Article: Strategy Letter V

In today’s episode, I’ll show how one of those concepts explains a lot about some familiar computer companies. Along the way, I noticed something interesting about open source software, which is this: most of the companies spending big money to develop open source software are doing it because it’s a good business strategy for them, not because they suddenly stopped believing in capitalism and fell in love with freedom-as-in-speech. demand for a product increases when the price of its complements decreases. In general, a company’s strategic interest is going to be to get the price of their complements as low as possible. The lowest theoretically sustainable price would be the “commodity price” — the price that arises when you have a bunch of competitors offering indistinguishable goods. So:

Smart companies try to commoditize their products’ complements.

If you can do this, demand for your product will increase and you will be able to charge more and make more.