Software Commoditization

Notes by Om Malik from the OSBC 2004 conference where he hosted a panel on software commoditization.

What gets commoditized?

David Anderson said: Products that dont change much and have low margins get commoditized. Such as operating systems. Palm got into this business, when they should have gone into selling applications built on their OS. As Clay Christensen says, when something gets commoditized the profits move elsewhere in the value chain.

Rob Page said: Commoditization starts at the bottom and then moves up the stack.

How to Stay ahead of the commoditization curve?

Ian Murdock said: Since every company needs a proprietary advantage of some kind, though, weve chosen to focus on proprietary advantage through process, not technologyin other words, how we can leverage our expertise in distribution building to help other companies assemble commodity software components from disparate places into cohesive wholes, and to do so in a scalable and flexible way. Note that this is not too far from Dells strategy, and they have thrived in a commoditized hardware market while the proprietary technology vendors have receded.

How to differentiate in a commoditized market place?

Anthony Awtrey said: We could also point out that the value of a commodity good is not only how useful it is as a product, but its value is also in the associated value network that is created by its wide-spread use. Sometimes tapping the value network that exists around a functional commodity is actually the real value, for example:

* Commodity = Cell Phone // Real value = Convenient communication
* Commodity = Free / Open Source operating system // Real value = Control over how it can be used

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Rajesh Jain

An Entrepreneur based in Mumbai, India.