Software market commoditization

The software industry has a terrible habit of borrowing words from other fields and assigning them new meanings.

For example, software business leaders will talk about an "ecosystem", by which they mean: "a market in which there are a collection of different products built by different companies, each of which is distinct and can be considered independently, but all of which interact with and relate to each other."

An example of such a software "ecosystem" might be the personal fitness market, which is full of products that you can buy and use to improve your personal exercise regimen, as well as products that you can buy and use which augment or extend or enhance the behavior of the other products that you buy and use to improve your personal exercise regimen.

Of course, "ecosystem" is a real word in the biological sciences, and it means nothing like this at all.

But business people in the software industry find this word useful, for it allows them to have discussions about product strategy and such.

Another similar word is "commodity," borrowed from economics.

In economics, commodities are items for sale, such as eggs or crude oil or bars of gold or pork bellies or lumber pulp.

The idea of the economic term "commodity" is that these items are essentially indistinguishable and generic, and so by conducting markets in these commodities (such as the Chicago Board of Trade), people can efficiently arrange to negotiate the price of these items world-wide, even though in practice there are thousands or millions of individuals buying and selling individual cartons of eggs or truckloads of lumber pulp.

The price is set once, on a global market, for a generic good, and that same price is then used repeatedly and independently, in local transactions, for specific actual goods.

But when software business people talk about "commoditization," they don't really mean this. There aren't any actual software goods that behave like commodities in this way, and there aren't any global price-setting bodies like the Chicago Board of Trade that function in the software industry.

No two software products are truly inter-changeable; you can't switch your DBMS like you switch your provider of bacon.

Instead, when software business people talk about "commoditization," for example when they say "the relational database market has become commoditized," or "the enterprise application development market has become commoditized,", or "the source code management market has become commoditized," what they mean is: "purchasers in this market are no longer attracted by unique proprietary distinguishing features. Instead, they fear vendor lock-in, and are choosing to purchase simpler and less unique products, because they are protecting themselves in case they decide subsequently to switch to a different vendor."

Or, more succinctly: "we don't see how to make any money in this market; vendor X's product is good enough, and everybody is simply buying that product rather than shopping around."

So the next time you hear an MBA in a software company talk to you about "commoditization," that's what they mean.