The paradox of commodities
Greenstein, S.
Micro, IEEE
Volume 24, Issue 2, Mar-Apr 2004 Page(s): 73 - 75
Digital Object Identifier 10.1109/MM.2004.1289293
Summary: A commodity is available from many vendors without distinction. Simply stated, a commodity is not a high-margin product. Pricing at multiples above unit cost requires something special - valued brand, frontier features, unique service, or lightening-fast distribution. In the beginning, computers were not commodities. During its heyday, IBM had the most storied distribution and servicing network in the world. IBM's engineering was pretty good, too. The combination of advanced technology and tailored service was extremely potent. IBM dominated the market. It was able to charge prices at multiple levels above a machine's unit cost. Computing has come a long way since then. Today, very few firms can garner high margins on their products. This fact fosters a myth that all high-tech product markets eventually evolve into commodities. There are four positive and three negative strategies firms use to fight commodification. It is simply wrong to argue that firms cannot make money in a commodity technology market. Yet, that leads to the central paradox of commodity markets: Starving off commodification requires investing in something special.
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