Smart companies try to commoditise their products’ complements.
So said Joel Spolsky in an article on the economics of open source four years ago; if you haven’t read it, you can find the article here; it can also be found in that excellent collection of articles published as Joel on Software.
I’ve been musing on stuff recently; stuff raked across the ashes in my head, raked as a result of spending time with Doc Searls in Copenhagen, revisiting Because of Rather Than With; raked as a result of re-reading Stewart Brand and Christopher Alexander (again!); raked as a result of the painful debates on Net Neutrality.
And the phrase “Smart companies try to commoditise their products’ complements” kept coming back to me. I’m getting older now, and it took me a few days to remember where I first came across it. And no, I didn’t feel like googling it, I wanted to remember all by myself :-)
And I began to wonder.
Smart companies have products with associated complements. As long as they can drive the cost of the complements down, they can raise the price of their products. But to do this, they must ensure that the complements remain complements.
They have power only so long as complements are With. When complements become Because Of, they are no longer complements, and the power erodes. This is scary for “content owners” and for their complements, the owners of distribution mechanisms. Which may explain the behaviour of studios and publishers and telcos and cablecos.
For many years they were comfortable with the prices of their complements dropping as a result of Moore and Metcalfe and Gilder. It helped them sustain profitable prices and margins for their products. But they needed the complements to remain With.
What they didn’t realise is what happens when the cost of the complements starts tending towards zero, when the commoditisation is so vast that With becomes Because Of.
Then people find out that the Emperor has No Clothes.