Which Is The Commodity? Hardware Or Software? Does It Matter?

from the it-all-depends... dept

The NY Times is trying to figure out the dynamics of the new new economy. It had become common wisdom over the past few years in the technology world that hardware was a commodity business - and unless you were a Dell and could figure out some way to produce the hardware cheaper, you couldn't make any money. However, along comes Apple, and they appear to have figured out a way to make money off of hardware. They're selling their iPods like crazy - partly due to the "loss leader" sales of songs from iTunes. In other words, the digital product (the songs) has become the commodity, while the hardware is where the margins are. This shouldn't be a surprise really. For all the talk of commodities, it always comes down to marketing and perceived value. If you're facing a competitive situation where prices are always going to get driven down to a commodity level on an even footing, you need to do whatever you can to make that footing uneven again. Steve Jobs does this via marketing. There are plenty of products that are cheaper than the iPod and are equally functional - but the iPod has been able to keep selling at a higher price by being better at the little things - increasing its perceived value, and increasing their ability to keep selling iPods. It's an understanding of the entire package of what they're selling that lets them do this. Rather than focusing on how to profit off of every little piece of the pie, they're focusing on what they know they can outperform the competition with - and making sure that the rest is sold at about cost. There's nothing magic about it - it's just good marketing.