The E-commerce Aggregator Business Model: A Perfect Storm
The world of e-commerce has been rapidly evolving over the years, with many companies achieving significant success through innovative business models. However, one particular model – the e-commerce aggregator business model – is facing a perfect storm that threatens its very existence.
A Brief History of the E-commerce Aggregator Business Model
In theory, the brand rollup business model sounds like it could work. An aggregator buys consumer product companies and uses its existing infrastructure to scale them and turn a profit. This approach has been successful for some aggregators in the past, with earnings before interest, taxes, depreciation, and amortization (EBITDA) for many of these brands already at two or three times their original purchase price.
However, this is where most aggregators stop. While they excel at acquiring brands, they struggle to invest in R&D, innovation, and operations – all the things that matter for growing one brand, let alone a dozen. As a result, many aggregators have been buying up brands without conducting thorough due diligence, leading to purchases of brands with mediocre products, inflated sales, and fake reviews.
The Comparison to the Financial Crisis of 2008
The financial crisis of 2008 saw poor financial products being lumped together in order to diversify risk and make them appear better than they actually were. This is eerily reminiscent of what has been happening in the e-commerce aggregator business model, where aggregators are buying up brands without thoroughly evaluating their quality or potential.
Why Aggregators Are Struggling
There are several reasons why e-commerce aggregators are struggling to succeed. Firstly, the sheer number of acquisitions can lead to integration difficulties and a lack of focus on core business areas. Secondly, the emphasis on rapid growth through acquisition means that companies often prioritize short-term profits over long-term sustainability.
Lastly, the lack of transparency in some aggregator transactions raises concerns about the true value of these businesses. With fake reviews and inflated sales becoming increasingly common, it’s difficult for investors to accurately assess the potential of these brands.
Not All Aggregators Are Destined for Failure
While many aggregators are struggling to adapt to changing market conditions, there are some great ones out there run by amazing people. These individuals understand that growth through acquisition got them here, but it won’t get them to the next safe harbor. They now need to grow the brands they have if they want to survive.
The Future of E-commerce Aggregators
Time will tell how many aggregators are successfully able to make this pivot. Those that don’t are likely to become acquisition targets themselves, but those that do will likely reshape the way we think about creating successful houses of brands in the 21st century – born digitally, aggregated deftly, and accelerated globally.
Conclusion
The e-commerce aggregator business model is facing a perfect storm due to its failure to adapt to changing market conditions. While some aggregators are struggling to survive, others are successfully pivoting towards growth through organic means. As we move forward in the world of e-commerce, it will be interesting to see which companies are able to navigate these challenges and come out on top.
Related Topics
- Amazon
- Brand management
- Business
- Column
- E-commerce
- EC Column
- EC Market Analysis
- Executive
- Fintech
- Media & Entertainment
- Startups
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