Great posts by Vincent in December of last year investigating the ‘High Tech’ nature of Software. Click here and here to read those posts. It got me thinking and I decided to post my thoughts. Before we can answer the question – Is Software High Tech, we need to ask a more fundamental question – What is ‘High Tech’? According to Wikipedia’s entry, High Tech is the most advanced technology that is currently available. Now, any innovation first starts as high tech but turns into low tech gradually over the period of time. I guess when the paper was invented, it was quite high tech. Today, from Post It to tissues – paper is ubiquitous and no one gives another thought asking if that product is high tech anymore. Same is true with telegraph, radio, TV etc. Yesterday’s high tech is today’s low tech. Once it becomes low tech, it’s a matter of time before it becomes a commodity product.

How fast it dives into the depth of commoditization depends on how profitable the product is going to be. These products are so out of the box that most of the people don’t see how that product is going to be useful. Here is classic example how IBM’s CEO Thomas Watson once quipped that there is “need for 4 or 5 computers in this world”. You can also read how Telephone and Telegraph were first dismissed as some fancy non useful applications. Just few years back Craig Barrett the then CEO of Intel said that at $100 Computer (OLPC) proposed by MIT Media Lab was a ‘toy’ and not going to be useful. When people figure out the product’s usefulness, the innovators that had the audacity to have the vision for that product will end up make lot of money. Bill Gates’ vision of ‘computer on every desk’ ended up making a lot of money for Microsoft. But those hefty profits will attract more competition and the profit slowly erodes.

Andy Grove, the ex CEO of Intel made a poignant point when he said “He who commoditizes last wins”. This was in the context of intense competition of Semiconductor industry. So, even a very ‘High Tech’ microprocessor will some day becomes a commodity. Same is true with respect to Software. At one point, Microsoft Office was the cutting edge application that dramatically improved office productivity. Today, software by itself is no longer high-tech.

If software is low tech, is it commodity yet? Some people belong to the camp that contends Software has already become a commodity. This is where Nicholas Carr created furor when he called software (IT in general) a commodity (just like electricity) in his infamous Harvard Business Article ‘IT Doesn’t Matter’. I strongly differ in my views.  In fact, I dedicate my personal blog writing on how to align IT with Business Strategy (a shameless plug!). Even though software is low tech, it does need some qualitative intervention to create differentiation. Think of Google and its Search Engine. Not only it’s search and indexing algorithm are unique (somewhat), it has created an entire ecosystem of advertisers bidding for keywords, search engine optimization techniques, and a new way to market online. Another example is Apple. With its ingenuity aided by unique combination of software and hardware, it had redefined mobile phone (which has begun to become a commodity product) to create a very differentiated must have product.

Some day when Intellectual Protection is no longer an issue, when every innovation is shared and distributes seamlessly, only then software will become a commodity. Until that day, in my humble view, even though software by itself is not high-tech, it’s far from being called commodity product.

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