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The Unstoppable March of Technology Commoditization

        posted by , February 04, 2011

Do you care which farmer makes your corn? If you are like most people — you probably feel that all corn is pretty much the same. You might be willing to pay a little extra for organic corn or high quality corn — but you are certainly not willing to break the bank for corn.

Commodities are products that are all the same ― or at least consumers view them as being the same. In other words, consumers are not interested in paying higher prices based on brand name for certain products.

Technology has a long term unstoppable trend towards commoditization. Over the long term, technology products become cheaper and cheaper and price differences between competitors narrow.

This is what drives technological innovation. The only way to differentiate your product is to innovate. Innovations will quickly be copied by lower cost producers. In short ― to make money in technology you have to constantly innovate.

Many technologies hit a dead end in innovation ― and prices drop like a rock. When is the last time you paid big money for a a VCR?

vcr

The first VCR released in 1977 cost $2087. Within years there were many models under $1000. By 1990 VCR technology had greatly improved (8 head, auto-cleaning, auto seek etc..) ― nevertheless the price had dropped dramatically and some models were available for less than $50. By 2000, VCRs where virtually gone from the market.

Commoditization affects all areas of IT: software, hardware and services. It is one of the five unstoppable technology trends.

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