A friend of mine runs a company that provides remote back-up and recovery. A very nice little company that makes money and provides a valuable service to its customers.
About a year ago they piloted their technology at my university. The results were great. They quoted us a price of around $14 per month per user for automatic, almost limitless back-up with guaranteed recovery of any file within hours. Good stuff. But just last month the university signed a deal with a competitor for around $2 per month per user for pretty much the same services.
In one short year the price had fallen from $14 to $2! How is that possible? Will the $2 vendor make money on the deal? Yes. How is that possible? Well, just like so many other things in our business, remote back-up and recovery simply got commoditized.
Here’s a better story. In 1999 I worked with a company that built Web sites for Fortune 500 clients. Actually, in those days companies that built Web sites were often referred to as “agencies,” since they liked to combine eBusiness marketing strategy with Web site development.
Many of these engagements resulted in the exchange of millions of dollars for hundred-page Web sites – and a marketing strategy, of course. Today anyone can hire some freelancers to build a hundred-page Web site for well under $10K.
Even better, one can post an RFP on the Web and receive bids for a site’s development from all parts of the world. I bet you could get the same hundred-page site for less than $3K through this bidding and negotiating process. (I’m confident because a friend of mine just did it with some Eastern European Web developers.)
The Big Challenge
What else is getting commoditized? PCs and servers have already become commodities. So have a variety of services, like desktop and laptop support, legacy system maintenance, and even data center management.
What’s next? Ah, this is the challenge – predicting the next wave of commoditization (especially as you’re negotiating for the services as though they were still specialized).
What do you think? Here are five things that may or may not be true in a year or two (or three). You be the judge.
What do you think? What else will become commoditized?
Just don’t sign any long-term deals for hardware, software or services that might just turn into grain, soy, livestock or heavy metal.