commoditisation

On hardware commoditisation:

The IT industry has turned into a commodity business of high volume, lower margin products and services. The days of selling a $250,000 system for $1,000,000 and passing around big commission checks are gone.

True; now, particularly in the communications space, it’s a $25,000 system — including any R&D costs, and more on those later — for $90,000. (Look up the major listed vendors’ margins, all of which are public.)

Even these 60% to 70% margins are soon to be a thing of the past. When all you’re doing is, bluntly, a form of assembly, claiming high-value, high-margin is disingenuous at best.

As the market moves to Intel servers, anyone can become a big player. […] The quality of “services” is so terrible right now the market is hungry for a better provider.

Substitute Intel for, say, Broadcom or Marvell, and you’ve got the trending state of play in the Ethernet world. Even ‘specialist’ switching platforms — the ones that supposedly have a lot of R&D baked into them, justifying higher pricing — are getting to a point where they’re all based on the same merchant silicon, implying that any point of differentiation relies on either having something smarter above the hardware (i.e. software), or providing some service that others cannot.

And with open source software — OpenDaylight for example, as one of the reasons vendors give for relying on merchant silicon — this means that services alone become the differentiator.

The “good” thing about this is that it reduces RRPs of the tin, as there’s less R&D to justify a higher price; the bad being that it means one vendor’s black box is basically the same as everyone else’s. Which, of course, is the very definition of a commodity.

Even though, in the networking world, we’re only part-way there, customers already realise this trend is underway, which is why — in the absence of any real value-add — they invariably ask for (often steep) discounts. And they know they’ll get them, because if they don’t, they’ll go to the next vendor down the road who will oblige.

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