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I often used the phrase "the commodification of software" to represent what I believe is the critical force behind the rise of open source software. Broadly used software is now defined primarily by its capacity for networked data exchange of standardized commodity datatypes such as a web page, an MP3 file, a UNIX executable, or a Word document, rather than its application model and user interface. This short note explores the concept of commodification in a historical context while also seeking to discover lessons that might be applied to contemporary open source business efforts.
The word commodity is used today to represent fodder for industrial processes: things or substances that are found to be valuable as basic building blocks for many different purposes. Because of their very general value, they are typically used in large quantities and in many different ways. Commodities are always sourced by more than one producer, and consumers may substitute one producer's product for another's with impunity. Because commodities are fungible in this way, they are defined by uniform quality standards to which they must conform. These quality standards help to avoid adulteration, and also facilitate quick and easy valuation, which in turn fosters productivity gains.
Karl Marx considers commodities important enough to begin his book Capital with a discussion of them. The first chapter concludes with a discussion of what he terms "the fetishism of commodities," from which the following quote is taken:
Marx asserts that commodity markets are more about power, politics, and even religion, than they are about their actual underlying resources. Commodities exist to facilitate exchange (and, since this is Marx, to subjugate the laborer). They are a way to build up an abstract world in the image of commerce, rather than reflect a more natural order for the world. Commodities are a reflection of the politics of human values: the contracts by which commodities are defined, and the standards that form the foundation for such contracts, are more important than the inherent quality of the commoditized thing. This is a very important lesson to learn, and one which the open source community should heed when marshaling its limited resources.
Shakespeare, of course, always has something to say.
Here is a soliloquy that concludes Act II of King John on the topic of Commodity. It is delivered in the play by the bastard son of Richard Coeur de Lyon, who has just convinced England and France, at war with each other, to suddenly strike an opportunistic political bargain and ally themselves against the city of Angiers:
Mad world! mad kings! mad composition! John, to stop Arthur's title in the whole, Hath willingly departed with a part, And France, whose armour conscience buckled on, Whom zeal and charity brought to the field As God's own soldier, rounded in the ear With that same purpose-changer, that sly devil, That broker, that still breaks the pate of faith, That daily break-vow, he that wins of all, Of kings, of beggars, old men, young men, maids, Who, having no external thing to lose But the word 'maid,' cheats the poor maid of that, That smooth-faced gentleman, tickling Commodity, Commodity, the bias of the world, The world, who of itself is peised well, Made to run even upon even ground, Till this advantage, this vile-drawing bias, This sway of motion, this Commodity, Makes it take head from all indifferency, From all direction, purpose, course, intent: And this same bias, this Commodity, This bawd, this broker, this all-changing word, Clapp'd on the outward eye of fickle France, Hath drawn him from his own determined aid, From a resolved and honourable war, To a most base and vile-concluded peace. And why rail I on this Commodity? But for because he hath not woo'd me yet: Not that I have the power to clutch my hand, When his fair angels would salute my palm; But for my hand, as unattempted yet, Like a poor beggar, raileth on the rich. Well, whiles I am a beggar, I will rail And say there is no sin but to be rich; And being rich, my virtue then shall be To say there is no vice but beggary. Since kings break faith upon commodity, Gain, be my lord, for I will worship thee.
I've clearly got too much time on my hands - thank goodness that Google has commoditized access to digital texts! This text, to me, seems to highlight a truth about human nature, that self-interest and opportunism will triumph more often than not over conscience, loyalty, rationality and even nature. Commodity flows are a record of human self-interest.
Commodity-based exchange existed in antiquity; the Sumerians seem to have developed accounting in order to deal with its implications. The word commodity first appeared as an abstract English term in the sixteenth century, when the pursuit of Commodity - that is to say advantage, profit, and/or expediency - began to be a potent political and social force. The seeds of mercantilism had begun to sprout, with capitalism fast on its heels, and the world needed new words with which to theorize about profits and losses. Built into the word is the notion of an underlying measure, or standard, to which the commodity conforms. (Commodus, the Latin root, can be translated as "conforming with due measure".) At the time that this word was coined, Europe was understanding the massive advantages, flexibility, and productivity that could be pulled from the impersonal exploitation of standardization. This understanding would eventually lead to the commodity-based economic engines of the great colonial empires.
A resource that will become a commodity, be it sugar or MP3 files, must first, of course, be useful and desirable in its own right. Sugar was not consumed in significant quantity by Europeans before the seventeenth century, although by that time it had been known and used in other cultures for thousands of years. A consumer craving for sweetness drove sugar's astonishingly successful adoption in Europe, which in turn led to its important role within the British Empire's economy. More recently, the MP3 standard began as a research project, but did not become significant until it was recognized and adopted by software makers as a standard of exchange for digital music.
Demand is followed, not preceded, by standardization. Commodity markets are driven by consumer demand, and such demand in turn drives the appropriation of standards by producers who wish to participate. Standards are only necessary once more than one use exists for a commodity, or once a commodity is being provided by more than one source. In short, emerging demand drives the hardening of commodity standards. The need for networked interchange triggers commodification, and once begun, the process of commodification frames the market conversation between consumer and producer. Shakespeare's definition, in which Commodity is the "bias of the world," is both concise and accurate.
Technical advances are almost always intimately associated with the eruption of a new commodity market, and these technical advances often partially determine the shape of the standard used to amplify and accelerate growth. Once a standard is established, the presence of multiple producers stokes the furnace of competition (although perhaps only after protectionist governments and corporations are shouted down by consumers and crafty businesspeople); without such a centering standard, competition is far less efficient. Since the standard itself is often related to an enabling technology, such as the emergence of popular software-based media players, or the discovery of new ways to preserve foods, the choice of the standard will play a role as to technologies that become embedded in social structures. For example, even a commodity as obscure to modern consumers as pork-bellies had its origins in a marriage of demand and technical innovation, when the introduction of refrigerated rail-cars made standardized cuts of inexpensive meat available, year-round, for American town and city dwellers far from the slaughterhouses of the Midwest. Today, of course, this standard is deeply embedded in American social fabric in the form of popular foods.
Consumer demand for a commodity will cause a network to be formed through which the resources can be efficiently processed and delivered. The massive European networks for sugar, tobacco, and caffeinated beverages (coffee, tea, and chocolate) that began to gather around the time that Shakespeare penned his soliloquy are all wonderful case studies for this process. As networks form, a complex set of dependencies and relationships also form, and entire communities are deeply impacted. The plantation style of growing cane stimulated the slave trade, the MP3 boom has unquestioningly impacted the global entertainment industry, the spice trade elevated the already prosperous shipping and warehousing families in the Netherlands of the sixteenth century to the status of magnates, and the oil boom of the late nineteenth century facilitated the automobile's profound status in the American fabric of life. The dependencies, laws, customs, and economic effects that surround commodity networks quite simply become important "ways of life" (or even religious beliefs, as Marx pointed out!)
Some business implications
Those who would control the production and distribution of commodities typically seek not so much to harness network externalities, but rather, economies of scope. This economic phenomenon leverages consumer demand not by creating network critical mass in order to reap profits from exponential network growth, but rather by reusing the underlying commodity in many different ways. The rather obvious implication of this observation is that resources that can be used in many different ways are likely to attract more investment, and to penetrate society more fully, than resources that are very special-purpose. This, of course, will impact the choice of standards; an item that is low-level, simple, and easily integrated with other items is more likely to be useful as a building block than a special-purpose, complex, and highly proprietary item.
Consider Microsoft's Windows API versus the Unix API as an example of this principle: the simpler and more combinable Unix API is far more likely to emerge as the successful cross-platform standard for non-graphical software construction than the complex and monolithic Windows API. The much smaller and more familiar Unix API is easier for multiple producers to implement correctly, easier for unsophisticated developers to use and extend, and has vastly simpler interoperability requirements. Large portions of its surface area have also been formally standardized and documented, although change does continue at a rate much slower than Windows. The comparatively inert Unix API is sufficient for developers who wish to create valuable new assets above the level of the API itself. This sufficiency is a defining characteristic of commodities; the standard item is "good enough."
Along the same vein, Microsoft's Word document format is both complex and encumbered by proprietary behaviors that make it hard for software producers to conform to its detailed, and undocumented, layout. The Word format is already losing ground as a dominant standard for document interchange. Microsoft could probably have established it as a commodity standard, but chose not to, seeking to avoid commodification of this area for as long as possible. Microsoft is now attempting to raise interest in a new XML format. The jury is out as to its ultimate success, but Microsoft should be commended for recognizing the inevitability of commodification. All companies should recognize that success will inevitably breed commodification, and prepare for this. Since consumer demand, and not propriety interests, drive commodity networks, Microsoft is likely to lose the API and the document format battles over time. Demand for simple, standardized, formats will overcome the advantages that once clearly favored Microsoft technology. Historically, the appearance of multiple sources for a commodity, multiple methods of production, and multiple markets, almost completely eliminates the power of the original producing culture, whether that culture is spice gatherers in the West Indies or global corporations.
This discussion would seem to support the validity of the cloning strategy currently practiced by many producers of open source software. Since the consumer demand for these products is in place, but has yet to take commodity form, this strategy seems like an easy way to siphon private R&D investment into new enterprises. Carefully directed investment in innovation, while important for profit-seeking proprietary firms, is very difficult to achieve in community-based open source projects, and cloning is a straightforward way to attach to existing consumer demand. By converting a proprietary market into a multiply-sourced commodity market, low-cost clone producers exploit already existing R&D and marketing investment with very little effort. Of course, it remains to be seen how governments and legal systems will deal with this transfer of value. Meanwhile, proprietary producers who attempt to defend their clone-prone products at all cost risk catastrophic losses. New ventures, structured around the assumption of a low-margin commodity network, can spread cloned standards across new markets without restraint, very cheaply. Coffee, tea, chocolate, sugar, petroleum, and tobacco, just like digital media, web documents, and databases, all incorporated innovative uses of their underlying resource into explosive growth while leaving commercial casualties in their wake.
Software businesses built to exploit commodity networks and their economies of scope will be better structured for reflecting the use of software in the consumer universe of the twenty-first century. Software is part of a staggeringly diverse set of devices, and the number of things that will include software as an important element of their design will only continue to grow. As any IT manager or PC owner knows, installable shrink-wrap software is a flawed delivery model that requires constant and hard-to-understand maintenance as hardware and software platforms change and as consumer or business requirements change. Service-based or hardware-based business models, along with good standards for cross-device and cross-service integration (and for the preservation of data integrity over time and across domains), will better reflect the realities of software deployment. By definition, something that changes constantly cannot be a commodity; the commodity nature of software-driven devices and services will be found in the data that they exchange and store, rather than in the application logic and interfaces themselves. (The only completely stable and unchanging interface standards that we know of are the human senses, although even they change at an evolutionary pace. This explains why digital media are such great candidates for commodity status!)
Corporate purveyors of software-driven devices and software platforms, as well as governments, are beginning to see the writing on the wall, and are beginning to understand the many ways that software will be embedded into everyday life in the post-PC era. Although companies will chafe at the lower profit margins and greater production inefficiencies involved in maintaining commodity-based integration, the transformation and storage of standardized data formats and the standards-based approach to data exchange and computation will continue to appear and proliferate, driven by governments, hardware, and consumer behavior.
Open source is about consumer demand, political process, and community involvement, rather than about software or hardware innovation. To stay relevant during a shift to commodity software, open source communities will need to claim part of the power that has historically accompanied the definition and regulation of commodity networks. Open source constituents will need to actively participate in the creation of standards and legal frameworks in order to avoid marginalization. Without participation, the dynamic interaction of commodification, global capital markets, and political interests will likely result in the subjugation of open source and standards to corporate and national interests. In fact, judging by the history of other commodities, this outcome is actually most likely.
Software producers who maximize their product's potential for useful combination with other software, while at the same time minimizing any restrictions upon its further re-combination, will be the survivors within a software industry that is in the process of reorganizing itself around the network exchange of commodity data. Open source was an early leader in the use of this approach, but other powerful entities are now adopting it. Corporate giants such as Microsoft who vigorously defend their proprietary turf without adapting their business models to exploit commodification will lose influence, while other more adaptable corporate giants such as IBM are likely to gain considerable power by controlling the forms that commoditized software will take. Large governments such as the European Union, China, or even Brazil, also stand to gain power, since they possess huge built-in markets and seek to bootstrap native software industries; by participating in the definition of commodity software and its protocols, they will help to bound and define the market discussion between consumer and producer.
This work is licensed under a Creative Commons Attribution 1.0 License.