What do oil & gas, telecommunications, and financial services have in common?
They’re all commodities.
They’re also the industries that have yielded the world’s largest companies. Oil companies, Telcos, Banks. The Fortune 50 are littered with them. Why? Because commodities, by definition, are those products for which a universal and perpetual demand exists – the planet is your marketplace, and everyone is your customer. Commodities yield massive opportunities. If you’re prepared.
A whole host of folks like to believe the computing industry is commoditizing. I don’t buy it. Some technology products are certainly becoming interchangeable (why buy WebSphere when you can deploy the J2EE Reference Implementation for free?) – but what’s really commoditizing? Bandwidth. Not software, not hardware, bandwidth. It’s coming out of the wall in your house and office, just like a three prong outlet provides another commodity, electricity (and broadband, soon enough).
Can you discriminate one company’s bandwidth from another? Pricing, yes. Bandwidth, no. Can you discriminate one company’s browser from another? Yup, especially recently. How about one company’s mobile handset? Linux distro? 4-way x86 server? Absolutely. They all make that bandwidth useful and interesting, but they’re highly differentiated technology products.
Why do I care about the language? Maybe I shouldn’t – customers (and The Street) certainly find the idea attractive. But given the degree to which bandwidth (vs. a microprocessor, or a software stack) really has commoditized, the industry’s in for a bumpy ride in the next few years – for those that fail to pay heed to our predecessors in commodity markets. And having spent a great deal of time with some of the world’s largest commodity companies, I’ve taken note of three simple imperatives.
One, the largest companies serving commodity markets are all technology companies. Talk to a bank with a trading operation, and you’ll hear all about how better order execution or analytics give them a competitive edge. “Banking is a technology industry.” Oil and gas companies invest billions in R&D – for the same reason. And the telecommunications companies? That’s getting more obvious by the day. Technology is their most significant means of differentiation. It’s true for every company engaged in supplying a commodity marketplace. Don’t be deluded by the retail bonanza – in commodity markets, retailers have a much harder life than wholesalers.
Second, technology differentation is necessary, but not sufficient. Companies serving commodity markets must leverage their technology to drive business model differentation. Oil and gas companies leverage the derivatives markets to better serve customers (and stockholders) – and manage production and supply through those systems. Financial services companies, especially in their consumer businesses, use disruptive pricing – with offers of “free checking,” discount trading or other incentives to leverage consolidated product portfolios. And obviously, telecommunications companies are famous for innovative pricing, from free handsets, to call plans that make it more expensive to call outside your network (MCI’s Friends and Family was among the first). The point behind all of this – technology is a must have, but only insofar as it enables disruptive market moves.
Lastly, among the most interesting characteristic I’ve seen in companies that win in commodity markets – they’re intensely focused on standards.
In the latter part of the 19th century, the private sector spent an immense amount of money and energy lobbying to standardize railway gauges? Did they really care? Yes. Once the standards were set, these companies saw a massive increase in opportunity to sell – not rails – but locomotives and rail cars. And freight to be shipped on those rail cars. Standards enabled a rising tide, a far broader market, and big efficiencies in manufacturing and service delivery. Had they, instead, moved to patent the rails and wheels, or even given away the patented rails, my bet is the market would’ve been a lot smaller. For everyone.
But look at the standards efforts driven by the oil and gas industry, for telecommunications, and for financial services. All those industries spend big bucks lobbying for and driving standards. No one asks them why they do it – they all know that a phone that can’t roam isn’t a phone, it’s a pocket warmer. And ATM cards that only work in one ATM machine? Uninteresting. Gas that works in special engines? Ho hum.
So back to Sun. We’ve invested big amounts of energy and creativity to evolve and promote internet standards. Like TCP/IP, NFS, Java, even Project Liberty. Why? Because we’re pathologically attached to standards? No, because when rail gauges were finally standardized new traffic flourished, resulting in extraordinarily successful locomotive suppliers.
And it’s our belief that Java, web service standards, and an IP network are the open rails of the internet. They turn bandwidth into opportunity. We don’t know what you’ll put in the freight cars, or how you’ll run the railroad, but the odds are good you’ll need locomotives. And there’s good money to be made in network locomotives. And not just those that fit in your
or den, but in your pocket, on your dashboard, or in your wallet.
So I’d like to answer once and for all the question, “how does Sun monetize Java?” with a historical reference: the same way GE and General Motors have monetized standard rails, Vodafone monetizes GSM, banks monetize ATM networks, and oil and gas companies monetize the fact that my car can use “gas.”
The Java community, which we steward, drives a broad array of platform standards, among an even broader array of industry participants. That activity levels a playing field, that just so happens to be the single biggest playing field the technology industry has ever seen. The network is a commodity. We should all be celebrating.