One of the things the tech economies try to commedituze is developers. While you sounding nice, the whole tech company push for "everyone can code" is an effort to commodetize developers. Having free and open source compilers and languages also serves to reduce the cost of entry and commodetize developers. In the past, developers would pay hundreds of dollars for compilers and languages (which is actually cheap compared to what other professions pay for their tools). Developers volunteer to teach new people to code. Developers spend their free time making open source software that is free for companies to use. Developers contribute to free languages and tools. Finally, developers complain that they are taken advantage by business people who think they are stupid! Software developers are the only professionals which actively work to commodetize themselves.
my sense is that a lot of developers create or contribute to FOSS projects in order to hone their skills and promote their own personal name (brand). they're trying to gain traction in the slippery, highly competitive landscape.
of course, they're also trying to make a contribution to the larger ecosystem, because they feel they've benefited from the contributions of others.
I like the book Information Rules by Shapiro and Varian as a review of these kinds of concepts in general. I don't think it is necessary to even view these topics as strategy, to a certain extent it is just the nature of the incentives and there will be a tendency for things to work out along these lines. Here is a snapshot of the table of contents, from this it should be pretty clear if it is interesting to you: https://imgur.com/a/2yU6OpA
Agreed, the book does a solid review of the underlying principles.
They gave an example of how Intel used their AGP standard as part of their commoditize your complement tactic except they characterized it as maximizing the value of your technology (p. 197-198):
"In choosing between openness and control, remember that your ultimate goal is to maximize the value of your technology, not your control over it."
Hospitals and integrated health systems sort of do this, though in a convoluted way. They buy up other hospitals and outpatient clinics and use scale to negotiate higher rates with insurers. Insurers get squeezed, and have to cut payments to less powerful independent physicians / hospitals. This often forces those independent providers to sell to the big hospital systems. It's basically impossible to start / run an independent primary care practice these days in some geographies. There's only one independent PCP in Oakland these days due to dominance of sutter
So not the same means of making complements unprofitable as the tech examples, but the same end -- the hospitals and some hospital owned outpatient clinics drive all the profits, everything else is like a loss leader that prevents competition from springing up around the hospital
In some states, a distinctive aspect of the hospital provisioning landscape is "Certificate of Need" (CON) laws.
Since new hospitals cannot be constructed without proving a "need", the certificate-of-need system grants monopoly privileges to already existing hospitals. [At least one lawmaker has] argued that the true motivation behind certificate-of-need legislation is that "large hospitals are... trying to make money by eliminating competition" under the pretext of using monopoly profits to provide better patient care.
I think many health systems are using the ACA as a pretext for establishing further monopoly power. Basically the line for the public is "we need all providers in one system so we have all the data and so we can refer patients to the right site of care"
In reality they are bringing all providers under their umbrella to control patients i.e. Market share, and to drive patients to the site of care that is most profitable to them under the constraints of minimizing malpractice risk and quality fines. ACOs are in many cases just a way to increase patient volume at a discount to payers and have nothing to do with risk sharing
Hospitals are an incredibly political powerful entity. The AHA (hospital industry lobbying group) spends about as much as Phrma (pharma lobbying group), but hospitals have massive grassroots political support bc they are huge employers whereas the public hates pharma
This is a good point in general and about the PC in particular, but it is totally wrong about Netscape.
The complement of a web browser isn't the web servers, it's the OS--and vice versa. So, Netscape tries to commoditize the OS, and MS commoditized and destroyed the browser market, and then nearly themselves with antitrust.
Also, Netscape was initially free in the early days, but had become a product which cost money until IE came out and was free. The plan was not "free browser". (Read Ben Horowitz's book...)
Several things can be complements, it just depends on how you perceive them.
In Netscape's case, their strategy shifted from selling web browsers to consumers in the hope of commoditizing the OS [0] to selling more web servers to businesses, after Microsoft made it impossible for them to compete[1] with IE which was offered for free.
Classic example from Google: spending $106 million to release free video codecs in 2009. Video codecs are a complement of YouTube, and MP4 licensing fees were apparently enough of a barrier to justify this purchase.
With 9 years of hindsight, how did it turn out? I'm honestly not sure, as I haven't followed the state of video codecs. It seems like a lot of video is viewed on Apple devices, which only have hardware support for MP4?
I wonder is this even possible in small scale. Does anybody have some intresting examples of startups or even side-projects "commoditizing their complement"?
Not unlike what YC is doing with startup school and angel investor school -- increase number of startups, increase number of seed investors, increase your brand in the mind of both, and have a monopoly on the pre-seed stage
This article illustrates why I agree with criticisms [0] of Michael Porter's five forces framework as being incomplete without the sixth force -- threat of complementors seeking to commoditize an industry.
Just realized that Atlassian does this. Bitbucket commoditizes code hosting and HipChat/Stride commoditizes team chat. Both are loss leaders meant to protect their core business: Jira
What are people trying to commoditize with Kubernetes. But even more importantly: How is this helping them? (since in my head the 'what' being commoditized is the same thing the big players contributing to Kubernetes make profits with)
Google and everyone supporting Kubernetes are trying to prevent AWS from becoming the de facto cloud "system call API", i.e. for provisioning computing resources like CPU/memory/storage/network, and for higher level services like monitoring, access control, backup, dev tools, etc.
They want to make it easier to move off of the market leader, AWS. If a customer's programs are written to AWS APIs, it becomes incredibly expensive to even try a new cloud provider.
So basically every other cloud provider besides AWS wants standard interfaces. They can all rent more computing resources if it's easier for customers to move off of AWS. That's why Microsoft supports Kubernetes. And that's why everyone got on board with Docker too -- it's (supposedly) a standard application format, or at least a cloud-vendor-neutral one.
It's exactly analogous to Windows vs. Unix. Windows locked users into its proprietary APIs, with exactly one implementation, and made tremendous profits. With POSIX, you can port applications from Solaris to IBM Unix to Linux, etc.
Kubernetes was called "POSIX for the cloud" as far as I remember.
It's related to the "commoditize your complements" model, but I don't think that's exactly the right way to describe it. Maybe it's more like "commoditizing your competitor's product", to erode their profits.
In theory I don't see a problem with AWS owning 95% of the cloud market share and Google still making billions of dollars on ads (with free complements like search, apps, Android, and the browser).
I think AWS is more threatening to Microsoft, because Microsoft sells enterprise products like SQL Server and so forth. Cloud services are the complement to a lot of enterprise products that MS sells.
Google isn't nearly as big an enterprise business as Microsoft is, and the customers for AWS/Cloud are typically enterprises and not "consumers".
That's not what "commoditized" means. You don't make your name and brand with a commodity. "commoditize" means making lots of suppliers so there is no producer profit in the market for the commodity.
When you shop at Amazon, you don't buy shipping from whoever's cheapest, Amazon provides the shipping via a complex logistics system interfacing with external partners.
It's true, but Amazon also has a strong push towards it's own brands, and they also move towards fully integrated logistics, so maybe their ultimate strategy is of vertical integration and it was so all along ?
How is this different from devaluing / commoditizing your competitor's product or services? Because it isn't just tech, and it isn't / doesn't have to be complement.
Any company that has a cash cow and fail to find a new way for growth could use that cash to commoditizing its competitor product or services, this happens in every industry. Jeff Bezos, possibly the king of commoditization, "Your margin is my opportunity."
This is just tech rebranding of a really old concept. There are mountains of evidence of this strategy being employed back as far as the industrial revolution. I don't know why, but this sort of crap really brings out the eye-rolls. Maybe it's the fact that this information is widely and freely available, but NIH syndrome makes people feel like they've discovered some new and novel concept about the world. And then you get big-ego personalities who spend massive amounts of time congratulating each other about it.
Like when Peter Thiel starting talking about his novel strategy of explicitly trying to not compete with others and aiming for a monopoly. You can find that explicitly described in complete detail in any ordinary marketing textbook in the chapter titled Market Segmentation, Targeting, and Positioning. But for months people couldn't stop talking about how Thiel was a genius for this new idea.
I get the whole concept of XKCD's lucky 10,000. This is different. This would be like taking credit for inventing mentos and coke bombs just because someone hasn't heard of it before.
Gwern explicitly says they got it from Spolsky, and Spolky explicitly says he got it from a intro course on microeconomics. I have no idea who you are accusing of taking credit.
It's common and mundane enough to not even have a name (at least up until the point where it was "branded"). In a strategy textbook, you would find the ideas discussed as a bulletpoint tactic to use for two sided markets or format wars. It is often mentioned as a strategy for aftermarket parts and services in a growth market. In pricing, it's a minor variation of the razor-and-blades model where you outsource or standardize the "razor".
I read this many years back at joelonsoftware. Joel is such an amazing thinker. His ideas are so original. I don't know how one thinks such original thoughts. I can follow orders but thinking for myself is very hard.
> Vive and Oculus have incentives to cooperate… for now. But there’s constant pressure for a betrayal when a player gets desperate or decides the market has matured and it’s time to break for the finish line
OpenXR seems to be moving forward. This will hopefully solve this VR lock-in mess.
This bums me out. I always liked the idea of two companies in complementary spaces working together toward something and maybe merging some day far in the future.
> Instead we’re trying to make each other trivial.
Which is about as good a definition of "technological progress" as you are going to find. I for one am happy at how economically trivial housing, transport and food production have become over the last thousand years.
Why just two companies? The article describes one company with a chokehold in one spot of the vertical and many other companies producing commodity complements.
But there are lots of verticals near each other, so there can be many people at one level working with commodities at another level, who likewise believe that the people above/below them are also generating a commodity complement.
What we end up with instead is a global economy of people generating value and building things that make lives better, which I think is awesome! Generating value is the most legitimate reason to have people pay you - you don't have to extract rent from a monopoly position to be a viable business.
This doesn't bum me out at all. Looking at the headline examples given, they all seem to move tech in a better direction. If more of the trivial things are commoditized, then more effort goes into competing on the things that matter.
Example headlines FTA: IBM Spends Millions to Develop Open Source Software; Netscape Open Sources Their Web Browser; Transmeta Hires Linus, Pays Him To Hack on Linux
Another way that I like to express that is "create a desert of profitability around you".
I once had a strategy professor define the Google business model somewhat like that, where "Google tries to make every other business around it free or irrelevant". It results in a few different effects:
- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link. One example is dramatically reducing the cost of phones and internet access, thus allowing customers to spend more time and money online, which generates revenue and profits for Google
- By making the other links free or irrelevant, you reduce the odds that a competitor in those links will strengthen their position and will extract more profits from the rest of the value chain. One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
A desert of profitability shifts consumers to you, and keeps competitors away.
Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.
e.g Chrome is free and google wants to push for web technologies only because their cash cow (Web Advertising) can keep generating profits as long as there are more web users specially the ones whose behavior can be easily tracked on their browser.
> Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.
Yeah, people should stop idealizing and worshiping companies. Apple is only pursuing "privacy" because it tried and failed miserably at user monetization, but it won't think twice about handing over all your data to the government (like they did in China) if that's the best business options.
They're all companies, they're here to make a profit.
That's one reason why I find it easier to trust companies than to trust governments. I know exactly what companies want, so I can predict how they'll act.
Companies are that "friend" who will always get money from your wallet, whenever they have a chance. Governments are those friends who swear they are on your side and want to help and protect you, but will sneak their fingers into your wallet whenever you're not looking.
- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link.
By this logic, the biggest force in the universe preventing micropayments by tying media to the tawdry, corrupting mechanism of advertising, is Google.
A desert of profitability shifts consumers to you, and keeps competitors away.
Cities are supposed to impoverish the regions directly around them in this way, as well.
> By this logic, the biggest force in the universe preventing micropayments by linking media to the tawdry, corrupting mechanism of advertising, is Google.
No, it is users being willing to pay. The vast majority of users are far more ok with being shown ads than paying the equivalent of the cost of the ad to have it go away.
The content market has pretty much always worked by the precise inverse of micropayments: aggregation, bubdling, and regular serial subscriptions. The addition of advertising made market size itsef, rather than the content, the goal.
Irony is that it was the Master of the Channel himself who came up with the falsehood that "content is king": Viacom's Sumner Redstone. Maybe he believes that himself, but it doesn't make it the truth.
It’s not as simple as that. Google did not go out to commoditize content. Technology created a new distribution system that allowed them to dominate the distribution of content.
If you read the case, many of the videos Viacom was asking Google to take down, were uploaded by Viacom themselves. So everyone was scrambling to get more eyeballs, that ultimately led to commoditization.
Also referring to the parent post, “desert” is not the right analogy when you create surplus around you to keep out competition. I think the knowledge industry is more like a religion, where the information is free but there are still strong structures that support it.
In case of religion, these structures are supported by supportive communal relationships. In technology, by massive network effects.
I think that Google was more worried about Microsoft dominating smartphones, not Apple. Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.
> I think that Google was more worried about Microsoft dominating smartphones, not Apple.
Maybe initially, before the iPhone. But the iPhone was the Dreadnaught of phones: everything that came before it became instantly irrelevant (look for HMS Dreadnaught).
> Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.
Just as Apple would as well, unless Google pays, which it does.
> One example is using Android to prevent a monopoly on the smartphone side.
yeah, good point. i think it helps us understand the Android ecosystem, its SDK, its user base, etc.
it doesn't seem like Google, a search and advertising company, had a natural reason to enter the mobile phone OS market. and they didn't set out to create an "insanely great" mobile OS experience, either for the users or for the developers.
instead, the strategy was apparently to just shoehorn a camera OS into the mobile phone market, offer it for free, grab as many users as possible, and thereby disrupt/restrain Apple.
and it has worked quite well for Google. but Android has subjected users and developers to a pretty bumpy ride. a lot of people went along for that ride because the upfront costs appeared to be lower than Apple/iOS. i don't know about the longer term costs though.
Yep, one strategy analysis that I (sadly) rarely see being done is evaluating the value chain.
Essentially, you look at all the links on a value chain and look at how competitive each one of those markets are. The links with the least competition will capture most of the excess profits in the chain, and the links with the most competition tend to be commoditized and have zero economic profits (which are different from financial profits).
Taking Google's online ads value chain, for example:
(You could rearrange this in a few different, but still valid, ways)
What would happen if there was a single device maker? Or a single OS maker? Those would be able to yield monopoly pricing, capturing most of the profits in the value chain.
Now look at those links: in how many of them Google operates now in a strong way?
- Device makers (Pixel)
- OS makers (Android, ChromeOS)
- Browser makers (Chrome)
- ISP/carriers (Fi, Fiber)
- Online platforms (YT, Blogger, G+, sites, etc.)
- Content creators (indirectly, sponsoring)
- Ad platform (Adsense & Doubleclick)
Now look at where it makes money:
- Ad platform (Adsense & Doubleclick)
All those other businesses exist to protect the revenue-generating business.
The ideas are more different than the analogies are. A moat would be things like patents, data, expertise, etc that a competitor would need to get to match you and which are hard to develop. That doesn't have anything to do with the profitability of nearby market niches.
* By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on*
Ah, a light-bulb goes on when wondering why Google spends on CDN and DNS services. (The additional internet telemetry-streams are nice-to-have but probably not the actual point, economically speaking.)
> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.
Apple absolutely does follow this strategy: it's not presently very profitable to be a supplier of small electronic components, or a contract manufacturer, or an app developer, or an Apple retail store employee. At least in the case of app development, Apple puts significant effort into making their dev tools powerful and their development experience easy, with the goal of bringing in as many devs as possible and keeping the market commoditized.
The difference is that most of Apple's complements are B2B suppliers and so are rather invisible to the general public, while many of Google's complements were formerly consumer-visible markets. So it's much more obvious when Google turns the web browser or ISP market into a commodity than when Apple turns the electronic supplier marketplace into a commodity.
The strategies are orthogonal. Google's interest is not in making money from smartphones, it's in preventing Apple from having a monopoly wherein they can charge Google unlimited amounts for access to mobile users.
> In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.
They follow a different strategy: vertically-integrated walled garden.
"Other links" means things other than smartphones. You read the comment incorrectly, I think. They're saying Apple would have more power over other actors (including google) if they had a smartphone monopoly.
Desert of profitability is an evocative phrase, but remember that deserts can be beautiful.
It means free stuff or low prices for consumers. This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.
A commodity market working well is also a desert of profitability.
The opposite of a desert of profitability is economic rent.
> It means free stuff or low prices for consumers.
The "free stuff" is an illusion, a monopolistic sleight of hand. Consumers are subsidizing "free stuff" in one market by paying excessive rent in the neighbouring market. In the end, consumers pay more, not less.
> This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.
These deserts are not a feature of competition, they are an attempt to avoid competition by shrinking the pool of viable competitors.
> A commodity market working well is also a desert of profitability.
No, it's the opposite of that. A commodity market working well is what you get when monopolistic tricks such as "deserts of profitability" have failed, and you are forced to compete the old-fashioned way.
> The opposite of a desert of profitability is economic rent.
Again, the exact opposite is true. Deserts of profitability exist to protect economic rent. Show me any "desert of profitability" and I will show you the economic rent that is subsidizing it.
> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
Your example actually shows the opposite and that's because conventional wisdom is often wrong.
Conventional wisdom states that there is a direct correlation between market share dominance and excess profits which is why anti-trust laws target monopolies to protect consumers from price-gouging, but this characterization is not always the case, as Apple has proven by not pursuing a market-share focused strategy.
Apple enjoys 87% of smartphone profits from a mere 18% of all shipments [0].
How are you disagreeing with him? Just because the luxury/high-end part of the market is making most of the profits doesn't mean a luxury company wouldn't extract even more money with few competitors.
That's because for Google the loss in per-unit sales of cheap phones versus $1000 iPhones is entirely made up by the data they're collecting from Android users.
One of the things the tech economies try to commedituze is developers. While you sounding nice, the whole tech company push for "everyone can code" is an effort to commodetize developers. Having free and open source compilers and languages also serves to reduce the cost of entry and commodetize developers. In the past, developers would pay hundreds of dollars for compilers and languages (which is actually cheap compared to what other professions pay for their tools). Developers volunteer to teach new people to code. Developers spend their free time making open source software that is free for companies to use. Developers contribute to free languages and tools. Finally, developers complain that they are taken advantage by business people who think they are stupid! Software developers are the only professionals which actively work to commodetize themselves.
my sense is that a lot of developers create or contribute to FOSS projects in order to hone their skills and promote their own personal name (brand). they're trying to gain traction in the slippery, highly competitive landscape.
of course, they're also trying to make a contribution to the larger ecosystem, because they feel they've benefited from the contributions of others.
I like the book Information Rules by Shapiro and Varian as a review of these kinds of concepts in general. I don't think it is necessary to even view these topics as strategy, to a certain extent it is just the nature of the incentives and there will be a tendency for things to work out along these lines. Here is a snapshot of the table of contents, from this it should be pretty clear if it is interesting to you: https://imgur.com/a/2yU6OpA
I would also highly recommend the same book.
"Technology changes, economic laws do not"
https://amzn.to/2I9NTzp
Among other things, Hal Varian went on to work at Google as an economist.
Agreed, the book does a solid review of the underlying principles.
They gave an example of how Intel used their AGP standard as part of their commoditize your complement tactic except they characterized it as maximizing the value of your technology (p. 197-198):
"In choosing between openness and control, remember that your ultimate goal is to maximize the value of your technology, not your control over it."
Hospitals and integrated health systems sort of do this, though in a convoluted way. They buy up other hospitals and outpatient clinics and use scale to negotiate higher rates with insurers. Insurers get squeezed, and have to cut payments to less powerful independent physicians / hospitals. This often forces those independent providers to sell to the big hospital systems. It's basically impossible to start / run an independent primary care practice these days in some geographies. There's only one independent PCP in Oakland these days due to dominance of sutter
So not the same means of making complements unprofitable as the tech examples, but the same end -- the hospitals and some hospital owned outpatient clinics drive all the profits, everything else is like a loss leader that prevents competition from springing up around the hospital
In some states, a distinctive aspect of the hospital provisioning landscape is "Certificate of Need" (CON) laws.
Since new hospitals cannot be constructed without proving a "need", the certificate-of-need system grants monopoly privileges to already existing hospitals. [At least one lawmaker has] argued that the true motivation behind certificate-of-need legislation is that "large hospitals are... trying to make money by eliminating competition" under the pretext of using monopoly profits to provide better patient care.
More at https://en.wikipedia.org/wiki/Certificate_of_need
I think many health systems are using the ACA as a pretext for establishing further monopoly power. Basically the line for the public is "we need all providers in one system so we have all the data and so we can refer patients to the right site of care"
In reality they are bringing all providers under their umbrella to control patients i.e. Market share, and to drive patients to the site of care that is most profitable to them under the constraints of minimizing malpractice risk and quality fines. ACOs are in many cases just a way to increase patient volume at a discount to payers and have nothing to do with risk sharing
Hospitals are an incredibly political powerful entity. The AHA (hospital industry lobbying group) spends about as much as Phrma (pharma lobbying group), but hospitals have massive grassroots political support bc they are huge employers whereas the public hates pharma
/endrant
This is a good point in general and about the PC in particular, but it is totally wrong about Netscape.
The complement of a web browser isn't the web servers, it's the OS--and vice versa. So, Netscape tries to commoditize the OS, and MS commoditized and destroyed the browser market, and then nearly themselves with antitrust.
Also, Netscape was initially free in the early days, but had become a product which cost money until IE came out and was free. The plan was not "free browser". (Read Ben Horowitz's book...)
Several things can be complements, it just depends on how you perceive them.
In Netscape's case, their strategy shifted from selling web browsers to consumers in the hope of commoditizing the OS [0] to selling more web servers to businesses, after Microsoft made it impossible for them to compete[1] with IE which was offered for free.
[0] https://en.wikipedia.org/wiki/Netscape#History_of_the_Netsca...
[1] https://www.cnet.com/news/netscape-cuts-prices-on-retail-pro...
Classic example from Google: spending $106 million to release free video codecs in 2009. Video codecs are a complement of YouTube, and MP4 licensing fees were apparently enough of a barrier to justify this purchase.
https://searchengineland.com/google-buys-video-infrastructur...
With 9 years of hindsight, how did it turn out? I'm honestly not sure, as I haven't followed the state of video codecs. It seems like a lot of video is viewed on Apple devices, which only have hardware support for MP4?
I wonder is this even possible in small scale. Does anybody have some intresting examples of startups or even side-projects "commoditizing their complement"?
Not unlike what YC is doing with startup school and angel investor school -- increase number of startups, increase number of seed investors, increase your brand in the mind of both, and have a monopoly on the pre-seed stage
This article illustrates why I agree with criticisms [0] of Michael Porter's five forces framework as being incomplete without the sixth force -- threat of complementors seeking to commoditize an industry.
[0] https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysi...
Just realized that Atlassian does this. Bitbucket commoditizes code hosting and HipChat/Stride commoditizes team chat. Both are loss leaders meant to protect their core business: Jira
Interesting article, I'm trying to figure out:
What are people trying to commoditize with Kubernetes. But even more importantly: How is this helping them? (since in my head the 'what' being commoditized is the same thing the big players contributing to Kubernetes make profits with)
Google and everyone supporting Kubernetes are trying to prevent AWS from becoming the de facto cloud "system call API", i.e. for provisioning computing resources like CPU/memory/storage/network, and for higher level services like monitoring, access control, backup, dev tools, etc.
They want to make it easier to move off of the market leader, AWS. If a customer's programs are written to AWS APIs, it becomes incredibly expensive to even try a new cloud provider.
So basically every other cloud provider besides AWS wants standard interfaces. They can all rent more computing resources if it's easier for customers to move off of AWS. That's why Microsoft supports Kubernetes. And that's why everyone got on board with Docker too -- it's (supposedly) a standard application format, or at least a cloud-vendor-neutral one.
It's exactly analogous to Windows vs. Unix. Windows locked users into its proprietary APIs, with exactly one implementation, and made tremendous profits. With POSIX, you can port applications from Solaris to IBM Unix to Linux, etc.
Kubernetes was called "POSIX for the cloud" as far as I remember.
It's related to the "commoditize your complements" model, but I don't think that's exactly the right way to describe it. Maybe it's more like "commoditizing your competitor's product", to erode their profits.
In theory I don't see a problem with AWS owning 95% of the cloud market share and Google still making billions of dollars on ads (with free complements like search, apps, Android, and the browser).
I think AWS is more threatening to Microsoft, because Microsoft sells enterprise products like SQL Server and so forth. Cloud services are the complement to a lot of enterprise products that MS sells.
Google isn't nearly as big an enterprise business as Microsoft is, and the customers for AWS/Cloud are typically enterprises and not "consumers".
I guess same with Amazon they are trying to make brands commodity so that they can extract maximum value out of their supply chain.
I'd argue that Amazon commoditized shipping... That's really where they made their name and entrenched their brand recognition.
That's not what "commoditized" means. You don't make your name and brand with a commodity. "commoditize" means making lots of suppliers so there is no producer profit in the market for the commodity.
When you shop at Amazon, you don't buy shipping from whoever's cheapest, Amazon provides the shipping via a complex logistics system interfacing with external partners.
Shipping, catalog production, and order processing. That sounds about right.
It's true, but Amazon also has a strong push towards it's own brands, and they also move towards fully integrated logistics, so maybe their ultimate strategy is of vertical integration and it was so all along ?
How is this different from devaluing / commoditizing your competitor's product or services? Because it isn't just tech, and it isn't / doesn't have to be complement.
Any company that has a cash cow and fail to find a new way for growth could use that cash to commoditizing its competitor product or services, this happens in every industry. Jeff Bezos, possibly the king of commoditization, "Your margin is my opportunity."
This is just tech rebranding of a really old concept. There are mountains of evidence of this strategy being employed back as far as the industrial revolution. I don't know why, but this sort of crap really brings out the eye-rolls. Maybe it's the fact that this information is widely and freely available, but NIH syndrome makes people feel like they've discovered some new and novel concept about the world. And then you get big-ego personalities who spend massive amounts of time congratulating each other about it.
Like when Peter Thiel starting talking about his novel strategy of explicitly trying to not compete with others and aiming for a monopoly. You can find that explicitly described in complete detail in any ordinary marketing textbook in the chapter titled Market Segmentation, Targeting, and Positioning. But for months people couldn't stop talking about how Thiel was a genius for this new idea.
I get the whole concept of XKCD's lucky 10,000. This is different. This would be like taking credit for inventing mentos and coke bombs just because someone hasn't heard of it before.
Gwern explicitly says they got it from Spolsky, and Spolky explicitly says he got it from a intro course on microeconomics. I have no idea who you are accusing of taking credit.
Okay, what's the name of the old concept that's the same as "Commoditize Your Complement"? The textbook chapter title, if you will?
It's common and mundane enough to not even have a name (at least up until the point where it was "branded"). In a strategy textbook, you would find the ideas discussed as a bulletpoint tactic to use for two sided markets or format wars. It is often mentioned as a strategy for aftermarket parts and services in a growth market. In pricing, it's a minor variation of the razor-and-blades model where you outsource or standardize the "razor".
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I read this many years back at joelonsoftware. Joel is such an amazing thinker. His ideas are so original. I don't know how one thinks such original thoughts. I can follow orders but thinking for myself is very hard.
> Vive and Oculus have incentives to cooperate… for now. But there’s constant pressure for a betrayal when a player gets desperate or decides the market has matured and it’s time to break for the finish line
OpenXR seems to be moving forward. This will hopefully solve this VR lock-in mess.
Joel Spolsky continues his streak as most-influential tech writer of all time. Great article.
Can it be used to explain why Google discontinued certain products, especially Reader?
This bums me out. I always liked the idea of two companies in complementary spaces working together toward something and maybe merging some day far in the future.
Instead we’re trying to make each other trivial.
> Instead we’re trying to make each other trivial.
Which is about as good a definition of "technological progress" as you are going to find. I for one am happy at how economically trivial housing, transport and food production have become over the last thousand years.
Why just two companies? The article describes one company with a chokehold in one spot of the vertical and many other companies producing commodity complements.
But there are lots of verticals near each other, so there can be many people at one level working with commodities at another level, who likewise believe that the people above/below them are also generating a commodity complement.
What we end up with instead is a global economy of people generating value and building things that make lives better, which I think is awesome! Generating value is the most legitimate reason to have people pay you - you don't have to extract rent from a monopoly position to be a viable business.
This doesn't bum me out at all. Looking at the headline examples given, they all seem to move tech in a better direction. If more of the trivial things are commoditized, then more effort goes into competing on the things that matter.
Example headlines FTA: IBM Spends Millions to Develop Open Source Software; Netscape Open Sources Their Web Browser; Transmeta Hires Linus, Pays Him To Hack on Linux
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Another way that I like to express that is "create a desert of profitability around you".
I once had a strategy professor define the Google business model somewhat like that, where "Google tries to make every other business around it free or irrelevant". It results in a few different effects:
- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link. One example is dramatically reducing the cost of phones and internet access, thus allowing customers to spend more time and money online, which generates revenue and profits for Google
- By making the other links free or irrelevant, you reduce the odds that a competitor in those links will strengthen their position and will extract more profits from the rest of the value chain. One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
A desert of profitability shifts consumers to you, and keeps competitors away.
Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.
e.g Chrome is free and google wants to push for web technologies only because their cash cow (Web Advertising) can keep generating profits as long as there are more web users specially the ones whose behavior can be easily tracked on their browser.
> Exactly, most people don't realize this simple strategy and worship at the altar of Google for giving "free" software.
Yeah, people should stop idealizing and worshiping companies. Apple is only pursuing "privacy" because it tried and failed miserably at user monetization, but it won't think twice about handing over all your data to the government (like they did in China) if that's the best business options.
They're all companies, they're here to make a profit.
That's one reason why I find it easier to trust companies than to trust governments. I know exactly what companies want, so I can predict how they'll act.
Companies are that "friend" who will always get money from your wallet, whenever they have a chance. Governments are those friends who swear they are on your side and want to help and protect you, but will sneak their fingers into your wallet whenever you're not looking.
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- By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on. This shifts profits along the value chain to that link.
By this logic, the biggest force in the universe preventing micropayments by tying media to the tawdry, corrupting mechanism of advertising, is Google.
A desert of profitability shifts consumers to you, and keeps competitors away.
Cities are supposed to impoverish the regions directly around them in this way, as well.
> By this logic, the biggest force in the universe preventing micropayments by linking media to the tawdry, corrupting mechanism of advertising, is Google.
No, it is users being willing to pay. The vast majority of users are far more ok with being shown ads than paying the equivalent of the cost of the ad to have it go away.
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> Cities are supposed to impoverish the regions directly around them in this way, as well.
This doesn't make any sense. Cities exist as trading hubs: where people trade labor, services and goods.
Why are you bringing cities into this anyway? Makes no sense at all...
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> Cities are supposed to impoverish the regions directly around them in this way, as well.
Just because you can specify a business model, doesn't mean it's automatically viable, or moral, to execute in any context.
> “Cities are supposed to impoverish the regions directly around them in this way, as well.”
Where’d you hear that?
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The content market has pretty much always worked by the precise inverse of micropayments: aggregation, bubdling, and regular serial subscriptions. The addition of advertising made market size itsef, rather than the content, the goal.
Irony is that it was the Master of the Channel himself who came up with the falsehood that "content is king": Viacom's Sumner Redstone. Maybe he believes that himself, but it doesn't make it the truth.
See also Google’s efforts to commoditize content: https://en.m.wikipedia.org/wiki/Viacom_International_Inc._v.....
It’s not as simple as that. Google did not go out to commoditize content. Technology created a new distribution system that allowed them to dominate the distribution of content.
If you read the case, many of the videos Viacom was asking Google to take down, were uploaded by Viacom themselves. So everyone was scrambling to get more eyeballs, that ultimately led to commoditization.
Also referring to the parent post, “desert” is not the right analogy when you create surplus around you to keep out competition. I think the knowledge industry is more like a religion, where the information is free but there are still strong structures that support it.
In case of religion, these structures are supported by supportive communal relationships. In technology, by massive network effects.
I think that Google was more worried about Microsoft dominating smartphones, not Apple. Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.
> I think that Google was more worried about Microsoft dominating smartphones, not Apple.
Maybe initially, before the iPhone. But the iPhone was the Dreadnaught of phones: everything that came before it became instantly irrelevant (look for HMS Dreadnaught).
> Microsoft would be tempted to use smartphone dominance to steer search traffic to Bing rather than Google.
Just as Apple would as well, unless Google pays, which it does.
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> One example is using Android to prevent a monopoly on the smartphone side.
yeah, good point. i think it helps us understand the Android ecosystem, its SDK, its user base, etc.
it doesn't seem like Google, a search and advertising company, had a natural reason to enter the mobile phone OS market. and they didn't set out to create an "insanely great" mobile OS experience, either for the users or for the developers.
instead, the strategy was apparently to just shoehorn a camera OS into the mobile phone market, offer it for free, grab as many users as possible, and thereby disrupt/restrain Apple.
and it has worked quite well for Google. but Android has subjected users and developers to a pretty bumpy ride. a lot of people went along for that ride because the upfront costs appeared to be lower than Apple/iOS. i don't know about the longer term costs though.
Yep, one strategy analysis that I (sadly) rarely see being done is evaluating the value chain.
Essentially, you look at all the links on a value chain and look at how competitive each one of those markets are. The links with the least competition will capture most of the excess profits in the chain, and the links with the most competition tend to be commoditized and have zero economic profits (which are different from financial profits).
Taking Google's online ads value chain, for example:
Chipset & component makers > device makers > OS makers > browser makers > ISP/carriers > online platforms > content creators > advertisers > ad platform > users
(You could rearrange this in a few different, but still valid, ways)
What would happen if there was a single device maker? Or a single OS maker? Those would be able to yield monopoly pricing, capturing most of the profits in the value chain.
Now look at those links: in how many of them Google operates now in a strong way?
- Device makers (Pixel)
- OS makers (Android, ChromeOS)
- Browser makers (Chrome)
- ISP/carriers (Fi, Fiber)
- Online platforms (YT, Blogger, G+, sites, etc.)
- Content creators (indirectly, sponsoring)
- Ad platform (Adsense & Doubleclick)
Now look at where it makes money:
- Ad platform (Adsense & Doubleclick)
All those other businesses exist to protect the revenue-generating business.
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FWIW, the expression "create a desert of profitability around you" is more popularly expressed as "create an economic moat".
The ideas are more different than the analogies are. A moat would be things like patents, data, expertise, etc that a competitor would need to get to match you and which are hard to develop. That doesn't have anything to do with the profitability of nearby market niches.
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Those aren't equivalent concepts. A moat can refer to any number of strategies to protect your business from competition.
* By reducing the cost of other links of the value chain, there is more money available to spend on the links you actually generate revenue on*
Ah, a light-bulb goes on when wondering why Google spends on CDN and DNS services. (The additional internet telemetry-streams are nice-to-have but probably not the actual point, economically speaking.)
But wouldn't that work against Google app engine? Who would pay lots of money for cloud services if it's impossible to make a living from the results?
Also these big companies have so many competing interests - how do these empires manage internal conflicts of interest?
Perhaps the App engine is intended to aid in creating that desert of profitability.
Google app engine isn't the biggest source of revenue for google.
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> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.
Apple absolutely does follow this strategy: it's not presently very profitable to be a supplier of small electronic components, or a contract manufacturer, or an app developer, or an Apple retail store employee. At least in the case of app development, Apple puts significant effort into making their dev tools powerful and their development experience easy, with the goal of bringing in as many devs as possible and keeping the market commoditized.
The difference is that most of Apple's complements are B2B suppliers and so are rather invisible to the general public, while many of Google's complements were formerly consumer-visible markets. So it's much more obvious when Google turns the web browser or ISP market into a commodity than when Apple turns the electronic supplier marketplace into a commodity.
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The strategies are orthogonal. Google's interest is not in making money from smartphones, it's in preventing Apple from having a monopoly wherein they can charge Google unlimited amounts for access to mobile users.
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> In the case of Apple vs Android I'd say Apple is doing pretty good and are arguably doing substantially better than Google in spite of not having followed this strategy themselves.
They follow a different strategy: vertically-integrated walled garden.
"Other links" means things other than smartphones. You read the comment incorrectly, I think. They're saying Apple would have more power over other actors (including google) if they had a smartphone monopoly.
Apple is not making money from links.
Desert of profitability is an evocative phrase, but remember that deserts can be beautiful.
It means free stuff or low prices for consumers. This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.
A commodity market working well is also a desert of profitability.
The opposite of a desert of profitability is economic rent.
> “The opposite of a desert of profitability is economic rent.”
Or perhaps an Amazon ;)
I don’t know if the analogy makes any sense, I just couldn’t resist
> It means free stuff or low prices for consumers.
The "free stuff" is an illusion, a monopolistic sleight of hand. Consumers are subsidizing "free stuff" in one market by paying excessive rent in the neighbouring market. In the end, consumers pay more, not less.
> This is another consequence of the "invisible hand" which is sometimes used to justify capitalistic competition.
These deserts are not a feature of competition, they are an attempt to avoid competition by shrinking the pool of viable competitors.
> A commodity market working well is also a desert of profitability.
No, it's the opposite of that. A commodity market working well is what you get when monopolistic tricks such as "deserts of profitability" have failed, and you are forced to compete the old-fashioned way.
> The opposite of a desert of profitability is economic rent.
Again, the exact opposite is true. Deserts of profitability exist to protect economic rent. Show me any "desert of profitability" and I will show you the economic rent that is subsidizing it.
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> One example is using Android to prevent a monopoly on the smartphone side. If Apple had a monopoly or near monopoly, it would be able to extract larger economic profits from the other links on the value chain, including Google
Your example actually shows the opposite and that's because conventional wisdom is often wrong.
Conventional wisdom states that there is a direct correlation between market share dominance and excess profits which is why anti-trust laws target monopolies to protect consumers from price-gouging, but this characterization is not always the case, as Apple has proven by not pursuing a market-share focused strategy.
Apple enjoys 87% of smartphone profits from a mere 18% of all shipments [0].
[0] https://www.investors.com/news/technology/click/apple-rakes-...
They weren't talking about profits in the smartphone market. Everyone seems to have read OP wrong.
They were saying that if Apple had a monopoly on smartphones, they could extract more value from adjacent markets (google search, etc)
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How are you disagreeing with him? Just because the luxury/high-end part of the market is making most of the profits doesn't mean a luxury company wouldn't extract even more money with few competitors.
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That's because for Google the loss in per-unit sales of cheap phones versus $1000 iPhones is entirely made up by the data they're collecting from Android users.
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another analogy is simply the Feudal Castle system
What course is that