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More from Carr

May 17th, 2004 · No Comments

Nicholas “IT Doesn’t Matter” Carr writes in Wired:

The way big IT companies are acting in the marketplace is actually accelerating the commoditization of their products and services. Commoditization lies at the very heart of their competitive strategies.

Look at Intel. According to The Wall Street Journal, Intel is selling its Centrino Wi-Fi chips for its cost to fabricate them. Why? For one thing, turning Wi-Fi technology into a cheap commodity is a good way to crush would-be competitors. More important, making Wi-Fi chips broadly affordable encourages people to buy laptops, and selling laptop chipsets is far more lucrative for Intel than selling desktop chipsets. It’s in Intel’s interest to commoditize Wi-Fi as quickly as possible.

Other companies are finding that commoditization is a great weapon to use against an archenemy. Sun Microsystems, for instance, is heavily promoting StarOffice, its inexpensive open source alternative to the ubiquitous Microsoft Office. Sun knows that if it can commoditize basic business apps, it can begin to break Redmond’s stranglehold on the PC desktop. On a larger scale, IBM is also attacking Microsoft by spending billions to promote the adoption of Linux, rather than Windows, for PCs and servers.

Before you start feeling sorry for Gates & Co., remember that they are the masters of the commoditize-thine-enemy’s-product strategy. By giving away Explorer, Microsoft destroyed potential rival Netscape. It’s been trying to do the same to RealNetworks by bundling Windows Media Player with its operating system. Its next target is Google.

The same thing’s happening on the enterprise side. SAP is aggressively promoting the open source database MySQL as a way to break Oracle’s franchise. Sun is talking up Salesforce.com’s customer relationship management software as a cheap substitute for Siebel’s dominant CRM suite. And Dell has built its entire business around the commoditization of computer hardware.

There’s nothing strange about what’s going on here. It’s typical when industries mature and buyers start focusing on prices rather than features. Unable to distinguish their goods, vendors begin to compete ruthlessly for market share, often by trying to undermine the distinctiveness and importance of rivals’ products.

But because every company is some other company’s rival, this kind of infighting just adds fuel to the general commoditization fire. It’s great for buyers – the intense competition slashes prices and increases choices – but not great for those sellers who fail to win the war.

The IT industry is looking more and more like a traditional, mature manufacturing business. Plagued by undifferentiated products, global overcapacity, and falling prices, hardware and software companies are consolidating, shifting production offshore, and making money on maintenance and other fee-based services. They’re competing on cost rather than innovation and features.

Jeff Nolan comments on his blog:

Carr’s point is that IT is cheap and available to everyone, therefore it’s not the actual technology that gives you a competitive advantage but changing the way you do business. In short, good leadership and tactical execution, whether it’s with IT or not, is what gives businesses a competitive advantage.

I really don’t expect anyone from the tech industry to suggest that IT is not a factor in the productivity gains that we have seen over the last two decades, in fact I am among the group that thinks that IT is the biggest productivity lever that business has today. But productivity alone is not a measure of competitive strength, it simply a measure of doing more with less.

When technology was super expensive and only a few businesses could afford it, well the ones that had it enjoyed some advantage over their competitors. Fast forward today and you have a small business with 2 employees and a $60 a month subscription to Salesforce.com, and they have the same functional capacity that a larger competitor with Siebel or SAP does, and needless to say it cost them a lot more. So did IT give the large player an advantage or did it level the playing field for the small player. Well neither, because if either end of the spectrum simply bought software and didn’t address the way they conduct their business.

I’m thinking, and betting on, a different scenario in the future where companies come together by building value around low cost business models featuring highly talented experts on specific technologies and markets, rather than attempting to create some disruption through a dramatically different product or technology. In my scenario IT doesn’t matter if the playbook is the disruptive technology play, but it does matter if the playbook is the disruptive business process play manifested in some small series of loosely connected technology and application advances brought together by experts who understand how those businesses work.

We have to leverage the commoditisation of IT for creating solutions for the next users in the emerging markets.

Tags: Enterprise Software

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