capturing 70% of all online marketplace sales.

- Google, Amazon, Facebook,

they're growing at this rapid speed.

- There's a common thread

connecting every billion dollar company online.

You might think that Amazon, Facebook, and Google

are in different businesses,

but they're all powered by the same basic trick,

a kind of business superpower that's let them take over

advertising, commerce, and basically the entire economy.

It's not an exaggeration to say this one trick has reshaped

the world over the last 20 years.

But to see how that trick works,

you have to look at the big picture.

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So, the name for this is aggregation theory.

And one of the clearest examples is Uber.

Before Uber, if you wanted to call a car,

you had to go through a dispatcher.

Those dispatchers controlled the market

because they controlled the supply,

and you couldn't get through to a driver

without going through their system.

Uber changed that.

Now anyone can be a driver and the limiting factor is access

to Uber's huge pool of customers and ride requests.

Uber maintains that pool of customers

by giving them a good experience, in this case a good app.

Now, you might look at this and say Uber's a middleman,

and you'd be right.

But the dispatchers were middlemen too.

The difference is that Uber keeps its hold on the market

by controlling the consumers instead of the suppliers.

Locking down the supply of drivers is now just impossible.

But as long as Uber has the best service,

it'll have the most ride requests,

which gives it control over drivers

and basically the whole market.

And if Lyft wants to edge in on that market,

it has to do it by building a better service.

The key thing is there's a lot of money to be made

in connecting drivers with passengers.

That middleman role is arguably the most profitable part

of the entire chain.

It used to go to whoever could control

the supply of drivers,

but now it goes to whoever can aggregate

all of the customers in one place.

Hence aggregation theory.

- So what I'm gonna do is I'm gonna walk through

the idea of aggregation theory.

- The analyst Ben Thompson came up with this theory

and it's the best answer we have for how companies

like Google, Amazon, and Facebook got so big so fast.

For today's businesses,

the hardest problem is customer discovery.

There's so much stuff on the internet

that customers need help finding it.

So if you can build a relationship with the end user,

everything else takes care of itself.

- And you had this overwhelming amount of data available

or articles available on the internet

and Google comes along and it's a way to find it.

The hard problem is finding stuff.

And so Google solved the new hardest problem,

and what happened is Google could scale

basically infinitely so they could basically bring together

all of the consumers, aggregate them all together.

- Thompson's idea is that for any business

you have this chain from suppliers to consumers,

with distributors in the middle.

And for most of the 20th century,

distributors we're integrated with suppliers.

So, Ford not only builds the car,

it franchises the dealership that sells it to you.

But the internet changes that.

Instead of locking down the suppliers,

distributors are now getting ahead

by locking down consumers.

So, you see services like Cars.com or Expedia

that focus on aggregating customers together

by putting all the options in one place.

You see it with menu aggregators that wanna be

the single source for takeout orders,

a kind of aggregator between you and your local Thai place.

You've also probably experienced

some version of this with Facebook.

Even if you don't use the site or even like it,

you've probably invited people to a party

through a Facebook event,

just because it's easier than rounding up everyone's emails.

It's where everyone is.

And if you're a business,

you might end up paying Facebook to get into the news feeds

of people who already follow you.

Facebook has successfully positioned itself between you

and the people you wanna talk to

just by being too big to avoid.

Then there's Google

which is just aggregating the entire internet.

How many times have you navigated to a site by Googling it

instead of using a bookmark or typing in the URL?

If you wanna know where a restaurant is

or when a historical figure was born,

it seems archaic to look it up direct from a source.

Just Google it.

This one company has become the aggregator

of all of the internet-accessible information in the world.

And the bigger that pool of facts becomes,

the more powerful Google is.

- As the internet got larger, Google got better.

It linked its quality to the scale of the internet.

- The idea of aggregation theory has become really popular

in the tech world and there's a growing argument

about what it means for antitrust law.

The story of aggregation theory is all about competition.

In some ways it's even more competitive

because instead of locking down suppliers,

you're competing for consumers.

But there are also all of these winner-take-all effects

on the internet specifically

that combine with aggregation theory in really scary ways.

There isn't a lot of reason to use

the second best search engine

or the second best e-commerce platform

or the second best social network.

So as soon as one company gets a lead,

they end up controlling all of the users,

which makes them even more powerful

and harder to compete with.

- Open markets are predicated on the idea

that if a company harms people,

consumers, workers, and business partners

will choose another option.

We're here today because that choice is no longer possible.

- To see how the internet makes this stuff weird,

imagine a strip mall.

There's a big Walmart and lots of little stores next to it.

People go to the Walmart for most things,

but if you're selling candles,

you still might be able to carve out a niche

for a candle store.

You'll make a better margin that way

than selling wholesale to Walmart,

and Walmart can only stock so much.

Physical retail makes it hard to do everything at once,

just because there's only so much space

and only so many customers you can draw in.

But the internet lets you build an infinite Walmart,

extending beyond time and space,

unbounded by the laws of physics.

Instead of shopping around through different stores,

everyone just goes to the infinite Walmart.

Because it's infinitely large,

customers know it will have whatever they're looking for.

And because it can contain an infinite number of people,

businesses know they'll get more sales

inside the infinite Walmart

then making a go of it on their own.

Now, think about the boss of the infinite Walmart.

Regular boss stuff like choosing inventory

and selecting shelf placement gives them

almost God-like power.

It's not just that they control the biggest store.

They control access to all the customers

and as long as they hold that power,

it's hard to imagine any infinite Targets

popping up to challenge them.

Pretty soon, people are launching businesses entirely

to succeed within the walls of the infinite Walmart,

basing their entire concept of retail

around the boss's arcane rules.

This is basically the tech dream.

Don't just capture the sales,

capture the entire marketplace,

and then use that vantage to jump

into more and more lines of business.

Aggregation theory shows us how that works

and why the internet keeps producing

these huge unstoppable businesses.

Once you've aggregated all of the customers in one place,

you can jump into almost any market.

Amazon started by selling books,

but now it's selling groceries, dog food,

prescription drugs, security cameras, voice assistance,

and tons of other things.

The basic logic of aggregation theory

lets the company expand and expand

until it incorporates almost everything.

The internet doesn't have to be like this.

We used to have a more decentralized web

and some products like streaming video and cloud hosting

have resisted the winner-take-all dynamic.

But if you're wondering how tech companies got so big

and so aggressive, this is basically why.

Most founders and tech investors don't wanna solve problems

or figure out better ways to do things.

They just wanna use the internet as a place

to build their own infinite Walmart

and make themselves the boss.

Thanks for watching.

Let us know what you think in the comments.

And if you like this video,

check out this other one about how Amazon ended up

taking over the entire internet.