Differentiation and Value Capture in the Internet Age

Great things are usually made by specialists, not by all of us. These specialists can create things that the rest of us want. This means that networks can emerge with two groups: one that supplies something valuable, and another which consumes that service. This is where the most valuable type of Internet company enters the game: aggregators.

This virtuous circle of supply-side economies of scale and network effects explains why tech companies so easily challenge our understanding of corporate strategy. Their increasing returns to scale, a byproduct of the technology they masterfully exploit, is their true competitive advantage. With increasing returns, those companies’ large scale is s

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He was absolutely right about the benefits to what he called “aggregators,” particularly the e-commerce platforms selling digital entertainment: He accurately saw that, unburdened from the costs and risks of carrying physical inventory, a platform like Amazon or iTunes was suddenly free to offer an unlimited assortment of ebooks, songs, and other d... See more