Emergic: Rajesh Jain's Blog

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Digital Hand

October 10th, 2003 · No Comments

Bill Gurley writes about the consumer electronics industry:

Two critical dynamics are occurring in the consumer electronics industry as a result of digitization, and both unfortunately lead to commoditization. The first: Semiconductors are increasingly incorporating the majority of the features and functionalities by which any manufacturer would differentiate their product.

The second key dynamic mirrors the binary code that underlies all digital goods. The cold fact of the matter is that most digital goods either work or don’t work. You lose the subtle continuum of quality that exists in an analog world. The reason relates to the first dynamic in that most of the “value added” is now at the semiconductor level. The complicated motors and servomechanisms that inherently led to quality differentiation are slowly going away.

With product differentiation on the wane, distribution will play a greater role.

As we look toward the future of the consumer electronics industry, the digital hand will ensure two realties. First, consumers will be blown away by the incredible products they are able to buy at shockingly low prices. Second, companies will be blown away by how incredibly hard they have to work in a shockingly competitive industry. Never forget that the undisputed leader of the PC industry has a supply chain and distribution advantage, not a technological one.

The point about distribution is an important one. I think something similar will happen in software also – especially in emerging markets. As open-source based solutions become more prevalent, building a distribution network will become more critical.

Tags: Management

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