Notes by Om Malik from the OSBC 2004 conference where he hosted a panel on software commoditization.

What gets commoditized?

David Anderson said: Products that don’t change much and have low margins get commoditized. Such as operating systems. Palm got into this business, when they should have gone into selling applications built on their OS. As Clay Christensen says, when something gets commoditized the profits move elsewhere in the value chain.

Rob Page said: Commoditization starts at the bottom and then moves up the stack.

How to Stay ahead of the commoditization curve?

Ian Murdock said: Since every company needs a proprietary advantage of some kind, though, we’ve chosen to focus on proprietary advantage through process, not technology—in other words, how we can leverage our expertise in distribution building to help other companies assemble commodity software components from disparate places into cohesive wholes, and to do so in a scalable and flexible way. Note that this is not too far from Dell’s strategy, and they have thrived in a commoditized hardware market while the proprietary technology vendors have receded.

How to differentiate in a commoditized market place?

Anthony Awtrey said: We could also point out that the value of a commodity good is not only how useful it is as a product, but its value is also in the associated value network that is created by its wide-spread use. Sometimes tapping the value network that exists around a functional commodity is actually the real value, for example:

* Commodity = Cell Phone // Real value = Convenient communication
* Commodity = Free / Open Source operating system // Real value = Control over how it can be used

FeedBurner is a new service that enhances RSS or Atom feeds by providing personalized usage and trend statistics that describe how the feed is being used.
It works by creating a FeedBurner based URL for an existing RSS feed. It provides various stats, such as which links in a feed subscribers are clicking through, auto-inserts your Associate ID into any links to Amazon.com catalog items it finds in a feed and a few more things.
Also in the works are the following interesting services.

Authentication services for premium or private feeds, namespace and feedsplicing capabilities that enable interesting new feeds with rich content, "future proofed" feeds that enable conversion between feed formats, and many many more publisher services.

Walter Mossberg writes about Onfolio, a new client-side software which promises to make web research easier:

It's pretty easy to find things on the Web these days using Google or other search engines. But it's not so easy to capture, save and organize the information you find for later reference offline, especially if you're doing significant research.

Some people print out the relevant Web pages, but that can take a lot of paper and ink. Others cut and paste important passages into a word processor, a slow and clumsy method. Still others save the Web pages as files to their hard disk. But, depending on the method you use and how good your file system is, these saved pages can be hard to locate and open later.

Now, a new company based in Cambridge, Mass., Onfolio Inc., has come up with an inexpensive piece of software, also called Onfolio, which aims to solve this problem.

The software integrates seamlessly with the dominant Internet Explorer browser, and allows you to quickly store whole Web pages, pictures, snippets of text from the Web and other material, in a way that makes it a snap to find later.

Onfolio works well and fills a real need. If you do a lot of Web research, it's worth the $30.

One of the reason why SMEs remain small is because of a marketing trap they find themselves in.

SMEs do not have enough money to spend on marketing (or decide not to). Either way, the smaller marketing spend limits the awareness of the SME’s solutions in the marketplace. This results in lesser business, which in turn results in keeping the SME small. This is the marketing trap. Most SMEs are stuck in this and find it difficult to get out of this.

A big business can be reached by an SME (the knowledge is available of the big buyers) while a big business also has the resources and network to locate SMEs relevant for its business, though this is much harder. On the other hand, it is quite hard for SMEs to sell to other SMEs. The two have no way of connecting with each other. Technology has done very little to change the way SMEs trade with each other, especially in a local marketplace.

Of course, the easy solution to this problem is for SMEs to spend money on marketing and get out of this marketing trap. The problem is that their scale is small to justify effective media campaigns where they have to rise above the din of the big businesses. One-off ads are not very effective, and in fact, have a counter effect because the response is not that great, leading to disillusionment. Other techniques include classifieds, yellow pages, telemarketing, direct marketing and building up a channel. Again, for SMEs, these techniques all have their limitations in generating new business.

Garnering new business is very important for SMEs because that is the passport for growth. Most SMEs typically have very tight cost controls because the owner-managers are in charge and “it’s their own money”. The key for growth lies in leveraging existing capacity to service new customers. Since the base costs are probably already being met by the existing business, the profitability on new business is likely to be higher, giving the SME the necessary additional capital for one or more of the following: business expansion, marketing or technology investments. That is a possible path out of the marketing trap.

It is therefore important therefore to first bridge the “information gap” – knowledge of who the possible SME buyers of the SME’s products and services are. If these buyers can be connected with the SME, it is possible that both will be better off. The problem is that there is no easy way for them to find each other. This is the intervention that is required – an SME Trade Information Marketplace (STIM).

STIM caters to their basic need of SMEs wanting to be better off than where they are. What the STIM does is connect SMEs to other SMEs in a local region. SMEs are both the producers and consumers of information. The information they produce is who they are, and what their needs are (buy) and what they produce (sell). The buy-sell requests need to be mapped and the SMEs need to be connected. So far, there is little new about this – a traditional marketplace solution does that. So, in theory, the classified ads or the yellow pages ads (print or online) are supposed to do this. There are even plenty of Internet bulletin boards and website which provide this facility.

What is different about STIM is the use of innovative technology to make the linkages more effective. SMEs publish the information about themselves, and also subscribe to the information they want. What is different is the way this process is done. By itself, each is perhaps a small advance on current ideas, but taken together, they create a powerful positive feedback cycle.

Next Week: As India Develops (continued)