Vertical domination for all aggregator platforms comes down to a battle to delight consumers. All marketplaces usually have three major steps on the path to becoming indispensable parts of any industry’s distribution chain.
- The first step usually involves convincing a small set of suppliers to distribute on a proposed platform with a sparse or non-existent demand side. Amazon did this by initially partnering with book suppliers to distribute books through the site, with the suppliers maintaining all the inventory overhead.
- The second step is really about fine tuning the user experience to effectively delight consumers in ways that offline distribution channels cannot. In the case of Amazon and books, consumers could sift through a catalog of over a million titles to find a specific book of interest to them. In an offline retail world, the search for a single title could involve hours or days of painstaking visits to dozens of retail outlets.
- The third step is where vertical domination sets in. This is the point at which consumers are sufficiently delighted so much so that the platform becomes an indispensable part of their interaction with an entire industry. At this point, suppliers not on the platform feel somewhat isolated. In some cases suppliers complain about the platform but still continue to distribute via the platform because pulling out from the dominant platform in a vertical could very easily lead to reduction in top line growth. This is why hollywood complains above Netflix, but still distributes content via the platform and why some publishers complain about Google’s policies but still either have to comply with the platform’s rules or effectively face expulsion from the internet, as was the case with Rap Genius in 2013 and why Uber drivers continue to offer their services on the platform, despite the fact that a lot of Uber drivers despise the platform on ethical ground.