June 2024
Issue 4
RATIONAL REFLECTIONS By Bell Institutional
Commoditizing Your Complements and Today’s AI Landscape Joel Spolsky, a tech writer and software blogger, was one of the first people to write about the business strategy of commoditizing your complements. In his “Strategy Letter V” post from June 2002 on his blog, Joel on Software, he described this phenomenon as the following: Every product in the marketplace has substitutes and complements. A substitute is another product you might buy if the first product is too expensive. Chicken is a substitute for beef. If you’re a chicken farmer and the price of beef goes up, the people will want more chicken, and you will sell more. A complement is a product that you usually buy together with another product. Gas and cars are complements. Computer hardware is a classic complement of computer operating systems. And babysitters are a complement of dinner at fine restaurants. In a small town, when the local five-star restaurant has a two-for-one Valentine’s Day special, the local babysitters double their rates. (Actually, the nine-year-olds get roped into early service.) All else being equal, demand for a product increases when the prices of its complements decrease. With this framework in mind, the competitive strategy of attempting to commoditize the complements to a company’s goods or services can lead to capturing more of the overall value chain.
The Benefits of Commoditized Complements
Imagine a game console. The console itself is the core product, but the games you play on it are the complements. If games are expensive and limited, fewer people will buy the console. By making it easier and cheaper for developers to create games (commoditization), the console becomes more attractive to consumers, driving up sales. A more specific example is that of the most successful product in human history: the iPhone. Apple doesn't manufacture most of the parts for iPhones, but they control the platform (iPhone) and the App Store (complements). By fostering a competitive app developer environment (commoditization), 1