Bundling Part 2 - Aggregation and Its Opposite

01 Jul 2021

How software-defined markets sort themselves out through the actions of competing firms

I recently began a series of posts on bundling and unbundling, taking the 1990s browser war as a reference point. I’d like to continue that thread a little further to emphasize the choices companies make to gain competitive advantage.

Bundling is about combining resources you can control in order to gain some form of competitive advantage. Unbundling separates resources out. There are numerous ways to do both of these things, some related to products, some not. As a result it seems better to use the terms aggregation and disaggregation to describe what is actually going on. The point is: putting together and taking apart.

In software-defined markets the main tools we have to aggregate or disaggregate are company, product, and feature. These are not the only ones, but let’s start there.

When Google buys a startup to acquire talent, or to promote their own technical standard for example, they are aggregating at the company level. When Oracle developed an Advanced Pricing product for their e-Business Suite, or acquires an external product for similar purposes, that is product level aggregation. And when enterprise communication tools are added to Microsoft 365, they may be aggregating at the feature level. These categories are not cut and dried, and much of this depends upon context and perspective.

Contrary to this, disaggregation works to break company, product and feature units down. Often this happens in order to reconstruct those units along different lines. Company-level disaggregation takes the form of a sale or spin-off of an entity (tellingly, we don’t see that many of these within software-defined markets but sales of Flickr and Tumblr could be consumer sector examples). Product-level and feature-level disaggregation are frequently one and the same: a startup sees a product in what a platform or suite sees as just a feature. And if Adobe were to open Photoshop in such a way as to expose the sale of a granular capability such as ‘red eye repair’ - this would also be an example of feature disaggregation.

Let’s add the important fourth term: ancillaries, let’s call them. Intangibles like goodwill, brand familiarity, the convenience of a one-stop shop, etc. A great advantage to combining business, product, and features is that enterprise customers are never just buying the product they think is the best technically. Aggregators make profitable and entrenched businesses because they understand and have answers for these needs and concerns that transcend product.

Disaggregators, if they are the software startups we often think of, do not have this fourth tool at their disposal, at least, not nearly as much. They have a much harder time selling to those with non-product priorities driving their decisions. And if you really think about it, this is why a software product startup needs not only have a better product than what is available today, they need one that is 10x better. If they do, this process of pulling things apart is grafted back into the process of putting things together, typically through acquisition - see our note on Slack.