Commoditize your complements

Tags: economics microeconomics opensource

In his blog post "Strategy Letter V" [1], Joel Spolsky writes about the microeconomic concepts of complements, things that people tend to buy alongside a particular product (e.g. gas and cars, computers and OS's). Making your complements cheaper means that more people will buy your own product.

An example Joel gives in the article is when the five star restaurant in a small town offers a two-for-one Valentine's Day special and the local babysitters double their rates. For the baby sitters, fine dining establishments are their complement, and when they become cheaper their own product (or service) becomes more valuable.

When your complements become cheaper, supply for your product increases, which improves your scarcity power.

Making something a commodity means that it is essentially interchangable with other competing products. Software has commodotized hardware: most people don't know or care what kind of hardware they're using and they view it as (mostly) interchangable. What they care about is the software.

The concept of commoditizing your complements explains why so many for-profit companies invest heavily in open source software. They do not do it because they suddenly believe in a vision of free-as-in-freedom software, but rather because they are strategically attempting to commodotize certain things. Hardware companies benefit by making operating systems cheaper (by investing in Linux or other open source operating systems) because more people will buy laptops. Consulting companies benefit by making software cheaper and more accessible by expanding the base of people in need of their services, etc.

References

  1. Spolsky, Joel. “Strategy Letter V.” Joel on Software, June 12, 2002. https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/.