It’s a commoditized world

There has been quite a buzz in the blogosphere about the excellent slides from Brent Williams, and there is most definitely a reason for it: the document is very well written, entertaining and informative. A must read, and I found myself resonating a lot with what has been said at EclipseCon just a few days ago.

I have to note I don’t fully agree with the author’s views when it comes to debunking the so-called myth of software being a commoditized market. Brent runs a very convincing reasoning along the lines of commoditization being applicable just to industry sectors where it’s impossible to distinguish between products of different producers: think frozen orange juice, crude oil or steel. There is no question software is different given that, as the author notes, people don’t exchange database “just because”. Too bad this is dangerously close to a straw man argument: no one would argue that software is a commodity, yet it would be very hard to deny that we are assisting to a gradual shift (some would call it a landslide) in the software business, which is best described as a (asymptotic, if you like being meticulous) commoditization process.

Excuse me while I hop on the stage and start taking my turn at debunking myths: there is no such thing as a purely commoditized market in the business world. No matter how you look at it, every market has a number of factors to consider before even getting to the price of goods: a steel plant will undergo tons of negotiations before committing to a supplier who is able to guarantee a constant flux of raw material, doing its best to apply price pressure, get better conditions, arrange logistics and possibly integrate the vendor’s IT system into its ERP software. It’s highly unlikely that a manufacturer will change its supplier “just because”: resistance to change and, ultimately, some kind of lock-in, is omnipresent in day to day business. Sticking to economics books, there is little or no way we can find a single commoditized market out there.

If we take the notion of commoditized market with a grain of salt, we have to add a few “almost” and “mostly” here and there. Well, the software market then is clearly moving towards commoditization, with Open Source playing a significant role in the process. Reduction of acquisition cost, flexibility in licenses, much better predictability of associated costs, leaner adoption process: these are just some of the factors that make the software market much more lively than it used to be. It is easier for a camel to go through the eye of a needle, than for an enterprise to change a software before full amortization/depreciation kicks in: as Open Source moves a large chunk of costs from CapEx to OpEx (license vs. subscription), resistance to change is much lower as there is little to depreciate. As software gets more fungible, using Open Standards, interchangeability is much less of an issue. As we move to a service/on demand/hosted model, matching functional needs is nearly all you need to make the switch to a different supplier.

Pardon me for calling that commoditization, while we consider moving our email infrastructure from a Zimbra install which is only two months old to the new and shiny Google Enterprise offering, effectively switching from a fully depreciated infrastructure (yes, we have been cheap bastards using the community edition) to a non-depreciable and fully interchangeable SaaS solution. To us, e-mail has been commoditized as much as it can possibly be: maybe you should give Open Source a try, after all.

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1 thought on “It’s a commoditized world”

  1. I do, however, switch orange juices “just because”. It was cheaper. It was closer to the door of the frozen foods freezer. My little girl wanted the one with the cute duck on the label. Or the penguin, as the case may be.

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