July 21, 2005
Sun’s Schwartz likes selling pork-bellies
Sun plans to make all its software free - Yahoo! News
By commoditizing technology, markets are built up, according to Schwartz. “I think our view has been that commodity markets are the best markets in the world,” he said. Schwartz referred to markets such as financial services and telecommunications, where services are commoditized but lots of revenue is generated nonetheless. Commodity produces perpetual demand, Schwartz said.
Hm… according to the wikipedia:
a commodity is an undifferentiated product whose market value arises from the owner’s right to sell rather than the right to use. Example commodities from the financial world include oil (sold by the barrel), electricity, wheat, bulk chemicals such as sulfuric acid and even pork-bellies and orange juice.
In the original and simplified sense, commodities were things of value, of uniform quality, that were produced in large quantities by many different producers; the items from each different producer are considered equivalent. It is the contract and this underlying standard that define the commodity, not any quality inherent in the product. One can reasonably say that food commodities, for example, are defined by the fact that they substitute for each other in recipes, and that one can use the food without having to look at it too closely.
Commodity markets are the best market? Do you really your product to be a commodity? Where you have no pricing power? Do you really want to be a salt seller?
I’m not sure I do!
What troubles me the most is Schwartz’s constant references to “revenue” in that article.
Having $1 trillion in revenue per year would be great… but not if it comes with $999,999,999,999 in expenses since that’d be exactly $1 of profit. Would that be a worthwhile investment?
Revenue is great - but profit is even better.
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2 Comments to “Sun’s Schwartz likes selling pork-bellies”
July 22nd, 2005 at 4:45 pm
I would like to sell commodities as long as I could leverage a fluid exchange of resources between one market and another. For example, if you’re selling IT services to the financial, retail, CPG, auto, pharma, etc. industries, you can easily move between one and another when that market becomes hot, without having to change the infrastructure of your organization (as long as your products are not too granular, targeted, or specialized).
Without getting into too much detail, that’s one thing that IBM does pretty well. Let’s say one year retail master data management systems are hot because of some DB technology, and the next year automotive inventory management is hot because of some tracking technology. Even if IBM doesn’t invent the technology, it can re-allocate thousands of (relatively unspecialized and therefore commoditized) IT services employees to whichever market has the higher profit margin with, say, a few weeks of training.
Sounds like a good idea to me, but only time will tell.
July 22nd, 2005 at 4:50 pm
And another thing: revenue is great if you think that, by leading a certain market, you can build the scale of business that allows you to leverage size to improve efficiency. Start with high revenues and high costs, increase your business, then leverage size to create higher revenues with (relatively lower) costs.
Right?
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