
Ask HN: What are the signs a piece of technology will become commoditized? - hansy
And what are some current examples?
======
finance-geek
I know it isnt a "technology" in the traditional sense of the word, but i had
a front-row view of Interest Rate Curves over the past 15 years. They went
from arcane numbers some PhDs calculated at the back of the trading floor, to
things Business Analysts started calculating, to things you could calculate
with a standard website to things that were completely transparent and
commoditized.

In 2007 when I started building an interest rate curve system for a large
asset manager, it cost us about $1.5m to get it up and running and another
$200k/yr to maintain/operate. A lot of it was about getting clean data, but
there was a lot of model tweaking/testing/maintenance as well.

In 2014 when I left the same Asset Manager, we were able to re-do the same
project from scratch with a $100k vendor product. Many quants got rich
carefully guarding the creation of "The Curve" and were upset when it became
easy to calculate w/o expensive workers. What lead to the commoditization?
Several things: 1 - Academic review - lots of papers came out about how to do
this. it wasnt patented, it was just a trade secret, but no longer... 2 - Open
source, especially QuantLib, which implemented what the papers described 3 -
Reference implementations - people outside the industry trying to break in
released many reference implementations 4 - Overseas workers - people outside
Wall St wanting to break in started doing it for free in hopes of proving
their skills 5 - Democratic forums - people on the outside shared knowledge
freely, helping unravel the internal trade secrets.

------
calcsam
In its early stages, every technology is vertically integrated, aka tightly
coupled.

If you were to buy a minicomputer or mainframe in the 1970s, or a personal
computer in the early-1980s, the same provider would make the hardware,
peripherals, OS, applications, etc.

As the technology develops, that changes -- the PC market in the 1990s turned
the hardware, peripherals into commodities. Until Apple's resurgence, it
looked like the whole market outside of the OS would be commoditized.

With smartphoness in the late-2000s, it was a very similar story: tightly-
integrated early phones, gradually maturing into more commoditized hardware,
peripherals, and applications, while retaining a premium market segment (iOS)
with tight vertical integration.

This pattern is fairly similar across industries, some good reading on the
topic:

[https://hbr.org/2009/12/vertical-integration-can-
work/](https://hbr.org/2009/12/vertical-integration-can-work/)

Clayton Christiansen, "The Innovator's Solution", Chapter 6: "How to Avoid
Commoditization"

Simon Wardley and "Wardley maps"; a good intro is here:
[http://www.slideshare.net/swardley/general-2013](http://www.slideshare.net/swardley/general-2013)

~~~
misiti3780
was The Innovator's Solution a good book ?

~~~
calcsam
That chapter, and the two immediately preceding and following, were excellent.
The rest was all right.

------
0xcde4c3db
I'd think that the biggest sign (though arguably a sign that a technology has
_already become_ commoditized) is when you see a leading vendor explicitly
announcing/advertising a price cut. At that point, the story they're telling
is concretely shifting away from the narrative of "our technology is uniquely
suited to your needs" and toward "we can give you more widgets per dollar than
the other guy".

Example: GoPro. They recently announced a substantial price cut, and their
stock took a pretty big hit in the wake of that announcement.

~~~
enraged_camel
Absolutely. And once the leading vendor cuts the price, it becomes a race to
the bottom.

------
sekasi
I don't mean this quite in the 'derogatory' way it's going to sound like, but
offshoring is a serious sign of trouble when it comes to commoditization.

If what you're doing as a business can be done for a fifth of the cost in the
Philippines, India, etc, then you have a serious clock on your business model
before the 'quality, quality, quality!!' argument runs out.

Seen it with a few things now. The biggest flaw that businesses do in this
situation is believe in that the quality of the product will continue to
outweigh the cost difference. It won't. ;/

By the way, I'm not saying there's inherently something wrong with the quality
of work from those nations, I'm speaking strictly about offshore 'hubs' that
are set up to purely be a cost-saving. Those type of hubs have a hugely
different mentality when it comes to production in my experience.

~~~
mruniverse
_" The biggest flaw that businesses do in this situation is believe in that
the quality of the product will continue to outweigh the cost difference. It
won't. ;/"_

Do you count the loss in sales as cost? Or time to rework something? Sometimes
it's hard to figure out if there's going to be a correlation before you do it.

About 10 years ago, we tried to do most of our work offshore. Company said
they could hire 5 engineers for the price of one here in the states. We
started looking overpaid and I'm sure the managers thought we were. It didn't
last long. We still offshore, but it's much more strategic.

~~~
sekasi
Sounds like a very familiar story to ours.

Point being, commoditization is not a binary. It's not on or off, there's
varying degrees of just how bad it is. At some point during that scale, the
quality argument tends to fall down a little bit and I've seen it happen a few
times.

Interesting to hear you still offshore though, despite obvious troubles.

~~~
mruniverse
We had offshoring before. But the push 10 years ago was to do the bulk of work
offshore. Like to have the lead here working with 5 developers there.

I can still see it working though. 5 to 1 is hard to ignore (although I think
it's like 3 to 1 now). It comes down to implementation. Like everything else.

------
sanchitbareja
Every technology will become commoditized sooner or later eventually.

But here are some signs to tell when a technology goes from an innovation to a
commodity

1) An increase in competitors is a sure sign of commoditization.

Increase in competitors -> price war mostly -> existing core technology
becomes commoditized as players start to differentiate with value-added
services/products.

2) A new technology emerges that's 10x better on some dimension but still out
of reach and a few years out of most customers' hands. It forces existing
market for the technology to demand lower and lower prices for old tech ->
commoditization of that tech as original innovator no longer might find it
worth it to pursue that product.

3) Regulation could some time force commoditization. Often seen in
healthcare/drugs production.

I'm sure there are others. The common vain is that there's a rapid increase in
competition.

------
ju-st
\- When there is a bunch of people on the internet discussing it.

\- When you can buy the components on Alibaba for a fraction of the publicy
known price

Example: electric powertrain for cars. You could convert your car in a pure
electric one for less than 4000USD by buying the motor & controller on the
internet. And 22kWh worth of batteries (18650) for less than 6000USD. Very
interesting stuff!

~~~
brobinson
>for less than 4000USD

I'm assuming this isn't including paid labor and you're doing the
engine/tranny swap yourself? Do you have any links to people doing this?

~~~
j1e
Here's my favorite:

[https://endless-sphere.com/](https://endless-sphere.com/)

~~~
brobinson
Thanks!

------
rgbrenner
Doesn't all technology eventually become commoditized? At the latest, after
the patents expire.

I think every piece of tech ever invented is either commoditized or is on a
path to become so.

I think it would be more productive to see if anyone can name a tech that
isn't commoditized and isn't likely to in the future.

~~~
sokoloff
Nuclear power. Most things military. Many things aerospace.

~~~
bediger4000
You could make an argument that those things aren't bought and sold in a free
market. Passenger planes and general aviation planes are at least semi-
commoditized, but fighters, bombers, spy planes, missiles are all built for
basically one buyer, the US DoD. The DoD decides which firms succeed and which
fail, essentially. The "market" for nuclear power plants is so regulated as to
prevent it from being "free" except to someone whose job depends on that
market being "free".

~~~
jsprogrammer
Considering the huge risk someone would be putting many others in by
attempting to construct and run a fission facility, I'm not sure anyone should
be "free" to do so.

~~~
CamperBob2
But a coal plant spewing radioactive by-products into the air is perfectly
kosher, amirite?

~~~
jsprogrammer
No, I believe you are wrong.

~~~
CamperBob2
Good, because it sure sounds wrong to me. Otherwise, I'd have to believe that
radioactive pollution is only a problem when it looks bad on CNN.

------
Nomentatus
It's easier to answer in reverse: businesses escape fierce competition (the
normal state in a competitive marketplace) if they have -

1)Trade secrets, such as aluminum casting (if I recall correctly) for Musk and
SpaceX, and Intel's tempering of memory chips in the early days.

2)Patents - when others can reverse engineer what you've done, you don't have
the option of 1). Copyrights, somewhat similar and can be a part of tech
products in the US (code, etc.)

3)Network effect/high cost of entry. (Most likely when monopoly and
competition laws are poorly enforced, as is often true in new fields.) But
disruption is a possibility.

4)Law/corruption. More common than thought. The EU thinks the US is simply
ignoring antitrust laws re its large companies such as Google (anything free
can count as bundling), for example. Interoperability isn't even on Facebook's
radar. This can take a fairly soft form EU laws forbid wines from outside a
given region being called by the famous name (such as "Champagne") and may
soon forbid overseas data storage or passage too. Security laws in China, re
tech products, will likely restrict foreign competition there in the long run.
Amazon is being allowed to in effect enforce ebook prices of at least $3 with
no action from the justice department, leveraging that policy to gain
exclusive access to large numbers of books (if they want any free days.)
Strictly illegal, but it's just not in the US interest to go after their own
Hegemonic corporations. So ebook distribution, the most obvious of commodity
services... turns out not to be a commodity at all, somehow given Justice
department inaction.

There are other temporary causes, such as a shortage of workers with
particular knowledge or skills (coders just now.) Well, here's hoping that's
temporary.

Refusing to participate in a race to the bottom (in quality say, and taking a
hit for a while) can also leave a company without obvious competition for a
time.

I've left out cornered markets on minerals, not too likely at the moment.

One could also add patent pooling, which US automotive companies used both to
save on research and raise the cost of entry, in the short run in order to
create an oligopoly.

~~~
hantusk
Peter Thiel also has a good description of how to differentiate (avoid
competition), through either: 1\. Proprietary technology 2\. Network effects
3\. Economies of scale 4\. Branding You can read the relevant chapters from
the book 'Zero to One' on genius.com: [http://genius.com/Chapter-3-5-of-zero-
to-one-peter-thiel-ann...](http://genius.com/Chapter-3-5-of-zero-to-one-peter-
thiel-annotated)

------
kaa2102
Many products/techologies follow the S-curve. Slow start, exponential growth,
plateau (mature product, 3-5% growth per year) - and then slow death. From my
perspective, we have a broad set of capabilities. Let's take transportation.
There are performance attributes like time, speed, work, power, mechanical
efficiency, etc. The wheel was a technology that was surpassed by the horse
and buggy and then eventually the automobile. The capability is needed but the
technology or family of products eventually becomes obsolete.

Commodity products are on the plateau. The technology has been proven and
there is broad market acceptance. The unit cost has been brought down
substantially from the point of market entry. Tesla's electric vehicles are
pushing in this direction but it will still take some time.

------
DonPellegrino
When open source implementations, reference guides/manuals and public internet
forums (in that order from biggest to smallest sign) start being ubiquitous.

------
seibelj
Mobile Device Management (MDM). Blackberry got the ball rolling in the early
2000's, but it was the release of iPhone and Android that got vendors rich.

Apple and Google created API's and enrollment processes to manage devices
(device lock, wipe, etc.). Companies created software to consume those API's,
the biggest being AirWatch, Mobile Iron, and MaaS360. AirWatch was acquired by
VMware for $1.5billion in 2014 and Mobile Iron went public, rising 22% in the
first day of trading. MaaS360 was acquired by IBM for several hundred million.

At first, license fees were high, competition wasn't too fierce, and the
market was booming.

Then many more low-cost players moved in. Open source MDM software appeared.
One company (Miradore) gives MDM away for free to hook customers on IT
management fees and various other upsells. Mobile Iron stock is down 70% for
the year.

I was listening to an NPR podcast this morning and heard an advertisement for
a product named Bushel doing Apple MDM. I think the definition of commoditized
tech is when you hear companies advertising on NPR.

My take on the situation is that it's risky to build a core business merely
consuming other company's API's. Doing analysis and more advanced things,
sure. But simply executing an API command is not special. The MDM list of
features is completely controlled by Apple and Android manufacturers, and
anytime they release a new feature, every MDM player instantly gets access to
it. The only differentiation between products becomes how effectively they use
the pre-existing API's (scaling, integration with other enterprise products,
etc.) and pricing. This obviously becomes a race-to-the-bottom on pricing,
destroying margins.

The reason I know so much about this is that I work at a company called
Apperian, focusing on Mobile Application Management (MAM). We use to compete
with the MDM guys, but it's a completely different game now. All of our core
technology is unique, most of it is patented / patent pending, and we solve
problems that the MDM API's cannot. We dominate the MAM industry, although
niche and much smaller than the MDM sector, is growing very quickly. It would
be extremely difficult and costly for a company to implement what we do, in
contrast to the MDM guys.

It's been very interesting to watch the rise and fall of big players, as our
sales keep booming. I will keep watching the drama unfold.

~~~
i336_
I had to Google MAM to clarify what it meant, and then I realized _this_ was
what I was wondering about the other day, puzzling over how BYOD isn't a
massive security nightmare.

I must admit, I'm very fascinated with application management would actually
be executed, from an academic / computer science angle.

I can also completely understand patenting from a business perspective, but
I'm also curious as to what things have actually been (publicly) patented.

How is MAM different from MDM?

~~~
seibelj
MDM uses operating system level API's provided by the vendors (Apple, Google).
These require the device to be enrolled with management software (Airwatch,
Mobile Iron, etc.).

MAM vendors like Apperian use various other techniques to manage the
applications and their data only. The device is completely irrelevant, because
we only care about the app. We do this through clever use of API's and a
technology called 'App Wrapping'. This takes the mobile app, decompiles it
into machine code, and very carefully injects new security features directly
into the decompiled app. This allows adding security features like data at
rest, analytics, etc. without needing any OS level API's.
[https://www.apperian.com/mam-blog/app-wrapping-lets-get-
tech...](https://www.apperian.com/mam-blog/app-wrapping-lets-get-technical/)

~~~
i336_
Wow, thanks for the reply! :)

> decompiles it into machine code

...this was the part my eyes started getting big...

> very carefully injects new security features directly into the decompiled
> app

...and _this_ was the part I had a small jawdrop moment. :P

> This allows adding security features like data at rest, analytics, etc.

_Wow_. I think I suddenly get the rationale behind patenting.

Hah.

* Reads link *

> Mobile app wrapping is able to provide the same level of security as device
> management and even takes it a level deeper by securing the app itself and
> inspecting that app to know what it is doing _and if it contains any
> malware._

(Italics at the end mine)

After an admittedly short look around, I've concluded that you seem to be
focusing entirely on enterprise-controlled system-/app lockdown.

To me, the technical accomplishments you've achieved to make this possible
provides a massive opportunity just waiting to be fulfilled: a new, unique
approach to mobile antivirus. It wouldn't be for everyone, but I can totally
say that I'd use it, and a lot of technically-oriented "tinkerers" would
probably love some of the introspection and analytics your system provides, in
an antivirus context. :D

I suspect most of your existing tech could translate across really easily -
and that the effort you make to make antivirus better will also translate
across into even better lockdown heuristics.

Granted, I don't fully understand the platform, so I might've missed a point
somewhere, but I still think this is pretty amazing tech. Thanks for the info!
:D

~~~
seibelj
Are you looking for a job? We are hiring now for solid engineers.
seibeljames@gmail.com or jseibel@apperian.com. We are doing some very
interesting tech for governments / corporations with high-security clearance
needs. I can explain much more in depth if this interests you

------
paulsutter
Volume leads to low cost and high quality. That's why Ethernet got
commoditized but fiber channel didn't. Today notable examples are in solar
power and batteries, but also think sparc vs x86 vs arm (mobile volumes much
higher than desktop/server)

------
jordanchan
On the supply side: No patents, or easy/cheap to license patents. Technical
trade secrets don't remain so for very long. Large margins for one or a few
suppliers/manufacturers.

This is basically what is happening with the smartphone business. First Apple
started it. Then there were a few players like LG, Samsung, HTC, etc. Now
everything and their uncle is starting a smartphone company. Companies like
Lenovo, video con, not to mention the Asian upstarts from China and India
which are definitely late entrants to the market.

On the demand side: Steadily increasing users: Early adopters not abandoning
the product, but continuing to use it. Increasing numbers of early adopters in
various social circles.

------
dunkelheit
I guess opensourcing is the sign. See what Joel has to say on this:
[http://www.joelonsoftware.com/articles/StrategyLetterV.html](http://www.joelonsoftware.com/articles/StrategyLetterV.html)

------
brandonmenc
"Commoditized" meaning "sold as a product?"

If you can produce more than one and sell it at a price people are willing to
pay, it will be commoditized - right?

Particle colliders probably won't be commoditized; spacecraft will.

~~~
T-A
It usually means a product which can be bought from multiple providers, all
largely equivalent in terms of features, and therefore primarily competing on
price:

[https://en.wikipedia.org/wiki/Commoditization](https://en.wikipedia.org/wiki/Commoditization)

Crude oil and oil paintings signed by Pablo Picasso have both been known to be
sold for money, but only one of them is a commodity.

------
wpietri
If a technology is useful, I think it's guaranteed that it will eventually
become commoditized. But as to the process, check out Simon Wardley's work,
including Wardley Maps:

[http://blog.gardeviance.org/2015/02/an-introduction-to-
wardl...](http://blog.gardeviance.org/2015/02/an-introduction-to-wardley-
value-chain.html)

------
eb0la
When you see people telling in public about talent sortage in the XXXXX
field/sector/technology - you can bet this is about to be commoditized.

Why? because the ones that send that message need/want as much cheap labor on
that field as possible, and that's the way they can get a lot of people moving
on that field.

------
Chefkoochooloo
If the new technology can help an emerging industry/market to make things
cheaper, easier, or with higher performance then the technology will become
commoditized to be adopted in large scale. The time it takes to be
commodotized depends on competition, and stage of industry life cycle.

------
ranty
The only reason everything doesn't end up commoditised is because they're
protected in some way. Like, Facebook having all the people, or patents. If
not, it's a race to the bottom every time.

------
rch
You should reverse the question and look for barriers to entry.

------
mobinni
I'm no marketeer, but off the top of my head:

\- Branding \- Word of mouth \- Market value

It's tough to become commoditized in this market tho'

------
anjc
It seems like people are assuming that all products are commoditisable from a
market point of view, and from an industry point of view, which isn't true.

E.g. Just because watches are commoditisable from an industry point of view,
in the sense that they can be manufactured en-masse for next to nothing, the
buying behaviour by consumers for watches indicates that they can not be
commoditised, because brand equity is a factor in purchasing, features of the
watch are a factor for purchasing, etc, and therefore product differentiation
stops them being a commodity.

On the other side, just because consumers would accept commoditised, mass
produced, cutting edge CPUs, does not mean that industry can provide this. The
barriers to entry for this industry prevent them from being commoditised (R&D
costs, human resources, capital costs and so on)

So to look at what technologies may soon become commoditised, you need to
analyse current and future demand, and current and future supply. You'd also
need to analyse both the markets for the product, and industry groupings
within the supply chain for that product. Some simple analyses might give you
an idea, e.g. a proper Porters Forces analysis, consumer indices, technology
trends, etc.

An interesting current example for me are 3d printers. Because the barrier to
entry for designing and creating and selling a rudimentary 3d printer is so
small, it has the potential to be commoditised. But from a marketing point of
view, it probably can't, because it's a new technology and so brand
differentiation might affect buying behaviour. From a consumer perspective,
not enough people want or care about 3d printers, so in turn, suppliers wont
churn them out. From an industrial point of view, it would be hard to create
barriers to entry for new entrants to the market because it's not complicated
to create a rudimentary one, so it's probably not a profitable venture for
incumbents, and so on.

Another example would be the resurgence of VR. That's an interesting one
because you can witness companies doing their best to create barriers to entry
for new competitors, to avoid it being a more commoditised product, despite
also being easy to create a rudimentary version (emphasis on 'rudimentary'!)

From a marketing fundamentals point of view though, commoditised products tend
to be ones that are cheap to make, are consumed in some manner, and which
consumers don't have a brand preference for, therefore buying the cheapest
product available. E.g. screws, staples, but not, say, certain breakfast
cereals (because people exhibit preferences for different brands of cereal and
don't just buy the cheapest possible). Most new technologies can't fall within
these parameters.

------
Gustomaximus
When people start mass advertising to do it outsourced.

------
comboy
payment processors

~~~
noir_lord
To some extent.

You can write a nice layer over the top but fundamentally underneath payment
processors are controlled via Visa and Mastercard.

That's one of the reason payment processors are so damn careful to descend
like the wrath of an angry god when someone does/sells something Visa or
Mastercard wouldn't like.

~~~
comboy
Exactly. But now we have Bitcoin. There's non-zero probability that banks will
switch to it under the hood[0] and there's especially high incentive for small
ones that want to do international transfers[1]. Once we have common protocol,
you can use whatever payment processor you want, and unlike now, you can
create one in your garage.

It's not hard to see that I'm biased towards Bitcoin, but even assuming it
doesn't exist, sooner or later banking system as we know it today must change
(dramatically). I would assume this will make companies like Visa and
Mastercard much less relevant.

[0] - [http://www.coindesk.com/bank-of-america-cryptocurrency-
wire-...](http://www.coindesk.com/bank-of-america-cryptocurrency-wire-
transfer-patent/)

[1] -
[https://www.reddit.com/r/Bitcoin/comments/3ncat3/why_bitcoin...](https://www.reddit.com/r/Bitcoin/comments/3ncat3/why_bitcoin_will_inevitably_be_the_backbone_of/)

