Nicholas Carr, author of the now infamous article "IT Doesn’t Matter" for the Harvard Business Review in May last year, is set to stir up the hornet’s nest once more with a book on the same subject, "Does IT Matter? Information Technology and the Corrosion of Competitive Advantage".
Carr was in fact absolutely right in his assertion that what he calls "infrastructural technologies" will become ubiquitous in the not-too-distant future. As he puts it, "as their availability increases and their cost decreases – as they become ubiquitous – they become commodity inputs." But is becoming a commodity the same as no longer mattering – of no longer holding any importance?
Perhaps Carr’s choice of language was rather dramatic, but it is not surprising that his argument touched a nerve with many of the technology vendors, who have for years had to maintain a blistering pace of innovation.
The latest version has to be significantly better than the current generation for customers to want it. Little wonder the chiefs of the likes of Intel, Microsoft and Sun were so quick to publicly and forcefully assail Carr’s argument – where is the fun in pouring millions of dollars into R&D only to be told that your products are becoming commodities and therefore do not matter?
But while the vendors might not like it when they are told IT no longer matters, they are only too aware of the commoditization of so many of their beloved technologies. They cannot deny this, since it is they who are responsible for implementing standards and bringing down the cost of these technologies, hence turning them into commodities. They know that the price of storage roughly halves each year – it is they who set the prices. They know that you’ll get double the server horsepower next year, for the same money.
Indeed, the technology companies not only know about commoditization, they embrace it. What do all of their grand schemes – on-demand, utility computing, even grid – have in common? They help to commoditize computing resources, by promising to enable end users to utilize and pay for their computing power as if it were water coming from a tap. Horrified that Carr writes that "infrastructural technologies" are becoming commodity? Who can they possibly be trying to kid?
If the vendors know that these technologies are becoming commoditized (that is, if they are not already), then why were they so affronted by Carr’s article? Perhaps they didn’t feel the distinction between "infrastructural technologies" and IT as a whole was sufficiently clear. But it is more likely that despite many of their products becoming commodities, technology companies are terrified of becoming invisible.
These companies don’t want to be seen to offer technologies that have become as ubiquitous as power or railroads. They may embrace the vision of utility computing on the one hand, but they will argue that underneath the veneer of utility-style computing the individual elements in their portfolio are still seeing radical innovation.
The gravy train of upgrades to new versions, market capitalizations, even executive compensation schemes are all tied into the notion that technology companies are ultra-innovative, high-tech, bleeding-edge, paradigm-shifting thought leaders. If Sun, or BEA, or even Microsoft are considered to do little more than shift commodity items, the game is up.
The thing is, they know this too. They might not like it, but they do know it. They know that customers are demanding the commoditization of the technology fabric. Why is EMC offering lower and lower-end, cheaper and cheaper storage? Why did IBM and much of the competition make such a big push into IT services? Why is Dell so successful, and why does it leave the innovation to its suppliers?
Fortunately, it is not all doom and gloom for technology vendors. For one thing, just because infrastructure technologies are becoming ubiquitous does not, as Carr asserts, mean they do not matter. Just like electricity still matters to an awful lot of people, there are plenty of emerging economies for whom technologies considered commodity by some still matter a great deal, and are still a source of competitive advantage.
But even in the more developed economies, the commoditization of the technology fabric is no bad thing. All it means is that the source of competitive advantage from technology is not in Terabytes or Gigaflops any more. It has moved up the stack. There is still competitive advantage to be gained from a whole range of packaged software for instance, from business intelligence to business process management. Customized, bespoke software meanwhile still has the power to enable Amazon to beat Barnes & Noble.
But as even these types of technology become more and more widely used, it is increasingly going to be how companies make use of their technology that holds the potential for competitive advantage. How they adapt their organizations and business processes to make the best use of technology will be what separates the winners from the losers. Every company might have business intelligence software, but which of them is using it to its best advantage? Which of them are not only mining their customer data, but extracting every last drop of value from it to maximize customer loyalty and profitability?
A survey of 600 employees at blue chip companies in the UK by Priority Management last month found that 11% of employees find email is the cause of most disruption to their working day. Whether email – surely now a commodity – is a cause of disruption, or a source of massive productivity gains, is not down to whether a company uses Outlook Express or Eudora. It is down to how email has been integrated into the rest of a company’s systems and processes, how employees use it, the culture of the organization and many other factors. Email, like any other commodity technology, still matters. Just not how it used to.