It is said the only things certain in life are death and taxes. For those of us in the IT industry, we can add one more to the list: commoditization.

A recent article by Nicholas G. Carr in the May 2003 edition of the Harvard Business Review entitled “IT Doesn’t Matter” illustrates the commoditization trend better than anything else I have read in recent memory (a reprint is available from Amazon.com here).

In the article, Carr argues that, like other infrastructural technologies that reshaped the business world (e.g., the railroad and electricity), IT has become a commodity by virtue of its sheer ubiquity. It was destined to become a commodity from the very beginning, because like other infrastructural technologies, IT “offers far more value when shared than when used in isolation.”

According to Carr, because IT is now accessible and affordable to all, it no longer offers a competitive advantage—in other words, it has become a “[cost] of doing business that must be paid by all but [provides] distinction to none.”

The article is a fascinating read in its own right, but where I get especially interested is the sidebar on what commoditization means to technology vendors. In the sidebar, Carr says:

… the picture may not be as bleak as it seems for vendors, at least those with the foresight and skill to adapt to the new environment. The importance of infrastructural technologies to the day-to-day operations of business means that they continue to absorb large amounts of corporate cash long after they have become commodities—indefinitely, in many cases. Virtually all companies today continue to spend heavily on electricity and phone service, for example, and many manufacturers continue to spend a lot on rail transport. Moreover, the standardized nature of infrastructural technologies often leads to the establishment of lucrative monopolies and oligopolies.

Earlier in the article, Carr talks about the disruptive effect of infrastructural technologies:

… infrastructural technologies often lead to broader market changes. Here, too, a company that sees what’s coming can gain a step on myopic rivals. In the mid-1800s, when America started to lay down rail lines in earnest, it was already possible to transport goods over long distances—hundreds of steamships plied the country’s rivers. Businessmen probably assumed that rail transport would essentially follow the steamship model, with some incremental enhancements. In fact, the greater speed, capacity, and reach of the railroads fundamentally changed the structure of American industry.

Combined, these two observations provide further evidence that commoditization is a primary driver of the Innovator’s Dilemma; for entrant firms, however, commoditization is not a dilemma but an opening. Established firms are reluctant to accept that the markets they compete in are changing underneath them, because by definition, doing so implies rethinking the very business models that established them in the first place (not to mention putting the fat profit margins at risk). For a recent example of this reluctance, one need look no further than Sun Microsystems.

The key thing technologists need to think about is innovating in their business models as much as (if not more than) innovating in their technology. Of course, it’s a natural trap for the technologist to think about technology alone, but technology is but a small part of the technology business. Look for your competition’s Achilles’ Heel, which more often than not is an outdated business model in a changing world, not technology. To attack your competition with technology alone is to charge the giants head on, and this approach is doomed to failure the vast majority of the time.