create a sense of urgency by allowing customers to sample your products for a fee for a specified number of items per month, or a fee giving unlimited access for a specified period of time.

Offer non-financial benefits for direct user sign-up: Promise exclusive product and service packages to subscribers, i.e. CRM, allow users to connect with friends, gain ad-free experiences, stream content faster, and give access to a new features, new levels or scenarios.

·Deploy product (un)bundling and elastic pricing: Allow customers to purchase individual components or packages. Segment pay walls to capture price sensitivities, and create multiple SKUs at different price points, where different levels of engagement can monetize different willingness-to-pay. At the same time, maintain simplicity, so convenience and reward factors at major decision points will tip users towards signing-up.

 ·Sign exclusive contracts and leverage cross-selling opportunities: Acquire loyal fans of influential brands through partnerships to enable charging for a premium. Ford offered 200,000 regular Times readers free digital access until end of 2011 in exchange for viewing ads from Ford. Although Ford pays for this deal on a discounted basis, incremental revenue to the Times is still greater than the value of the same readers on a CPM basis.

·Revaluate cost structure: Streamline operations, as with online aggregation, come compressed margins and competition of scale. Half of the battle for financial longevity is won by succeeding at superior customer value propositions, the other with cost efficiencies at the back-end.

·Content remains king (!): Win “true fans” by focusing on user experience and sustained engagement. Brand equity supersedes the material value of any good. To build this, in scarce markets, you have to predict what will sell. In abundant markets, offer more choices and let the market sort it out. Help your most loyal advocates do the work via peer production methods such as reviews and crowd sourcing.

Driving a final stake into the coffin…

 So, should users agree that online aggregators have improved their customer experience? Yes. Nonetheless, as we can see in American Airlines withdrawal from Expedia, News Corp. CEO Rupert Murdoch’s rejection of Google (“feeding off the hard-earned efforts and investments of others”), and most recently, the Huffington Post’s pending lawsuit versus uncompensated bloggers, we have simply replaced expensive traditional online intermediaries with third party aggregators – a lower cost sheep in wolves’ clothing. In an increasingly competitive “aggregation economy”, at status quo, no doubt the larger players with lowest prices will triumph. By striving to equitably apportion positive externalities, more resources can be made available to incentivize content creation, which will in turn benefit the entire ecosystem in a virtuous cycle. Still, we must recognize that market stickiness will resist a speedy return to this equilibrium. Let us learn to bear arms for the long night ahead.

 


read more

Aggregators: The way to win?

You wake up in the morning and you get an e-mail from Groupon. You shower, and get another from Buy generic levitra online

ef=”http://www.giltcity.com/”>GiltCity. Then you drive to work and LivingSocial shoots you a line. By lunch, you’ve received e-mails from seven different group sale sites, in addition to all the other information and content you get from news sources, friends, family, co-workers, and other sources. On the other hand, you could have easily used Yipit, or one of the many other aggregators for daily deals and avoided some of the noise.

Aggregators are websites or programs that combine, collect, and/or assemble data or information from more than one “source” and provide a centralized repository or interface for users to access this information. Everyone has probably used one at some point considering the multitude of applications – news, research, reviews, search, social networks, and especially shopping and price comparisons/quotes.

The benefits of aggregators are clear and meaningful:

  • Simplicity: From one location for information to a centralized log-in, aggregators streamline and centralize content and processes to make consumption – and possibly actions, like purchases – easier for consumers by cutting down search time and overall effort.
  • Breadth: With information and data from multiple sources, aggregators have the benefit of expanded catalogs, options, and information. This can help with diversification, across categories or genres, and enable a wider reach (see below).
  • Customization / Filtering: Due to expanded content, aggregators often have a unique ability to allow users to control or customize information. Users are able to specify the type of information they want and what content they don’t want to see. This “curation” is important, particularly when aggregators get too big and breadth is overwhelming.
  • Wider Reach: In theory aggregators drive more traffic if they are able to capture all of the traffic that would have gone to the individual sources. They are able to take advantage of simplicity and breadth to attract more users and potentially pull traffic from the individual sources themselves.
  • Decreased Costs: Since aggregators are not producing content or providing services, they do not experience the same costs that the sources have. For example, a newspaper has to pay people to write stories but news aggregators don’t have to pay for anything but their technology (usually a one-time fixed cost with tweaks). However, companies also do not get the same upside and/or benefit from revenues (see next section). Similarly, aggregators don’t necessarily have to pay as much in advertising because as sources advertise and increase their brand value (and the value of the industry), the aggregators likewise benefit from carrying the same information, content, or products.
  • Data / Information Ownership: With wider reach, aggregators have a better understanding of consumer patterns, trends, and purchase behavior. In some cases, they may not even send users to the source so they solely own the information on that consumer, and may use it to their benefit (such as feeding back in to customization or recommendations).
  • Ability for Hybrid Model: Though many aggregators may simply surface information, they could also be in the content production or product offering space. For example, MyNines, which aggregates flash sales, could offer their own flash sales as well as displaying those of others.
  • Reduces Mobilization Risks: In networked businesses, there are many barriers to user adoption and aggregators mitigate many of these, simply by circumventing many of the relationships of networked businesses (i.e. they don’t often create network effects, they just benefit from other services which do). But they also decrease the risks of “backing the wrong horse” (users fear backing a platform that will fail) and other coordination problems involved with getting timing right amongst multiple parties.

While there are many obvious advantages to the aggregator model, there are also plenty of drawbacks:

  • Dependence on Sources: Though in some cases it is permissble to scrape or crawl for content, in some situations it is not. Aggregators are very much at the whim of the sources and their guidelines around access to their information. As a result, aggregators rely heavily on the supply from and success of the sources with which they work.
  • Misalignment of Interests: Although aggregators can increase traffic, awareness, and exposure to sources, incentives are still somewhat misaligned between the two parties. Since every aggregator and sub-industry has different specifications and models of interaction, it is hard to say the degree to which misalignment is disruptive to the functioning of the aggregators. Much of this is based on the distribution and allocation of value and thus aggregators have the ability to share value by taking percentages or royalties versus entire sales, etc.
  • Limited Value / Ability to Monetize: Based on the business model, some aggregators are limited in their value captured, though they have fewer costs. For example, they may only get 20 cents for each referral or a small percentage of the total sale (or advertising revenue). Again this is dependent on the negotiated policy or industry practices, but it may also be the case that aggregators are not able to capture any value because they simply act as brief intermediaries and hardly interact with consumers long enough to make monetization possible.
  • Similarly Difficult to Attract Users: Though aggregators have the benefit of multiple reputable sources to boost attractiveness, they have just as difficult of a challenge to customer acquisition and awareness-driving. They may benefit from free search as they are associated with the sources, but they likely still have to invest in marketing and advertising in the same ways that sources would.
  • Blurred Responsibility: If content, information, or services are coming from one source but being displayed by an aggregator, what happens if there is a technical problem or issue with that information? Who is accountable? And who bears the costs associated with service and/or other maintenance?

While aggregators have distinctive strengths and weaknesses, they undoubtedly avoid some of the greatest difficulties associated with mobilization, implementation, and attracting users. They provide great value to users and change landscapes of industries and information. It will be interesting to see how they change and morph over the coming years, but one thing is for sure – this is not the last we’ll see of them.Rich Text AreaToolbarBold (Ctrl / Alt+Shift + B)Italic (Ctrl / Alt+Shift + I)Strikethrough (Alt+Shift+D)Unordered list (Alt+Shift+U)Ordered list (Alt+Shift+O)Blockquote (Alt+Shift+Q)Align Left (Alt+Shift+L)Align Center (Alt+Shift+C)Align Right (Alt+Shift+R)Insert/edit link (Alt+Shift+A)Unlink (Alt+Shift+S)Insert More Tag (Alt+Shift+T)Toggle spellchecker (Alt+Shift+N)▼
Toggle fullscreen mode (Alt+Shift+G)Show/Hide Kitchen Sink (Alt+Shift+Z)Add ET Learn more blockAdd ET BoxAdd ET ButtonAdd ET TabsAdd Author Bio
FormatFormat▼
UnderlineAlign Full (Alt+Shift+J)Select text color▼
Paste as Plain TextPaste from WordRemove formattingInsert custom characterOutdentIndentUndo (Ctrl+Z)Redo (Ctrl+Y)Help (Alt+Shift+H)

You wake up in the morning and you get an e-mail from Groupon. You shower, and get another from GiltCity. Then you drive to work and LivingSocial shoots you a line. By lunch, you’ve received e-mails from seven different group sale sites, in addition to all the other information and content you get from news sources, friends, family, co-workers, and other sources. On the other hand, you could have easily used Yipit, or one of the many other aggregators for daily deals and avoided some of the noise.

Aggregators are websites or programs that combine, collect, and/or assemble data or information from more than one “source” and provide a centralized repository or interface for users to access this information. Everyone has probably used one at some point considering the multitude of applications – news, research, reviews, search, social networks, and especially shopping and price comparisons/quotes.

The benefits of aggregators are clear and meaningful:
Simplicity: From one location for information to a centralized log-in, aggregators streamline and centralize content and processes to make consumption – and possibly actions, like purchases – easier for consumers by cutting down search time and overall effort.
Breadth: With information and data from multiple sources, aggregators have the benefit of expanded catalogs, options, and information. This can help with diversification, across categories or genres, and enable a wider reach (see below).
Customization / Filtering: Due to expanded content, aggregators often have a unique ability to allow users to control or customize information. Users are able to specify the type of information they want and what content they don’t want to see. This “curation” is important, particularly when aggregators get too big and breadth is overwhelming.
Wider Reach: In theory aggregators drive more traffic if they are able to capture all of the traffic that would have gone to the individual sources. They are able to take advantage of simplicity and breadth to attract more users and potentially pull traffic from the individual sources themselves.
Decreased Costs: Since aggregators are not producing content or providing services, they do not experience the same costs that the sources have. For example, a newspaper has to pay people to write stories but news aggregators don’t have to pay for anything but their technology (usually a one-time fixed cost with tweaks). However, companies also do not get the same upside and/or benefit from revenues (see next section). Similarly, aggregators don’t necessarily have to pay as much in advertising because as sources advertise and increase their brand value (and the value of the industry), the aggregators likewise benefit from carrying the same information, content, or products.
Data / Information Ownership: With wider reach, aggregators have a better understanding of consumer patterns, trends, and purchase behavior. In some cases, they may not even send users to the source so they solely own the information on that consumer, and may use it to their benefit (such as feeding back in to customization or recommendations).
Ability for Hybrid Model: Though many aggregators may simply surface information, they could also be in the content production or product offering space. For example, MyNines, which aggregates flash sales, could offer their own flash sales as well as displaying those of others.
Reduces Mobilization Risks: In networked businesses, there are many barriers to user adoption and aggregators mitigate many of these, simply by circumventing many of the relationships of networked businesses (i.e. they don’t often create network effects, they just benefit from other services which do). But they also decrease the risks of “backing the wrong horse” (users fear backing a platform that will fail) and other coordination problems involved with getting timing right amongst multiple parties.
While there are many obvious advantages to the aggregator model, there are also plenty of drawbacks:
Dependence on Sources: Though in some cases it is permissble to scrape or crawl for content, in some situations it is not. Aggregators are very much at the whim of the sources and their guidelines around access to their information. As a result, aggregators rely heavily on the supply from and success of the sources with which they work.
Misalignment of Interests: Although aggregators can increase traffic, awareness, and exposure to sources, incentives are still somewhat misaligned between the two parties. Since every aggregator and sub-industry has different specifications and models of interaction, it is hard to say the degree to which misalignment is disruptive to the functioning of the aggregators. Much of this is based on the distribution and allocation of value and thus aggregators have the ability to share value by taking percentages or royalties versus entire sales, etc.
Limited Value / Ability to Monetize: Based on the business model, some aggregators are limited in their value captured, though they have fewer costs. For example, they may only get 20 cents for each referral or a small percentage of the total sale (or advertising revenue). Again this is dependent on the negotiated policy or industry practices, but it may also be the case that aggregators are not able to capture any value because they simply act as brief intermediaries and hardly interact with consumers long enough to make monetization possible.
Similarly Difficult to Attract Users: Though aggregators have the benefit of multiple reputable sources to boost attractiveness, they have just as difficult of a challenge to customer acquisition and awareness-driving. They may benefit from free search as they are associated with the sources, but they likely still have to invest in marketing and advertising in the same ways that sources would.
Blurred Responsibility: If content, information, or services are coming from one source but being displayed by an aggregator, what happens if there is a technical problem or issue with that information? Who is accountable? And who bears the costs associated with service and/or other maintenance?
While aggregators have distinctive strengths and weaknesses, they undoubtedly avoid some of the greatest difficulties associated with mobilization, implementation, and attracting users. They provide great value to users and change landscapes of industries and information. It will be interesting to see how they change and morph over the coming years, but one thing is for sure – this is not the last we’ll see of them.
Path:


read more