Coping with Commoditization
Technology is increasingly becoming a commodity due to an ever increasing demand for technological products, low barriers to entry and lower manufacturing costs. There is no question that cloud computing, commodity solutions and open-source software have changed our perceptions about the value of IT. Many, in fact, are convinced that information technology is rapidly becoming a standard utility, much like the water and electricity that flows into our homes and businesses. Therefore, there is much heated controversy about the strategic value of IT, as like water and electricity, it is no longer seen as a competitive differentiator for companies to have these services.
Any new discovery would provide them with a competitive advantage to stay ahead of other companies for a long time. But over the years due to rapid demand of technology it became easier to duplicate innovations and look for short term advantages. Moreover, the manufacturer’s decision to support only the commodity is also overhauling the technology products. As a matter of fact, experts have also observed that Marketers create commodity markets. Depending on the desired spin a marketing department can call the same technology “tried and true” or “aging technology” thereby creating or destroying the product’s market.
Along with the argument over what sells a product which the marketers push, or is it the pushing which sells it, it is also a common fact now that ‘the best’ technology is not necessarily a marketplace survivor.
While true innovations deserve appropriate levels of compensation, the law of diminishing returns applies to all things, especially technology. The price of a technological product depends on where it is during its lifecycle; it drops rapidly as soon as it is commoditized. As technology gets commoditized it is important for companies to try and differentiate themselves from the others.
At first innovations are proprietary and offer substantial advantage in the market for those who posses this technology. But over time, this technology becomes more common and standardized, providers more plentiful, competition rises, and consequently the value of that technology becomes insignificant from a competitive perspective.
For instance, the tablet market, particularly pushed by the arrival of PC makers and low cost manufacturing has transformed into one dominated by commodity products. “This could become the fastestcommoditized market in history,” was one of the comments at the Open Mobile Summit. The actual tablet hardware is moving to commodity status so fast that it is going to be practically impossible for any company to establish a lasting dominant position based on that.
Apple under Steve Jobs strived hard to innovate and came up with tablet computers; the ipad completely revolutionized the technology market. As far as tablet computers are concerned ipad took great advantage of being the first launched product. Apple has managed to escape the commodity vacuum arguably by making their products not about the technology but about the whole user experience they provide. Other companies like Samsung, Blackberry, HP now try to duplicate the same tablet technology, trying to stand out by differentiating on minute details and yet restricting themselves to the same basic design. Even e-readers which technically were entirely different products are now trying to incorporate tablet features; Amazons’s Kindle fire is one such example.
Another effect of ipads huge continuing success is that tablets are now also being used as a marketing commodity. They are the winning prizes in contests and are part of frequent giveaways.
Once technologies reach the commodity status their lifecycle becomes restricted to a certain extent. There are a lot of units available in the market bringing prices down; there is also a lot of competition forcing the companies to evolve at a rapid pace. Hot electronic items eventually hit rock bottom prices before they become irrelevant in the market. One such potential fatality is the e-reader. When this technology was launched by Amazon, they were considered revolutionary but now with the competition from ever cheaper tablet devices they are slowly dwindling out. Initially e-readers were consumer devices but some companies and government entities started to incorporate them in as document distribution devices.
They were seen as tools leading to a paperless future, but this failed. Employees already had laptops, tablets, smartphones that got the job done. An e-reader ends up restricting the user and is not suitable for office use. Much of what happened to e-readers in the consumer market will also happen in organizations, they can be simply over run by tablets. Thus, IT organizations need to constantly evolve for protecting their technology investment in this age of commoditization