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Survive Commoditization

06/23/05 | by JAdP | Categories: General Thoughts

Over the centuries, high profile, highly sought after, highly priced products become commodities. Spices may be the first example. Salt and black pepper were once rare and expensive items; now, they are commodities throughout much of the world. More recently we have seen the same process happen to photocopiers and telecommunications equipment. It's happening with computer hardware, and it looks as though software will follow.

How do companies survive commoditization of their industry?

I've always liked the restaurant analogy; though I don't know where I first heard it. A restaurant faced with declining business can do one of two things.

  • They can reduce costs, lower prices and hope to make up the profits through quantity. This usually means lower quality or less exotic ingredients, and less experienced staff.
  • They can increase the "top line" by increasing service and actually raising prices. Go after the high end market.

Consider the telecommunications industry. During the Internet Bubble years, the PBXs, switching equipment and networking gear were fast becoming commodities. Margins were shrinking to less than 10%. VAR sale personnel were accustomed to giving away system engineering and design services, but the margins were no longer there to cover such benefits. The largest deals generally lost money because of the "freebies" that were traditionally thrown in. The only way to get around this was to add services. Outsourcing of Move/Add/Changes was the traditional service offered. But innovation in developing "high end" products and services that truly changed the nature of the business was needed. Most large companies can't accomplish this, and consolidation is the result. Either in one large company acquiring other large companies, or larger companies hoping to make up for their lack of innovation by acquiring small and start-up firms. Sometimes this works, sometimes not. The process takes years.

We're still waiting to see what companies survive and what innovation will bring.

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I'm Joseph A. di Paolantonio and this blog has two main foci: my interest in food, and my interest in the future. This provides a look into my personal life, and is separate from my consulting work…though there will be overlap. I am an independent researcher, working as a strategic consultant and I'm an executive with over 20 years of commercial experience with a technical interest in the intersection of Internet of Things, with advanced data management and analysis methods. I view data science as a team activity, and I feel that the IoT must be viewed as a system. I am leveraging my past activities to understand the adoption and impact of the IoT; first, as a system engineer in aerospace, where I developed Bayesian risk assessment methods for systems within the Space Transportation System (including the Space Shuttle), Extreme Ultraviolet Explorer, Gravity Probe B, and many more, and second, as a enterprise data warehousing, business intelligence and analytics professional. Between my aerospace and IT careers, I indulged my hobby of cooking by starting a food company, Montara Magic, centered around my chocolate sauces. My education combined chemistry, mathematics and philosophy. I performed research into molten salt fuel cells in graduate school, and in photovoltaic materials for a short time in industry. The lure of bringing the human race into space was strong, and when I was offered the chance to combine my chemistry and mathematics skills to develop new risk assessment and system engineering methods for space launch and propulsion systems – I couldn't resist. I perform independent research and strategic consulting to bring value from the Internet of Things, Sensor Analytics Ecosystems and data science teams.I am a caregiver, a lover of science fiction and speculative fantasy, and my passion to learn has led me to a pilot's license, an assistant instructor in SCUBA, nordic and alpine skiing, sea kayaking, and reading everything I can, in as many topics as I can.

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