The Aggregator Business Model: A Perfect Storm
The world of e-commerce has never been more exciting, yet many e-commerce aggregators are already struggling. Decreased consumer confidence, inflated brand value, and a freeze in investment capital have created a perfect storm that threatens the very existence of these businesses.
At Pattern, we predicted the demise of the aggregator business model last year, but the moment of truth has come even sooner than we thought. That said, there’s still time for these businesses to course correct. If aggregators act fast, they can position themselves well for their next phase of growth. But first, let’s examine how we got here.
The Broken 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. Earnings before interest, taxes, depreciation, and amortization (EBITDA) for many of these brands is already at two or three times their original purchase price. Buy enough of them, and you’re looking at EBITDA arbitrage — a 20x or 30x increase in your own valuation. So far, so good.
However, this is where most aggregators stop. While they’re great at acquiring brands, they’re terrible at investing in R&D, innovation, and operations — all the things that make a brand truly successful. They’re like investors who buy a house but never fix it up; they just hope to sell it for a profit.
The Problem with Acquisition-Driven Growth
Aggregators have been relying on acquisition-driven growth for far too long. They’ve been buying brands left and right, without putting in the effort to make them truly competitive. This approach may have worked in the short term, but it’s not sustainable in the long term.
As consumers become increasingly savvy, they’re looking for more than just a brand name; they want quality products, innovative designs, and a strong online presence. Aggregators need to start focusing on growth through innovation, rather than just acquisition.
The Warning Signs
There are warning signs all over the place:
- Decreased consumer confidence: Consumers are becoming increasingly cautious, and that’s impacting sales.
- Inflated brand value: Brands are being valued at unrealistic prices, making it difficult for aggregators to turn a profit.
- Freeze in investment capital: Investors are becoming more cautious, making it harder for aggregators to raise the funds they need.
Finding a Safe Harbor
Not all aggregators are destined for failure. There are some great ones out there run by amazing people who 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.
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.
The Road Ahead
The road ahead is uncertain for aggregators, but it’s not all doom and gloom. With a focus on innovation and growth through brand development, some aggregators can still thrive. Those that don’t adapt will likely become acquisition targets themselves.
It’s time for aggregators to wake up and smell the coffee. They need to start focusing on building strong brands that consumers love, rather than just buying up existing ones. The future of e-commerce depends on it.
Conclusion
The aggregator business model is facing a perfect storm of decreased consumer confidence, inflated brand value, and a freeze in investment capital. If aggregators don’t adapt and focus on growth through innovation, they’ll likely 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.
It’s time for aggregators to take a hard look at their business models and make some changes. The future of e-commerce depends on it.
