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Don't Fear Commoditization

Vendors are scrambling up the value chain. Storage is no longer a hardware-centric proposition but a software- and services-based "information lifecycle management" undertaking, with EMC and other market players trying to differentiate their wares. Cisco, Juniper, Enterasys and other networking vendors are ramping up the security, management, bandwidth-optimization and other software-intensive features of their core infrastructure, through acquisitions and internal development. IBM, which sold its once-signature PC business to China's Lenovo earlier this year, generated a whopping 70 percent of its revenue from software and services in the nine months ended Sept. 30, compared with 64 percent in the year-earlier period. The shift away from hardware (32 percent of revenue compared with 26 percent a year ago) helped boost IBM's profit margin to 38.6 percent from 36.2 percent.

What's in a Label?

No vendor likes the commodity label. It conjures economics-textbook references to widgets (whatever they are) and soulless mass production.

Sun Microsystems can't quite make up its mind on the subject. On one hand, Sun makes some of the highest-end proprietary servers in the business. On the other hand, its Java language is about standardizing software programming and promoting access to every aspect of the network. Does the latter champion a commodity computing model?

In March 2004, Sun's Jonathan Schwartz, then VP of software, said in a speech at the vendor's Software Summit: "Hardware has become commoditized. Software is becoming commoditized. Pretty soon the systems, network and the services that go with it will be commoditized as well." Yet in blogs and interviews since being named president of Sun, Schwartz has argued that only bandwidth has become a tech commodity--much like electricity became commoditized in the early 20th century. The tech products linked (and made even more valuable) by that commodity connectivity--mobile handsets, Web browsers, Linux distros, X80 servers and the like--remain highly differentiated, he argues.

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