It strikes me, that as every object gradually becomes equipped with computing power and net connectivty, we can extend to all industries, the distinction used in the computer industry between hardware and software, and within software between the operating system (OS) and the specific applications.
In hardware, new products and features are quickly copied and adjusted, and over time a product tends to become a commodity, where the only differences between makes are in the price. Also, despite the talk about mass customization and 3D printing, physical manufacturing belongs to the industrial age of mass production. High volume of identical stuff means lower prices – for now.
Software is different. Bits are live, fluent. It’s in their nature to be modified, recombined, individualized etc. The bit business is about processes rather than products. Value comes from change, and from matching the user’s context exactly.
But there are different types of bits: Some software is the OS: The protocols, standards, interfaces and basic functions, that the more specifics apps can run on. Crucially, the more devices use the same OS, the more diversity you can achieve in the apps that will be available.
So there is a progression: The physical device is a platform, which supports an OS, which in turn supports the apps.
As more objects are equipped with computing power and network connectivity we will see the same progression in every industry. Whether it’s cars, classrooms, hospital beds or thermostats, there will be a physical platform of objects that functionally are very similar. There will only be a handful of manufacturers on the market, and their margins will be razor thin.
Even though end-users have more or less the same physical equipment, they will have very different experiences, because the processes that are running on their devices are very different. We all have the same smart phone, but the feel of each phone is very personal.
This is a useful observation, because it allows you to understand better how there are different business models and different logics at play in the market – not just in computers, but generally.
When we think about the trend toward mass customization, we need to distinguish between the physical object and the processes it supports. Physical objects can be customized by running different applications on them. Physical products are cheaper when you produce them in large volume, but the software they are running can be individualized at very little cost. For manufacturers, these are very different games.
The OS layer is particularly interesting, because this is where the most power and profits reside.
There are very powerful lock-in effects at this level. Everyone benefits from standards, so once one system is established as the dominating solution, there will be a strong trend towards monopoly – witness Microsoft, Google, Facebook.
The problem with monopolies of course, is when the benefits to users from standardization and mass production are outweighed by high prices and lack of innovation when the dominating brand isn’t kept alert by competition.
… And you could go on to describe the relations between producers of apps and those owning the OS, or the relative importance of the physical device and the OS…
The main argument is to point out, that this division of roles and business models will extend to almost any kind of objects, as everything becomes wired.