Commoditization

The commoditization of technology. I can only assume that businesses have figured out most of what this post contains already but I made some scribbles and now I'm going to put this down so I can get it off my plate. Research and development, as its name implies, is about the creation new products and techniques. The only way to get a return on research and development spending is to create products with sufficient market capacity that money can be made while the product is still unique and cutting edge. Of course, the level of market capacity varies by product, but it tends to be fairly sizable when it comes to consumer electronics. That said, the fact that a product is unique and cutting edge is hardly a reason in of itself for ideal consumers to purchase an item.

Businesses where technological tools can help increase the productivity of their manufacturing operations and/or employees can benefit from spending on new technology. Sure, prices will drop later, but money can be saved now, so it makes sense to get BlackBerrys or some such product for employees. Individuals rarely encounter that same benefit from the purchase of a product. We don't save money by having the latest MP3 player now, but we buy them anyway even knowing prices will fall later.

When it comes to being some early adopter, people pay a premium for the status of being the first to have something. Consumer electronic R&D spending doesn't make sense in an ideal world. The commoditization of products all but guarantees that in a year generic products performing nearly identical functions will come out and be much cheaper than the first product that hits the market. This, that window of uniqueness is the best time for companies to make money with their new products. (Yes, word of mouth and reputation will help carry it later. In fact, those things are probably the major reasons why a product doesn't see it's prices slashed when imitators hit the market.) But we as consumers know the price will fall and that generics will come, but we buy anyway so we're not ideal consumers. However the benefit of that is that it does give companies an incentive to produce new products and keep the process rolling.

I wonder if commoditization will happen to information. While major search players dominate the market now, will generic brand search companies be able to nearly mimic the results of a company like Google in the future? I suppose that possibility is one of the drivers of Google's push into so many other aspects of the internet services world and its creation of new and enhancement of existing ones. Part of that explores new markets, but part of it does what consumer electronic manufacturers have learned from manufacturers and retailers before them. And that is how to use brand loyalty, familiarity, and convenience to keep customers coming back for more. If a company can be a single stop place for all manner of services then it becomes so much more convenient for someone to go there for everything. Witness Wal-Mart super-centers. So will Google one day be a portal for all manner of anything one would want to do one the internet? I'm sure they'd like that very much. But I wonder if it'll happen without their now vaunted search capabilities if the ability to search and sort information becomes commoditized as well.