Lessons from Ben Thompson

Ben Thompson, the author of the influential tech and strategy newsletter Stratechery, has shaped much of the modern conversation about technology, business models, and the internet's impact on society. His frameworks, particularly Aggregation Theory, have become essential tools for understanding the digital age.

On Aggregation Theory & Strategy

Aggregation Theory is Thompson's foundational concept for understanding how businesses win in the internet age. It posits that while businesses previously won by controlling supply (e.g., printing presses, broadcast licenses), today's most successful companies win by controlling demand.

The Core of Aggregation Theory: "The value chain for any given consumer market is divided into three parts: suppliers, distributors, and consumers/users. The best way to make outsize profits in any of these markets is to either gain a horizontal monopoly in one of the three parts or to integrate two of the parts... In the pre-Internet era the latter depended on controlling distribution." [1]
The Internet's Fundamental Disruption: "The fundamental disruption of the Internet has been to turn this dynamic on its head. First, the Internet has made distribution (of digital goods) free... Secondly, the Internet has made transaction costs zero, making it viable for a distributor to integrate forward with end users/consumers at scale." [1]
The Power Shift to Demand: "Value has shifted away from companies that control the distribution of scarce resources to those that control demand for abundant ones." [2]
The Virtuous Cycle: "The best distributors/aggregators/market-makers win by providing the best experience, which earns them the most consumers/users, which attracts the most suppliers, which enhances the user experience in a virtuous cycle." [1]
The User Experience is Paramount: "The most important factor determining success is the user experience." [1]
The End Game of Aggregation Theory: "The European Commission's antitrust case against Google is likely to be the first of many against aggregators, because the end game of Aggregation Theory is monopoly." [3]
Zero Marginal Costs: "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." [3]
On Super-Aggregators: "[Super-aggregators have] zero transaction costs not just in terms of user acquisition, but also supply acquisition, and most importantly, revenue acquisition." [2]
How Aggregators Start: "Because aggregators deal with digital goods, there is an abundance of supply; that means users reap value through discovery and curation, and most aggregators get started by delivering superior discovery." [2]
The Impact on Suppliers: "Aggregators, by virtue of owning demand, gain power over suppliers which become modularized and commoditized." [3]
Amazon's Approach to Groceries: "Perishable goods are not well-suited to Amazon's value chain. Superior selection has diminishing returns, quality varies on an item-by-item basis within a single SKU, and, most importantly, the quality of items degrades with time and transport. In other words, they are a great fit for stores, not distribution centers." [4]
The Constraint of Value Chains: "What matters is not 'technological innovation'; what matters is value chains and the point of integration on which a company's sustainable differentiation is built; stray too far and even the most fearsome companies become also-rans." [4]

On Platforms vs. Aggregators

Thompson makes a critical distinction between platforms, which empower third parties, and aggregators, which intermediate and control them.

The Key Distinction: "This is ultimately the most important distinction between platforms and Aggregators: platforms are powerful because they facilitate a relationship between 3rd-party suppliers and end users; Aggregators, on the other hand, intermediate and control it." [5]
How to Compete with an Aggregator: "It is all but impossible to beat an Aggregator head-on, as Walmart is trying to do with Amazon. The solution instead is to build a platform like Shopify." [6]
The Power of Platforms: "Platforms are so powerful that Apple's latest court loss won't change the course of the iPhone; that's why it's worth understanding the difference between platforms and aggregators." [7]
Microsoft and Apple's Philosophy: "It is no accident that Apple and Microsoft, the two 'bicycle of the mind' companies, were founded only a year apart, and for decades had broadly similar business models... both were and are at their core personal computer companies and, by extension, platforms." [8]
Google and Facebook's Philosophy: "Google and Facebook, on the other hand, are products of the Internet, and the Internet leads not to platforms but to aggregators." [8]
The Platform's Ecosystem: "While platforms need 3rd parties to make them useful and build their moat through the creation of ecosystems, aggregators attract end users by virtue of their inherent usefulness." [8]
Shopify as the Anti-Amazon: "Amazon is pursuing customers and bringing suppliers and merchants onto its platform on its own terms; Shopify is giving merchants an opportunity to differentiate themselves while bearing no risk if they fail." [5]

On Business Models and Moats

Thompson frequently analyzes what makes a business defensible and how the internet has changed the rules of competition.

The Moat Map: "This relationship between the differentiation of the supplier base and the degree of externalization of the network effect forms a map of effective moats." [8]
The Nature of Software Economics: "Economics of software: massive fixed cost, effectively zero marginal costs." [3]
Niche vs. Scale Businesses: "Publishers need to answer the most important Q required of any enterprise: are they a niche or scale business? Niche businesses make money by maximizing revenue per user on a (relatively) small user base. Scale businesses make money by maximizing the number of users they reach." [3]
The Power of a Niche: "The internet enables niche in a massively powerful way. And because you're not constrained to a geographic area, you can reach the entire world." [2]
Why Stratechery is Subscription-Based: "To do an ad-based sort of business, you're just getting backed up behind Facebook and the New York Times like everyone else, and there's no way to break through." [2]
On Competing with Amazon: "Competition is always scary, but competition against a juggernaut that seems to have permission from its shareholders to not turn any profits is really frightening." [9]
On Company Culture: "Culture is probably the processes that can't be written down to some extent." [10]
The Danger of a Strong Culture: "Culture is also very dangerous because if you have to change direction suddenly, you realize you're in a straight jacket." [10]
The "Ladder-Up" Strategy: "Relentlessly focusing on a few things and then using them to attack adjacent markets is how you grow from a struggling startup to a powerhouse." [11]
The Importance of Convenience: "The reality is — particularly when it comes to consumer products — is that in the long run, convenience always wins." [12]
On Spotify's Business Model: "Spotify has a marginal cost problem, but while the cause is unique to Spotify, the challenges are more applicable than it seems." [13]
On Open Source Business Models: "While open source helped fuel cloud adoption, the economic realities are such that software itself has no value due to infinite reproducibility - it is the services around software that are monetizable." [14]

On the Media Industry

As a pioneer of the paid newsletter model, Thompson's analysis of the media landscape is particularly insightful.

The Problem for Publishers: "The problem for publishers, though is that the free distribution provided by the internet is not an exclusive." [15]
The New Publisher Mindset: "Instead of focusing on journalism first and biz model 2nd, publishers need to start w/ a sustainable biz model & focus on journalism that works hand-in-hand with the biz model they've chosen." [3]
How Google and Facebook Disrupted News: "Google & FB didn't create better newspapers, they reduced newspapers to any other type of content, and made it compete with all other content in the world." [3]
The Future of Content Creators: "On one side you will have the aggregators as ideal vehicles for content creators who value reach; on the other new kinds of tools that enable direct connection—& funding—from fans." [3]
Journalism vs. Analysis: "I think about journalists as writing about what is happening at best, uncovering facts. Analysis is explaining why it happened, and opinion is some aspect of saying what you think should happen." [1]
The Unified Content Business Model: "The question going forward should not be advertising or subscriptions; the answer, in meme form: 'Why not both?'" [16]

On Tech Companies and Personalities

On Understanding Big Companies: "It's very easy on the outside to anthropomorphize these companies, a single entity making decisions... The reality is it hits thousands and thousands of people. There are massive coordination problems." [1]
The Motivation Behind Decisions: "If you know these companies, you know the people in them, they are anything but stupid... that's where it gets interesting to look at companies, look at their culture, look at their business model, see what's driving that sort of decision-making." [17]
On Apple and the Innovator's Dilemma: "Clayton Christensen continually predicts that Apple will be disrupted because his theory does not incorporate the importance of the user experience." [18]
Why Christensen's Theory Misses Apple: "These are the buyers at the root of Christensen's theory of low-end disruption, and they don't care about what can't be measured. They are not the buyers driving the smartphone market, who do." [9]
Apple's Strategic Mistake with the App Store: "Apple for years neglected the business model needs of developers building robust productivity apps that could have meaningfully differentiated iOS devices from Android." [8]
On Microsoft's Post-Windows Era: "It's not that they don't have talent—they do. It's not that they don't have great tech—they do. Rather, it's that they achieved their goal. There IS a computer on every desk & in very home, & nearly all of them run Microsoft software. Now what?" [3]
On Facebook's Evolution: "FB started as the best place to find friends & family, but over time evolved into being the best place to waste time period." [3]

On Writing and Consistency

The Gap Stratechery Fills: "There's lots of sites writing about the products. Wall Street is writing about the financial results, but there's a big gap in the middle there. What is the strategy that goes into the products?" [1]
The Skill of Consistency: "I think it's a very distinct skill and capability to come up with interesting things consistently. The sooner you can demonstrate that to someone, the sooner they are going to take advantage of whatever means you have to follow, to subscribe, or whatever it might be." [1]
The Value of a Back Catalog: "It's good for the creator because if you can't have the discipline and stamina to build up a back catalog, you're probably not going to have the discipline and stamina to keep going for a long time." [10]
On Being Wrong: Thompson frequently discusses the importance of updating one's views and has a process for screening his work for confirmation bias. [8]
The Importance of Starting: When asked about starting Stratechery, he noted the feeling of having "missed out" but also that "it's not enough to just want to do something. There needs to be a market, there needs to be an opportunity." [10]
On the Future: "There's just a very high chance, it seems, like the world is going to look pretty different in a few years from now." [9]

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