
Laws of Tech Economics: Commoditize Your Complement - gwern
https://www.gwern.net/Complement#2
======
RcouF1uZ4gsC
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.

~~~
HillaryBriss
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.

------
strong_silent_t
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](https://imgur.com/a/2yU6OpA)

~~~
davidw
I would also highly recommend the same book.

"Technology changes, economic laws do not"

[https://amzn.to/2I9NTzp](https://amzn.to/2I9NTzp)

Among other things, Hal Varian went on to work at Google as an economist.

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aaavl2821
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

~~~
HillaryBriss
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](https://en.wikipedia.org/wiki/Certificate_of_need)

~~~
aaavl2821
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

------
peterarmstrong
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...)

~~~
sah2ed
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...](https://en.wikipedia.org/wiki/Netscape#History_of_the_Netscape_Communications_Corporation)

[1] [https://www.cnet.com/news/netscape-cuts-prices-on-retail-
pro...](https://www.cnet.com/news/netscape-cuts-prices-on-retail-products/)

------
chubot
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...](https://searchengineland.com/google-buys-video-
infrastructure-company-on2-23628)

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?

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imhoguy
I wonder is this even possible in small scale. Does anybody have some
intresting examples of startups or even side-projects "commoditizing their
complement"?

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aaavl2821
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

------
ryanackley
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

------
fhrow4484
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)

~~~
chubot
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".

------
sah2ed
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...](https://en.wikipedia.org/wiki/Porter%27s_five_forces_analysis#Criticisms)

------
hemantv
I guess same with Amazon they are trying to make brands commodity so that they
can extract maximum value out of their supply chain.

~~~
jonwachob91
I'd argue that Amazon commoditized shipping... That's really where they made
their name and entrenched their brand recognition.

~~~
gowld
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.

------
ksec
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."

------
saosebastiao
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.

~~~
emiliobumachar
Okay, what's the name of the old concept that's the same as "Commoditize Your
Complement"? The textbook chapter title, if you will?

~~~
saosebastiao
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".

~~~
scarface74
That's not the same thing. The razor and blades model is where you are both
selling the razor at below market prices and the blades at a markup.

"Commoditing your complements" is about you making the razor blades
interchangeable where multiple manufacturers are competing to sell razor
blades at low margins while you make all of the money selling razors.

Apple commoditized apps and the operating system by giving them away for free,
as did Google. Microsoft commoditized PC manufacturers, etc.

~~~
saosebastiao
> "Commoditing your complements" is about you making the razor blades
> interchangeable where multiple manufacturers are competing to sell razor
> blades at low margins while you make all of the money selling razors.

No, it would be the opposite. The product always was the blades...they were
never an accessory to the handle. They entered the market because before
disposable razor blades, people had to sharpen and maintain their own razor
blades. They designed a razor handle merely as an instrument to hold a pre-
sharpened disposable razor blade. The only value-added product they ever had
was blades, they never gave a rip about the handle.

And if your product is the blades, then in the "commoditize your compliment"
variation you would make the blades, and you outsource or open source the
razor handles and encourage competition between razor handle makers. Much like
how Ford sells cars, but they give blueprints and design specs to multiple
parts manufacturers to ensure that parts are available for all the cars they
sell.

> Apple commoditized apps and the operating system by giving them away for
> free, as did Google. Microsoft commoditized PC manufacturers, etc.

Giving things away for free isn't commoditizing the compliment, that's merely
a loss leader strategy. Getting third parties to develop apps and and give
them away for free or extremely low prices would be the example you're looking
for.

~~~
scarface74
_They designed a razor handle merely as an instrument to hold a pre-sharpened
disposable razor blade. The only value-added product they ever had was blades,
they never gave a rip about the handle._

While I was researching before I replied, I found out the whole razer razer
blade analogy was an urban myth. In fact, both the razors and the blades were
expensive at first until the patents expired and
([https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1676444](https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1676444)).

But after thinking about the rest, you're right.

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hi41
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.

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shmerl
_> 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.

------
jackconnor
Joel Spolsky continues his streak as most-influential tech writer of all time.
Great article.

------
javajosh
Can it be used to explain why Google discontinued certain products, especially
Reader?

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hinkley
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.

~~~
ajross
> 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.

------
ucaetano
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.

~~~
stcredzero
_\- 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.

~~~
ucaetano
> 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.

~~~
stcredzero
_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._

What if the ad were not in the picture at all, and you had low friction
micropayments? There are YouTube channels which eschew advertisements and get
most of their money from Patreon instead. There are other channels that have
been demonetized against their will and have gone this route as well. It's
workable, and yet, Patreon is far from the lowest friction it could achieve.

If there was some party able to make micropayments work, and able to make them
not ever work, it would be Google.

~~~
ucaetano
> What if the ad were not in the picture at all, and you had low friction
> micropayments?

Again, people don't want to pay for content. Between one website asking you to
pay $0.10 to view an article, and another offering it for free but showing
ads, people will pick the free one.

And Google has been trying:
[https://www.theguardian.com/technology/2014/nov/21/google-
co...](https://www.theguardian.com/technology/2014/nov/21/google-contributor-
pay-remove-ads)

But it is really hard to convince people to pay, when they can get it for
free.

~~~
stale2002
You wouldn't pay 10 cents though. You'd pay 1 one thousandth of a cent.

I could absolutely image people being willing to pay 1 one thousandth of a
cent to read an article.

~~~
ucaetano
> I could absolutely image people being willing to pay 1 one thousandth of a
> cent to read an article.

Oh, no, way more than that. Take a look at CPMs and ad costs. If your claim
was true, and an article had 5 ads, every impression would cost 1/20,000 of a
cent, and the CPM would be 5 cents.

Actual CPMs are a few dollars per thousand impressions, up to 10+ in developed
markets. Which means that in the US, and article with, say, 5 ads would
probably require you to pay 5 cents to view that article.

Take a look at the articles of ad-paid publications: you're more likely to see
10+ ads per page.

~~~
stcredzero
I don't think this analysis is valid. There are far more viewer entities than
there are advertisers. In the current market, one party is trying to sell
eyeballs to advertisers through a middleman. In a micropayment content market,
it would be creators selling directly to audience. I think you're making the
same kind of mistake when early computer pioneers thought there would be no
more than hundreds of computers and no one would ever want one in their home.
I both cases, the conceit is that both markets are the same, when in reality,
the two markets are entirely different.

I'm sure you could have used the same conceit with cable TV to prove that
something like YouTube would never work.

~~~
ucaetano
> In a micropayment content market, it would be creators selling directly to
> audience.

It doesn't matter, you'd still need to generate the same level of revenue than
the ad-supported business, or even more, to justify the switch.

If you didn't, content creators would just stay in the ad-supported business.

> I'm sure you could have used the same conceit with cable TV to prove that
> something like YouTube would never work.

That doesn't apply here. We're talking about providing the same content with a
different monetization strategy. YT wasn't about the monetization strategy,
but about a different type of content.

