> “There’s An App For That” is why you buy an iPhone—but it’s Apple with the $930 billion market cap & not the app developers.
Oh yeah? Tell that to Facebook, Netflix, and the YouTube part of Google. Tell that to Twitter, Snapchat, and TikTok.
There’s another principle at play here, and I think it’s an important one. Pleasantly, it also operates as a kind of Golden Rule for economics in platform development (and has legs at a wider scale, too, but I won’t cover that).
Specifically: Create more value than you capture. Apple of course captures some of the value of their ecosystem. So do other platform providers. The thing that distinguishes a healthy platform ecosystem from unhealthy ones is whether or not more value is on offer to platform adopters than the platform itself captures. Unsuccessful platforms generally fail at this, either because they don’t provide enough intrinsic value themselves (and therefore “end users” don’t benefit) or because they don’t make it profitable to operate on the platform (they try and capture too much of the value for themselves, and thereby strangle their own success).
Facebook, Netflix, Youtube/Google would be in similar positions even without Apple. They are not "app developers", they are software developers. Snapchat and Tiktok are good examples, but, what are their market caps? Add them all together and I think they won't be $930 bln (whereas e.g. if you add together all companies that depend on Amazon, the valuation would most likely be much higher than Amazon's; that should be the normal, for a platform).
Apple absolutely attempted to commoditize apps/ establish 1-to-5$ as the "normal" prices.
When the iPad launched all of Apples own unbundled productivity apps were listed at $10 each so we know for a fact that this is not true. They tried very hard to establish a market with sustainable prices for premium apps.
I think it’s just unreasonable to try to do that with the phones back in 2008 though, with the small screen size and relatively low resources of the very early devices high prices for phone apps just wasn’t going to fly.
That's important because Apple couldn't have started their ruse by moving in and taking away FB's power from the start.
If FB was weaker, Apple could be moving on their turf now by requiring a cut of their money.
You're missing the bit about power and value chains here: if Apple can take all of your surpluses, they will, it has nothing to do with how much money you make.
Consider also the vast distortions happening right now: and digital player that wants to charge a fee - has to give 30% to Apple. That's huge.
The alternative is advertising - for now - Apple doesn't go after that.
Many businesses to not run on huge margins - if you could eke out a 5% margin living under Apple's 30% cut, and switch to ads (assuming same revenue/gross margins), then you'd 5x your revenue.
Of the monopolizers, Facebook is the least worst - nobody needs them, and they're not a primary source for anything.
Apple's closed system is the worst, followed by Google's incumbency of search, propped up by their control of Android, Chrome etc. Thirdly is Google's abuse of Search to screw over competitors in near fields.
SnapChat and TikTok were both created well after Apple achieved its current market position. Not to mention the fact that I have only picked a few examples from a few categories. What will you say when I add Uber, Door Dash, AirBnB and others to the list? Again, I'm barely scratching the surface here.
You really can't escape the fact that applications built on top of Apple's platform are worth, in aggregate, multiples of Apple's market cap. I'm not an Apple apologist, this is just obvious math.
Right, the App Store is worth half a trillion a year just in raw billings and sales alone. That’s double Apples own revenue. The value of free services on top of that, where the value is captured in other ways which is most of the companies you listed, is likely of the same order or even significantly more. If so that all adds up to a decent multiple of Apple’s own revenue. Maybe 3x to 5x depending on what assumptions you make.
This is why competing phone platforms can’t get any traction against iOS and Android. You’re not just competing with Apple and Google, you’re competing with the entire ecosystems of companies and services on those platforms which combined are worth far more, and have aggregate resources far exceeding those of even Apple and Google.
Apple has tried to put Netflix out of business and so far isn't succeeding. They sort/of tried to put Facebook out of business and failed so miserably they may not get over it for another 5 years. They haven't even been able to beat Spotify, where they arguably should be dominant.
Apple is pretty pitiful as a services company. Yes, they're trying, and they may eventually figure out whatever structural issue it is that's keeping them from being successful here, but I think for every significant business Apple has successfully cloned (Evernote, maybe? What else?) you can come up with at least another where they haven't been able to despite trying, and another 2 or 3 where they haven't tried (yet).
Yes, many small startups watch WWDC with fear in their souls that Apple is about to disintermediate them. It's worth spending some time to understand the differences between those companies and companies that Apple has failed to compete with despite trying hard. I'm sure some obvious differences will jump out at you if you're willing to abandon the position that Apple is an unbeatable juggernaut.
> Headline: Sun Develops Java; New “Bytecode” System Means Write Once, Run Anywhere [WORA].
> Sun’s enthusiasm for WORA is, um, strange, because Sun is a hardware company. Making hardware a commodity is the last thing they want to do. Oooooooooooooooooooooops! Sun is the loose cannon of the computer industry. Unable to see past their raging fear and loathing of Microsoft
I've never heard this. One story I've heard is that they were worried about the growth of Windows-only software. Another is that they thought they could make money off of Java.
Yeah, I've never understood this part of Joel's analysis.
Sun were a hardware specialist. They wanted commoditised software, i.e. fungible, cheaply available everywhere in the same form, so that it is not a differentiator, as it is not an area of differentiation that they believed they'd win on, unlike hardware.
Further, they had a reasonable fear that software would more and more be made to run in only one place - Windows - which would lock them out of large parts of the market (like a car company whose cars ran on a fuel available in only a small number of remote locations).
So, they did their best to commoditise software with write-once run-anywhere. It fits perfectly with the strategy Joel outlines. Now all the software vendors are directly competing, as they can't use hardware tie-ins, and producing more software (write once), and all this should drive down software prices, and thereby leave more money on the table for superior hardware, which will become (they hoped) the key competitive advantage in the market-place.
Clearly, they lost anyway. As far as I can tell, that was because they lost on their strength: the market wanted commodity hardware (ever improving with Moores law, anyway) for vast data centres, rather than more capable and expensive hardware.
Yeah, if they could have built amazing software, like hardware producing Apple with their popular consumer OS and other software products, then they could maybe have won, but then if they couldn't win on hardware, their strength, why should anyone expect them to win on software?
(Okay, Java alone proves they had serious software chops, and I hear much of their software was good, but clearly they didn't think they could compete with the entire Microsoft ecosystem of software (and then there is Linux, FreeBSD, et cetera...), and I tend to agree).
Basically, they bet on hardware in an age of software. This wasn't a failure to commoditise their complement, but a failure to choose (to the extent they had a choice...) the right side of a complement divide.
Sun was destroyed by commodity Intel hardware on one side and free open source software (Apache/Linux/GCC, etc) on the other. In the very early 90s Sun workstations and servers could do things x86 boxes couldn’t do. Once that changed they were doomed.
The stories you heard do not contradict the analysis from Joel, do they?
"They thought they could make money from Java": yes, but if you are a hardware company, you shouldn't push for the development of software that commoditizes your server.
"They were worried about Windows-only software": if you make money from hardware, you fight Microsoft by integrating/developing/fomenting software that can run exclusively on your stack. IOW, do what Apple did and still does.
i think sun tried to sell more servers and storage systems by giving free access to the tools (JVM/JDK) that would simplify enterprise software development - without having to worry about core dumps or very long compilation times. It might be that Joel was too focused on Microsoft in order to see that.
Also SUN was selling licenses for very expensive J2EE stuff (remember EJB? That's the stuff that was replaced by spring) Giving free access to the JDK would make sense, as making the complement cheaper to create demand for EJB (that would have worked if EJB would have been easier to use)
Java was initially focused on small devices, but that was not it's main use case at the turn of the century. i think phone hardware was too limited for Java until a few years later, when Sun was no longer around (actually we had the epic Oracle vs Google case, which might have been a Sun vs Google case - sans acquisition by Oracle)
It may well be that Linux became good enough for this market segment and thereby turned server hardware (i.e. Sun) into a commodity, but that's a different story.
The original target for Java (Oak) was set top boxes. Arguably Sun was trying to commoditize the set top box industry so that they could sell expensive servers to cable operators. Then someone decided to open source the result (engineers aren’t always great economists / financial analysts).
Amusingly in the 25 years since, set top box manufacturers have commoditized themselves very effectively.
Hardware and software goes hand in hand. A custom CPU would also need custom software. The engame is probably "you can only run this in our cloud", but its open source you say, yeh before they added the proprietary code, so if you do run the code yourself you can't use half the features and performance will be degraded, and you won't have access to the community/plugin ecosystem.
I’m not convinced this strategy can help create monopolies. If I can help create demand for my complement then that would make sense to boost my product but effectively creating a monopoly with my product is another matter.
I think it’s better to say it creates an oligopoly among the few strong competitors at the chokepoint non-commodity layer.
Various smartphone developers made app ecosystems into commodities, so those developers have a very, very large market share of all smartphone taken together.
But I do agree that this strategy doesn’t, on its own, create a monopoly for one member of the chokepoint layer vs another. It helps by allowing businesses in the chokepoint layer to be price-neutral to other layers above or below them that are commodities (those layers face so much price competition that they have no negotiating power on the other layers) and focus on monopoly strategies against other competitors in the same layer, free of concern about needing to compromise with other layers.
This is an interesting perspective however only the most extreme examples given are convincing enough to be as truly adversarial as the author implies.
Using the articles very own examples, hardware seems to be attempting to commoditize software, and software seems to be attempting to commoditize hardware, the chain is bidirectional and long, there seems to be no clear rules. In the example of Sun and Ximian, it can be viewed as commoditizing or directly funding a non existent yet required comunterpart due to lack of in house expertise.
I suspect the reality of the majority of less visible chains of compliments are closer to symbiotic than parasitic - that intentional and extreme commoditization are the adversarial exceptions which are so large and monopolistic as to bias the landscape... even then as other commenters point out, those relationships don't appear to be sustainable long term, due to longer term negative side effects or a changing landscape.
But it's not the reality though, ultimately software doesn't want to commoditize hardware, it wants to have choices, sure, but only for itself, so it can lock people in to a specific choice to sell it to people too and with high margins. Vice versa is true too, hardware wants to build software ecosystem around it, but in a such way that uses only its hardware, not other hardware. This is why wintel is a thing.
Only from a quick glance it appears that we all win, but really none of us can win from this. Worse, megacorps don't really compete with each other, their view on competition is pretty perverse, they "compete" as long as such "competing" doesn't eat into juicy high margin profits that exist only on monopolized markets, so it's more like dividing markets and forming oligopolies, but not commodotizing each other.
Companies do this, but I'm not so sure smart is the right adjective. Better positioned, or risk adverse might be better description.
Effectively, this argues for seeding a new market (e.g., IBM and enterprise OSS). Makes sense. But what's to stop _anyone_ else from getting into that same business? And doing it better? Maybe you create an initial advantage, but for how long? Game consoles come to mind.
It's an effective strategy. But you have to be spot on in the execution, and always be looking over your shoulder. Wouldn't a Zero to One / Blue Ocean mindset be smarter? Yes, more difficult. But none the less the far bigger win.
Well, in a way all businesses want to become monopolies. And hence they try to build moats around their core businesses to prevent competitors from entering that market, or in the worst case, causing the entire market to become commodified. The form of that moat varies depending on what said core business is. One version is even mentioned in the article:
> 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”…A desert of profitability shifts consumers to you, and keeps competitors away.
> Wouldn't a Zero to One / Blue Ocean mindset be smarter?
So if you're about to start a business, should you create a new market (becoming a monopolist in that market), or should you enter some existing highly competitive and commodified market? The answer sounds obvious. Once you do that, then the next question is how do you maintain your monopoly position within that market? See above.
It's about pulling the ladder out from under you, so you grow with the commodity and control risk of upstarts. It's interesting to compare something like how aws/azure/gcp (IaaS and up) commoditize snowflake/databricks (data PaaS and up):
* free complement: drive to zero so you go up, and competitors relatively weak individually. A $T corp like aws doesn't really care if any individual sw vendor (OSS, ...) gets big b/c they're still small wrt aws's offerings. The few emerging big winners like snowflake/databricks makes aws more useful to customers and helps the on-prem -> cloud shift: aws and friends are focused on 30%+ quarterly growth, which is nuts at their scale. They can likewise slowly decrease the ISV margin at their leisure for the non-oss parts, and for now use them to keep juicing the growth.
* pricey moat: the hyperscalers keep reinvesting monopoly-margin-driven profits to be even more untouchable. $T corp building their own chips, HA, etc., layers. It's tough for a YC startup to decide to compete w/ AWS head-on - hw/sw codesign takes a lot of time & $, and getting even just sw would be hard. it took huge amounts of VC $ for snowflake/databricks to get where they are, and yet, it still probably doesn't make sense for them to compete w/ AWS/gcp/az via custom hw etc. (TPUs ..), vs. riding commodity hpc (e.g., databricks achieving its AI vision by reselling GPU hw/sw controlled by Nvidia+Google, unlike their past control of Spark). IBM buying redhat gives a sense of how hard it is to buy in at this point.
It seems more like a side effect than a market strategy. Are there mixed strategies? Ie even car companies tend to look askance or even void warranties for using after market parts.
> Makes sense. But what's to stop _anyone_ else from getting into that same business? And doing it better? Maybe you create an initial advantage, but for how long? Game consoles come to mind.
You have to keep in mind that the natural outcome of capitalism is to create a forsaken hellscape of competition where individual companies struggle to make margins good enough to survive.
In this case, the truism is to commoditize your complement. Companies have an incentive to push as much capitalism as they can into things they don't make money on, and keep the capitalism away from their main products as long as they can.
So eg Google don't want to commoditize maps, because they're happy having a monopoly on mapping services. Google's competitors want to commoditize maps, because by doing so they undercut Google and make their own cloud service / phone OS / office suite / other all-encompassing orwellian service more competitive.
When I saw the title and the comments before reading the article, I thought to myself "what Joel wrote[1] and I read almost 20 years ago made a ton of sense"[^]. Then I looked at the article, and realize that it opens with a link to Joel's article and then lists a bunch of strained examples (editors vs IDEs).
I would recommend that everyone read Joel's article[1] first. Note that increase in demand means "the value to the consumers of each and every unit of your good increases" or "at each price more units will be sold" ... That is, demand curve shifts to the northeast. Which is different from an increase in quantity demanded in response to changes in the quantity demanded.
Note also that while we tend to think in terms of individual companies' products, the demand for the output of the entire industry tends to increase when the complements become cheaper.
A great example of this is indeed Windows. Glossing over the details (such as Epson's ESC/P etc), prior to Windows, you knew that if you wanted to produce hardcopies with bar charts etc, you knew you had to have printer that worked with Harvard Graphics[2]. Post-Windows, you could make a printer and a driver for Windows and all software could use it. Which led to increase demand for both printers and software that uses printers. Harvard Graphics' real advantage was in being able to produce output on paper or physical slides. Once again, having Windows meant projectors could be used without worry that you needed to use a special version of the software with special support for the particular projector you had. That helped grow the projector industry and cut the hassle of having to have hard copies of the presentation (which you could not correct if you noticed a problem at the last moment).
So, when I read the linked post, I thought it is best to be avoided in favor of reading Joel's post again. Joel's post is not without flaws either:
> If you can run your software anywhere, that makes hardware more of a commodity. As hardware prices go down, the market expands, driving more demand for software (and leaving customers with extra money to spend on software which can now be more expensive.)
As an economist, I would have noted that it is not just that consumers have more money and an individual firm can extract more of it ... it is that as a result of a complementary good becoming cheaper, they value the thing you are selling more and therefore they are willing and able to spend more on the thing you (or other firms in your industry are selling).
Next, we should think about monopoly power and availability of close substitutes. :-)
Do you feel like this article is straining at bringing monopolies into the explanation? I think the “commoditise your complements” holds regardless of whether the business is, or wants to be, a monopoly. Joel’s article and the Hal Varian work don’t seem to be talking about monopolies. (Caveat: I didn’t read all the sources in detail)
Things work in similar ways however the market is organized. But a monopoly will have a much easier time extracting value from the activity than companies in a competitive market.
At time t0, there may not be ... but the exercise of monopoly power incentivizes others to produce substitutes and consumers to seek them.
> In addition to the radio relay services, MCI soon made plans to offer voice, computer information, and data communication services for business customers unable to afford AT&T's TELPAK service
Interesting read. I guess you can view what Amazon has done in this light. Provide the best solution to taking possession of things. The complement being the supply chain that marketplace aims to commoditize.
I don't think this is true, at least not the way you think of.
Amazon hasn't really commoditized the supply chain. Its approach is closer to the Disney / 90s Microsoft monolith: lots of vertical integration, redefine processes at every level, etc. Commoditizing the supply chain would be if they hired intermediaries and encouraged competition between them, but they mostly do things in-house.
(well, except for hiring, but the commoditization of jobs unfortunately isn't a new phenomenon)
On the other hand, maybe it can be argued that Amazon is trying to commoditize the physical marketplace itself. It notoriously makes very little money on physical goods, and most of its profits come from its cloud division. But I think we're getting a little far from the concept described in the article.
It's certainly one of the reasons. (There are also others, like building a good reputation to help attract and retain talent).
For example, in 2009, in the world of physics engines, Havok (acquired by Intel) and PhysX (owned by Nvidia) were pretty much the two notable market leaders. Physics acceleration was becoming a big deal in games and an important complement to GPUs, and AMD/ATI found itself without a horse in the race. So did it develop its own proprietary physics engine? No, it threw its weight behind the open source Bullet physics project, to "commoditize their complements". They don't need to make money from engine licensing; they need to present a viable alternative to PhysX to keep Nvidia from getting ahead. For that, the lower the barrier to entry (free) the better, and the lower the barrier to contributions (libre) the better.
Now we're seeing Facebook (big stake in VR) contributing to Blender (3D content creation, and so a complement to VR). And so on!
I don't think that open source work is a commodity. On the contrary, when well done, it functions almost as standard bearing, PR and legislation. Nothing about that says commodity to me. In fact, it's the kind of differentiated strategic work that's quite far away from commodity.
- “full stack development” attempts to commoditize software engineering within a firm, so that complements (product management, designers, political managers) are seen as having more value.
- various cloud vendors trying (so far mostly failing) to make software ecosystems commodities so that renting hardware from them to run the software can extract higher rents. Things like open sourcing Tensorflow & Keras, then turning around and selling a bunch of ML optimized GCP products - commoditize the specialist ML software labor, which is the complement to the cloud vendors offerings.
Software engineers really have to watch out for these situations and walk away from places trying to treat them as a commodity.
The cloud providers have no desire for higher rents. Andy Jassy the CEO of AWS just said in his keynote that only 4% of enterprise workloads are on any cloud provider.
The cloud providers want market share. Right now, they are competing against non consumption. AWS has never raised prices on any of their services. In fact, they are aggressively trying to reduce costs by creating their own processors purpose built for their needs and passing them on to consumers. I would think the same is true for Azure. Amazon and Microsoft both know that the minute they raise prices, it’s going to scare companies away.
They're also running up against significant competition in the form of extremely inexpensive local hardware.
Ten or twenty years ago a company with a thousand employees typically needed multiple racks full of servers, in some cases to handle the load but in many cases just because each separate service would have its own physical machine.
Today all of that can fit on a pair of local physical machines hosting virtual guests. A single machine can have over a hundred cores and terabytes of memory. Moreover, a physical machine can be amortized over ten years provided you have a load that doesn't vary significantly over time. And because it's such a small number of physical machines, you no longer need exotic local power and cooling solutions.
Cloud providers are already more expensive than this in many cases. They need every cost advantage they can get just to be in the game.
I don’t think it’s mutually exclusive. They might be commoditizing a complement to get market share or find areas of vendor lock-in to raise prices later. I.e. they could be seeding commodity tools that their customers can plug in, while also generally lowering prices for a more pressing immediate land grab before raising prices later.
Interesring! So the more technologies, the more pay, as it will be harder to find specialists. But while it takes years to get good at something, say a CRUD programming language, that experience will be useful for other CRUD languages. But managers do not understand that so it can be very hard for a specialist to find a matching job when the combination of platform x languages x frameworks x transpilers get too big. Another interesting fenomen is that such specialists so quickly become obsolete ....
> “There’s An App For That” is why you buy an iPhone—but it’s Apple with the $930 billion market cap & not the app developers.
Oh yeah? Tell that to Facebook, Netflix, and the YouTube part of Google. Tell that to Twitter, Snapchat, and TikTok.
There’s another principle at play here, and I think it’s an important one. Pleasantly, it also operates as a kind of Golden Rule for economics in platform development (and has legs at a wider scale, too, but I won’t cover that).
Specifically: Create more value than you capture. Apple of course captures some of the value of their ecosystem. So do other platform providers. The thing that distinguishes a healthy platform ecosystem from unhealthy ones is whether or not more value is on offer to platform adopters than the platform itself captures. Unsuccessful platforms generally fail at this, either because they don’t provide enough intrinsic value themselves (and therefore “end users” don’t benefit) or because they don’t make it profitable to operate on the platform (they try and capture too much of the value for themselves, and thereby strangle their own success).
Facebook, Netflix, Youtube/Google would be in similar positions even without Apple. They are not "app developers", they are software developers. Snapchat and Tiktok are good examples, but, what are their market caps? Add them all together and I think they won't be $930 bln (whereas e.g. if you add together all companies that depend on Amazon, the valuation would most likely be much higher than Amazon's; that should be the normal, for a platform).
Apple absolutely attempted to commoditize apps/ establish 1-to-5$ as the "normal" prices.
When the iPad launched all of Apples own unbundled productivity apps were listed at $10 each so we know for a fact that this is not true. They tried very hard to establish a market with sustainable prices for premium apps.
I think it’s just unreasonable to try to do that with the phones back in 2008 though, with the small screen size and relatively low resources of the very early devices high prices for phone apps just wasn’t going to fly.
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Those apps existed before Apple had power.
That's important because Apple couldn't have started their ruse by moving in and taking away FB's power from the start.
If FB was weaker, Apple could be moving on their turf now by requiring a cut of their money.
You're missing the bit about power and value chains here: if Apple can take all of your surpluses, they will, it has nothing to do with how much money you make.
Consider also the vast distortions happening right now: and digital player that wants to charge a fee - has to give 30% to Apple. That's huge.
The alternative is advertising - for now - Apple doesn't go after that.
Many businesses to not run on huge margins - if you could eke out a 5% margin living under Apple's 30% cut, and switch to ads (assuming same revenue/gross margins), then you'd 5x your revenue.
Of the monopolizers, Facebook is the least worst - nobody needs them, and they're not a primary source for anything.
Apple's closed system is the worst, followed by Google's incumbency of search, propped up by their control of Android, Chrome etc. Thirdly is Google's abuse of Search to screw over competitors in near fields.
SnapChat and TikTok were both created well after Apple achieved its current market position. Not to mention the fact that I have only picked a few examples from a few categories. What will you say when I add Uber, Door Dash, AirBnB and others to the list? Again, I'm barely scratching the surface here.
You really can't escape the fact that applications built on top of Apple's platform are worth, in aggregate, multiples of Apple's market cap. I'm not an Apple apologist, this is just obvious math.
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Right, the App Store is worth half a trillion a year just in raw billings and sales alone. That’s double Apples own revenue. The value of free services on top of that, where the value is captured in other ways which is most of the companies you listed, is likely of the same order or even significantly more. If so that all adds up to a decent multiple of Apple’s own revenue. Maybe 3x to 5x depending on what assumptions you make.
This is why competing phone platforms can’t get any traction against iOS and Android. You’re not just competing with Apple and Google, you’re competing with the entire ecosystems of companies and services on those platforms which combined are worth far more, and have aggregate resources far exceeding those of even Apple and Google.
> Specifically: Create more value than you capture.
They can ensure this by copying the most successful apps in the App Store, down-ranking the original authors, and repeating this game.
Apple has tried to put Netflix out of business and so far isn't succeeding. They sort/of tried to put Facebook out of business and failed so miserably they may not get over it for another 5 years. They haven't even been able to beat Spotify, where they arguably should be dominant.
Apple is pretty pitiful as a services company. Yes, they're trying, and they may eventually figure out whatever structural issue it is that's keeping them from being successful here, but I think for every significant business Apple has successfully cloned (Evernote, maybe? What else?) you can come up with at least another where they haven't been able to despite trying, and another 2 or 3 where they haven't tried (yet).
Yes, many small startups watch WWDC with fear in their souls that Apple is about to disintermediate them. It's worth spending some time to understand the differences between those companies and companies that Apple has failed to compete with despite trying hard. I'm sure some obvious differences will jump out at you if you're willing to abandon the position that Apple is an unbeatable juggernaut.
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Past comments: https://news.ycombinator.com/item?id=18854854
> Headline: Sun Develops Java; New “Bytecode” System Means Write Once, Run Anywhere [WORA].
> Sun’s enthusiasm for WORA is, um, strange, because Sun is a hardware company. Making hardware a commodity is the last thing they want to do. Oooooooooooooooooooooops! Sun is the loose cannon of the computer industry. Unable to see past their raging fear and loathing of Microsoft
I've never heard this. One story I've heard is that they were worried about the growth of Windows-only software. Another is that they thought they could make money off of Java.
Yeah, I've never understood this part of Joel's analysis.
Sun were a hardware specialist. They wanted commoditised software, i.e. fungible, cheaply available everywhere in the same form, so that it is not a differentiator, as it is not an area of differentiation that they believed they'd win on, unlike hardware.
Further, they had a reasonable fear that software would more and more be made to run in only one place - Windows - which would lock them out of large parts of the market (like a car company whose cars ran on a fuel available in only a small number of remote locations).
So, they did their best to commoditise software with write-once run-anywhere. It fits perfectly with the strategy Joel outlines. Now all the software vendors are directly competing, as they can't use hardware tie-ins, and producing more software (write once), and all this should drive down software prices, and thereby leave more money on the table for superior hardware, which will become (they hoped) the key competitive advantage in the market-place.
Clearly, they lost anyway. As far as I can tell, that was because they lost on their strength: the market wanted commodity hardware (ever improving with Moores law, anyway) for vast data centres, rather than more capable and expensive hardware.
Yeah, if they could have built amazing software, like hardware producing Apple with their popular consumer OS and other software products, then they could maybe have won, but then if they couldn't win on hardware, their strength, why should anyone expect them to win on software?
(Okay, Java alone proves they had serious software chops, and I hear much of their software was good, but clearly they didn't think they could compete with the entire Microsoft ecosystem of software (and then there is Linux, FreeBSD, et cetera...), and I tend to agree).
Basically, they bet on hardware in an age of software. This wasn't a failure to commoditise their complement, but a failure to choose (to the extent they had a choice...) the right side of a complement divide.
Sun was destroyed by commodity Intel hardware on one side and free open source software (Apache/Linux/GCC, etc) on the other. In the very early 90s Sun workstations and servers could do things x86 boxes couldn’t do. Once that changed they were doomed.
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The stories you heard do not contradict the analysis from Joel, do they?
"They thought they could make money from Java": yes, but if you are a hardware company, you shouldn't push for the development of software that commoditizes your server.
"They were worried about Windows-only software": if you make money from hardware, you fight Microsoft by integrating/developing/fomenting software that can run exclusively on your stack. IOW, do what Apple did and still does.
i think sun tried to sell more servers and storage systems by giving free access to the tools (JVM/JDK) that would simplify enterprise software development - without having to worry about core dumps or very long compilation times. It might be that Joel was too focused on Microsoft in order to see that.
Also SUN was selling licenses for very expensive J2EE stuff (remember EJB? That's the stuff that was replaced by spring) Giving free access to the JDK would make sense, as making the complement cheaper to create demand for EJB (that would have worked if EJB would have been easier to use)
Java was initially focused on small devices, but that was not it's main use case at the turn of the century. i think phone hardware was too limited for Java until a few years later, when Sun was no longer around (actually we had the epic Oracle vs Google case, which might have been a Sun vs Google case - sans acquisition by Oracle)
It may well be that Linux became good enough for this market segment and thereby turned server hardware (i.e. Sun) into a commodity, but that's a different story.
The original target for Java (Oak) was set top boxes. Arguably Sun was trying to commoditize the set top box industry so that they could sell expensive servers to cable operators. Then someone decided to open source the result (engineers aren’t always great economists / financial analysts).
Amusingly in the 25 years since, set top box manufacturers have commoditized themselves very effectively.
> Then someone decided to open source the result
The Sun JVM was open-sourced in 2006-2007 [1] - 10 years after the introduction of the platform and after it was already wildly popular.
[1]: https://web.archive.org/web/20140527220942/http://grnlight.n...
It seems that computer hardware, CPU tech, is currently in a phase of anti-commoditization.
Definitely. Microsoft is apparently getting in on the customized silicon game too. Frankly I wish we had seen this at least ten years ago.
Hardware and software goes hand in hand. A custom CPU would also need custom software. The engame is probably "you can only run this in our cloud", but its open source you say, yeh before they added the proprietary code, so if you do run the code yourself you can't use half the features and performance will be degraded, and you won't have access to the community/plugin ecosystem.
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I’m not convinced this strategy can help create monopolies. If I can help create demand for my complement then that would make sense to boost my product but effectively creating a monopoly with my product is another matter.
I think it’s better to say it creates an oligopoly among the few strong competitors at the chokepoint non-commodity layer.
Various smartphone developers made app ecosystems into commodities, so those developers have a very, very large market share of all smartphone taken together.
But I do agree that this strategy doesn’t, on its own, create a monopoly for one member of the chokepoint layer vs another. It helps by allowing businesses in the chokepoint layer to be price-neutral to other layers above or below them that are commodities (those layers face so much price competition that they have no negotiating power on the other layers) and focus on monopoly strategies against other competitors in the same layer, free of concern about needing to compromise with other layers.
This is an interesting perspective however only the most extreme examples given are convincing enough to be as truly adversarial as the author implies.
Using the articles very own examples, hardware seems to be attempting to commoditize software, and software seems to be attempting to commoditize hardware, the chain is bidirectional and long, there seems to be no clear rules. In the example of Sun and Ximian, it can be viewed as commoditizing or directly funding a non existent yet required comunterpart due to lack of in house expertise.
I suspect the reality of the majority of less visible chains of compliments are closer to symbiotic than parasitic - that intentional and extreme commoditization are the adversarial exceptions which are so large and monopolistic as to bias the landscape... even then as other commenters point out, those relationships don't appear to be sustainable long term, due to longer term negative side effects or a changing landscape.
> hardware ... commoditize ... software, software ... commoditize ... hardware ... no clear rules
we all win.
But it's not the reality though, ultimately software doesn't want to commoditize hardware, it wants to have choices, sure, but only for itself, so it can lock people in to a specific choice to sell it to people too and with high margins. Vice versa is true too, hardware wants to build software ecosystem around it, but in a such way that uses only its hardware, not other hardware. This is why wintel is a thing.
Only from a quick glance it appears that we all win, but really none of us can win from this. Worse, megacorps don't really compete with each other, their view on competition is pretty perverse, they "compete" as long as such "competing" doesn't eat into juicy high margin profits that exist only on monopolized markets, so it's more like dividing markets and forming oligopolies, but not commodotizing each other.
Companies do this, but I'm not so sure smart is the right adjective. Better positioned, or risk adverse might be better description.
Effectively, this argues for seeding a new market (e.g., IBM and enterprise OSS). Makes sense. But what's to stop _anyone_ else from getting into that same business? And doing it better? Maybe you create an initial advantage, but for how long? Game consoles come to mind.
It's an effective strategy. But you have to be spot on in the execution, and always be looking over your shoulder. Wouldn't a Zero to One / Blue Ocean mindset be smarter? Yes, more difficult. But none the less the far bigger win.
Well, in a way all businesses want to become monopolies. And hence they try to build moats around their core businesses to prevent competitors from entering that market, or in the worst case, causing the entire market to become commodified. The form of that moat varies depending on what said core business is. One version is even mentioned in the article:
> 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”…A desert of profitability shifts consumers to you, and keeps competitors away.
> Wouldn't a Zero to One / Blue Ocean mindset be smarter?
So if you're about to start a business, should you create a new market (becoming a monopolist in that market), or should you enter some existing highly competitive and commodified market? The answer sounds obvious. Once you do that, then the next question is how do you maintain your monopoly position within that market? See above.
> But what's to stop _anyone_ else from getting into that same business? And doing it better?
You mean your main business or your complement?
If it's the complement, you commemorate, and try to push more people at entering there and doing it better.
It's about pulling the ladder out from under you, so you grow with the commodity and control risk of upstarts. It's interesting to compare something like how aws/azure/gcp (IaaS and up) commoditize snowflake/databricks (data PaaS and up):
* free complement: drive to zero so you go up, and competitors relatively weak individually. A $T corp like aws doesn't really care if any individual sw vendor (OSS, ...) gets big b/c they're still small wrt aws's offerings. The few emerging big winners like snowflake/databricks makes aws more useful to customers and helps the on-prem -> cloud shift: aws and friends are focused on 30%+ quarterly growth, which is nuts at their scale. They can likewise slowly decrease the ISV margin at their leisure for the non-oss parts, and for now use them to keep juicing the growth.
* pricey moat: the hyperscalers keep reinvesting monopoly-margin-driven profits to be even more untouchable. $T corp building their own chips, HA, etc., layers. It's tough for a YC startup to decide to compete w/ AWS head-on - hw/sw codesign takes a lot of time & $, and getting even just sw would be hard. it took huge amounts of VC $ for snowflake/databricks to get where they are, and yet, it still probably doesn't make sense for them to compete w/ AWS/gcp/az via custom hw etc. (TPUs ..), vs. riding commodity hpc (e.g., databricks achieving its AI vision by reselling GPU hw/sw controlled by Nvidia+Google, unlike their past control of Spark). IBM buying redhat gives a sense of how hard it is to buy in at this point.
It seems more like a side effect than a market strategy. Are there mixed strategies? Ie even car companies tend to look askance or even void warranties for using after market parts.
> Makes sense. But what's to stop _anyone_ else from getting into that same business? And doing it better? Maybe you create an initial advantage, but for how long? Game consoles come to mind.
You have to keep in mind that the natural outcome of capitalism is to create a forsaken hellscape of competition where individual companies struggle to make margins good enough to survive.
In this case, the truism is to commoditize your complement. Companies have an incentive to push as much capitalism as they can into things they don't make money on, and keep the capitalism away from their main products as long as they can.
So eg Google don't want to commoditize maps, because they're happy having a monopoly on mapping services. Google's competitors want to commoditize maps, because by doing so they undercut Google and make their own cloud service / phone OS / office suite / other all-encompassing orwellian service more competitive.
When I saw the title and the comments before reading the article, I thought to myself "what Joel wrote[1] and I read almost 20 years ago made a ton of sense"[^]. Then I looked at the article, and realize that it opens with a link to Joel's article and then lists a bunch of strained examples (editors vs IDEs).
I would recommend that everyone read Joel's article[1] first. Note that increase in demand means "the value to the consumers of each and every unit of your good increases" or "at each price more units will be sold" ... That is, demand curve shifts to the northeast. Which is different from an increase in quantity demanded in response to changes in the quantity demanded.
Note also that while we tend to think in terms of individual companies' products, the demand for the output of the entire industry tends to increase when the complements become cheaper.
A great example of this is indeed Windows. Glossing over the details (such as Epson's ESC/P etc), prior to Windows, you knew that if you wanted to produce hardcopies with bar charts etc, you knew you had to have printer that worked with Harvard Graphics[2]. Post-Windows, you could make a printer and a driver for Windows and all software could use it. Which led to increase demand for both printers and software that uses printers. Harvard Graphics' real advantage was in being able to produce output on paper or physical slides. Once again, having Windows meant projectors could be used without worry that you needed to use a special version of the software with special support for the particular projector you had. That helped grow the projector industry and cut the hassle of having to have hard copies of the presentation (which you could not correct if you noticed a problem at the last moment).
So, when I read the linked post, I thought it is best to be avoided in favor of reading Joel's post again. Joel's post is not without flaws either:
> If you can run your software anywhere, that makes hardware more of a commodity. As hardware prices go down, the market expands, driving more demand for software (and leaving customers with extra money to spend on software which can now be more expensive.)
As an economist, I would have noted that it is not just that consumers have more money and an individual firm can extract more of it ... it is that as a result of a complementary good becoming cheaper, they value the thing you are selling more and therefore they are willing and able to spend more on the thing you (or other firms in your industry are selling).
Next, we should think about monopoly power and availability of close substitutes. :-)
[1]: https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/ [2]: https://en.wikipedia.org/wiki/Harvard_Graphics
[^] For background, I am a Ph.D. economist, and taught micro at various levels, and I develop software for a living
Do you feel like this article is straining at bringing monopolies into the explanation? I think the “commoditise your complements” holds regardless of whether the business is, or wants to be, a monopoly. Joel’s article and the Hal Varian work don’t seem to be talking about monopolies. (Caveat: I didn’t read all the sources in detail)
Things work in similar ways however the market is organized. But a monopoly will have a much easier time extracting value from the activity than companies in a competitive market.
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There would not be a monopoly if there was close substitutes.
At time t0, there may not be ... but the exercise of monopoly power incentivizes others to produce substitutes and consumers to seek them.
> In addition to the radio relay services, MCI soon made plans to offer voice, computer information, and data communication services for business customers unable to afford AT&T's TELPAK service
E.g. MCI vs AT&T[1]
[1]: https://en.wikipedia.org/wiki/MCI_Communications#Founding
Interesting read. I guess you can view what Amazon has done in this light. Provide the best solution to taking possession of things. The complement being the supply chain that marketplace aims to commoditize.
I don't think this is true, at least not the way you think of.
Amazon hasn't really commoditized the supply chain. Its approach is closer to the Disney / 90s Microsoft monolith: lots of vertical integration, redefine processes at every level, etc. Commoditizing the supply chain would be if they hired intermediaries and encouraged competition between them, but they mostly do things in-house.
(well, except for hiring, but the commoditization of jobs unfortunately isn't a new phenomenon)
On the other hand, maybe it can be argued that Amazon is trying to commoditize the physical marketplace itself. It notoriously makes very little money on physical goods, and most of its profits come from its cloud division. But I think we're getting a little far from the concept described in the article.
So this is why tech companies do so much open source work?
It's certainly one of the reasons. (There are also others, like building a good reputation to help attract and retain talent).
For example, in 2009, in the world of physics engines, Havok (acquired by Intel) and PhysX (owned by Nvidia) were pretty much the two notable market leaders. Physics acceleration was becoming a big deal in games and an important complement to GPUs, and AMD/ATI found itself without a horse in the race. So did it develop its own proprietary physics engine? No, it threw its weight behind the open source Bullet physics project, to "commoditize their complements". They don't need to make money from engine licensing; they need to present a viable alternative to PhysX to keep Nvidia from getting ahead. For that, the lower the barrier to entry (free) the better, and the lower the barrier to contributions (libre) the better.
Now we're seeing Facebook (big stake in VR) contributing to Blender (3D content creation, and so a complement to VR). And so on!
I don't think that open source work is a commodity. On the contrary, when well done, it functions almost as standard bearing, PR and legislation. Nothing about that says commodity to me. In fact, it's the kind of differentiated strategic work that's quite far away from commodity.
Commodity is not quite the correct term as in "a basic good used in commerce that is interchangeable with other goods of the same type".
What people want to say, I assume, is that building on Open Source is no competitive advantage because your competition can easily adopt it as well.
I’ve often thought about this in two areas:
- “full stack development” attempts to commoditize software engineering within a firm, so that complements (product management, designers, political managers) are seen as having more value.
- various cloud vendors trying (so far mostly failing) to make software ecosystems commodities so that renting hardware from them to run the software can extract higher rents. Things like open sourcing Tensorflow & Keras, then turning around and selling a bunch of ML optimized GCP products - commoditize the specialist ML software labor, which is the complement to the cloud vendors offerings.
Software engineers really have to watch out for these situations and walk away from places trying to treat them as a commodity.
The cloud providers have no desire for higher rents. Andy Jassy the CEO of AWS just said in his keynote that only 4% of enterprise workloads are on any cloud provider.
The cloud providers want market share. Right now, they are competing against non consumption. AWS has never raised prices on any of their services. In fact, they are aggressively trying to reduce costs by creating their own processors purpose built for their needs and passing them on to consumers. I would think the same is true for Azure. Amazon and Microsoft both know that the minute they raise prices, it’s going to scare companies away.
Who knows what the heck Google is doing with GCP.
They're also running up against significant competition in the form of extremely inexpensive local hardware.
Ten or twenty years ago a company with a thousand employees typically needed multiple racks full of servers, in some cases to handle the load but in many cases just because each separate service would have its own physical machine.
Today all of that can fit on a pair of local physical machines hosting virtual guests. A single machine can have over a hundred cores and terabytes of memory. Moreover, a physical machine can be amortized over ten years provided you have a load that doesn't vary significantly over time. And because it's such a small number of physical machines, you no longer need exotic local power and cooling solutions.
Cloud providers are already more expensive than this in many cases. They need every cost advantage they can get just to be in the game.
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I don’t think it’s mutually exclusive. They might be commoditizing a complement to get market share or find areas of vendor lock-in to raise prices later. I.e. they could be seeding commodity tools that their customers can plug in, while also generally lowering prices for a more pressing immediate land grab before raising prices later.
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Interesring! So the more technologies, the more pay, as it will be harder to find specialists. But while it takes years to get good at something, say a CRUD programming language, that experience will be useful for other CRUD languages. But managers do not understand that so it can be very hard for a specialist to find a matching job when the combination of platform x languages x frameworks x transpilers get too big. Another interesting fenomen is that such specialists so quickly become obsolete ....
An aside, but I was so confused by the "dot slash" link ("./") until I realized he means "/.", Slashdot.
EDIT: Edited because people got upset.
Wow, I deeply hope no one’s calling that a nazi salute. They don’t get to own that.
I think that's what it's called, but I may be wrong.
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Nobody thinks that.