Commoditization And Innovation – IT Does Matter
from the understanding-economics dept
Last year there was a long and loud discussion all around the tech industry concerning Nicholas Carr and his assertion that IT doesn’t matter any more, since it’s become a commodity. Now, knowing that controversy sells books, he’s gone on to write a full length book, Does IT Matter? Information Technology and the Corrosion of Competitive Advantage. Professor Hal Varian, in the NY Times has responded brilliantly to the arguments Carr makes. Carr’s assertion (often misunderstood) is that IT is becoming a commodity, and as such, offers no sustainable competitive advantage to companies. Basically, the argument is that everyone can easily have the same IT setup, so it should be looked on in the same way as electricity: a necessary component, but one that gives no particular advantage. Varian makes the point that we’ve discussed here in the past: commoditization, by itself, does not mean the end of innovation or the end of business opportunities. In fact, it can be the exact opposite. Commoditized products are inputs into innovation. The fact that they are commoditized actually means it’s easier and cheaper to use them innovatively to gain a competitive advantage. In other words, it’s about taking advantage of the fact that they are commoditized and realizing that they’re now resources and not end products themselves. The same argument, by the way, could be used in the entertainment industry – but that’s a story for another post. Still, I think the real stumbling block with Carr is his insistence on “sustainable competitive advantage.” Let’s face it, sustainable competitive advantage is a myth. There is nothing any company can do that can’t be copied eventually (or leapfrogged). Competitive advantage is always fleeting. What a good company recognizes, however, is that the way you build the idea of a sustainable competitive advantage is by constantly innovating, so that your fleeting competitive advantages add up to a sustainable one. One way to do that is to recognize commodities for what they are: opportunities for new innovation, and not something to be pushed aside as useless.