Commoditize the Stack, Create More Value

July 2, 2010

Before the 1980′s, computer hardware manufactures controlled the computing industry; hardware was valuable and the software that ran on it was typically include for free. Given this environment, companies like IBM made all of the money because they produced the hardware and created the most value.

When IBM released the “personal computer,” in 1981, a paradigm shift occurred. PCs and their relatively open architecture would eventually lead to the commoditization of computer hardware. Once individuals and organizations could acquire general purpose computing power from many sources, software companies became the ones that added the most value. IBM and other hardware manufactures created the computing infrastructure that made the software industry possible.

This is not a new observation, but the abstract concept at play here is fascinating: Creating a cheap, and accessible infrastructure paves the way for creating significant new value.

A more recent example is the new wealth generated Internet economy in the first dot-com boom. This new market place was created by the commoditization, standardization and connectivity of software. Individuals and organizations worried less about the low level details and focus on creating new value.

The current wave of Internet companies would not be possible if a myriad of companies had not made the Internet accessible to its customers. Now – Google, Facebook, YouTube and Twitter are creating value by allowing users to create content.

Like the now traditional hardware and software industries before them, these companies are building a new infrastructure – a data infrastructure. Using open data standards and APIs, the new value is being created by pulling together data sources – maps from Google, friends from Facebook, thoughts from Twitter and locations from Foursquare.

Again, this is not new; the mashup is already a passe buzz word. However, the explosion of mobile applications utilizing the most recent commoditized technology, the smartphone platforms, helps to lower the barrier for generating content about the real world and allows people to access that content at the right moment to actually influence their behavior.

We finally reached a tipping point where there are enough accessible platforms and freely available data sources to create another new market. But this time, the ones creating the most value are going to be those companies that most effectively utilize data.

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