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Want to Piss Off a CEO?

By Nicholas G. Carr

Wired, Issue 12.05 - May 2004

The reaction was swift and hot. Microsoft CEO Steve Ballmer dismissed my argument as "hogwash," HP CEO Carly Fiorina said I was "dead wrong," and Intel CEO Craig Barrett seemed compelled to rebut my thesis every time he went out in public. In surveying the responses to my piece, National Public Radio reported that the industry wanted, "metaphorically at least," to burn me at the stake.

But the CEO rhetoric is just that: rhetoric. And it belies what's really going on. The way big IT companies are acting in the marketplace is actually accelerating the commoditization of their products and services. Commoditization lies at the very heart of their competitive strategies.

Look at Intel. According to The Wall Street Journal, Intel is selling its Centrino Wi-Fi chips for its cost to fabricate them. Why? For one thing, turning Wi-Fi technology into a cheap commodity is a good way to crush would-be competitors. More important, making Wi-Fi chips broadly affordable encourages people to buy laptops, and selling laptop chipsets is far more lucrative for Intel than selling desktop chipsets. It's in Intel's interest to commoditize Wi-Fi as quickly as possible.

Other companies are finding that commoditization is a great weapon to use against an archenemy. Sun Microsystems, for instance, is heavily promoting StarOffice, its inexpensive open source alternative to the ubiquitous Microsoft Office. Sun knows that if it can commoditize basic business apps, it can begin to break Redmond's stranglehold on the PC desktop. On a larger scale, IBM is also attacking Microsoft by spending billions to promote the adoption of Linux, rather than Windows, for PCs and servers.

Before you start feeling sorry for Gates & Co., remember that they are the masters of the commoditize-thine-enemy's-product strategy. By giving away Explorer, Microsoft destroyed potential rival Netscape. It's been trying to do the same to RealNetworks by bundling Windows Media Player with its operating system. Its next target is Google.

The same thing's happening on the enterprise side. SAP is aggressively promoting the open source database MySQL as a way to break Oracle's franchise. Sun is talking up Salesforce.com's customer relationship management software as a cheap substitute for Siebel's dominant CRM suite. And Dell has built its entire business around the commoditization of computer hardware.

There's nothing strange about what's going on here. It's typical when industries mature and buyers start focusing on prices rather than features. Unable to distinguish their goods, vendors begin to compete ruthlessly for market share, often by trying to undermine the distinctiveness and

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ance of rivals' products.

But because every company is some other company's rival, this kind of infighting just adds fuel to the general commoditization fire. It's great for buyers - the intense competition slashes prices and increases choices - but not great for those sellers who fail to win the war.

The IT industry is looking more and more like a traditional, mature manufacturing business. Plagued by undifferentiated products, global overcapacity, and falling prices, hardware and software companies are consolidating, shifting production offshore, and making money on maintenance and other fee-based services. They're competing on cost rather than innovation and features.

In public, industry CEOs may continue to exercise their Peter Pan complexes, pretending that the IT business will never grow up. But behind the scenes they're dismantling Neverland piece by piece.

Nicholas G. Carr (ncarr@mac.com) wrote the book Does IT Matter? Information Technology and the Corrosion of Competitive Advantage.