In my story, The Rise of the Instant Company, I pointed out how commoditization and standards were roiling the hardware business, ala Sun Microsystems, and how some smart start-ups were using that trend to their advantage by developing products that leveraged every cheaper processing power. The article prompted many to question, whether software was going to be commoditized like hardware. ( Read More…)

I just did not get time to put everything down on paper, but today at a press conference hosted by Sun Microsystems, it just hit me: ÏStandardization is about software as well and we are leveraging that by disruptive pricing,Ó boasted Jonathan Schwartz, SunÌs executive vice president of software. Standardization = commoditization; at least in my opinion. I think with the rise of Linux and other open source projects, we are coming into an era where software is going to be commoditized. Sun is pushing server software that costs $100 per user and desktops that cost $50 a pop. (Call it the magic of Linux)

Earlier I was chatting with Red HatÌs chief financial officer Kevin Thompson who agreed and added, ÏInitially there was fear that that commoditization would not give them performance, but they have now realized that is simply not true. I think the commoditization started at the low end and I think it is going to simply move up the chain,Ó he says. A case in point Linux that was installed initially on real low-end email servers and print servers. Now it is being used to run important applications such as trading platforms at investment banks, and Oracle Financials software. ÏIt starts at the low end and it finds its way into the mission critical areas of their IT infrastructure,Ó adds Thompson.

ÏIn past 15-to-18 months we have seen the commoditization of software and that is when the downturn began. You cannot continue to pay the prices you were paying for the software,Ó said Thompson. Oops! ThatÌs bad news for Microsoft, Oracle and everyone, which has been selling proprietary products for the longest time. It is like the components of hardware are being standardized. In software it is a platform based on open standards such as Linux, and from a software perspective, open technology provides value for the customers and more importantly cost savings.

So where will commoditization occur in software side of the business? Thompson said that applications that run on large number of servers are vulnerable to commoditization. Server software (already happened), web servers (Apache) storage servers (happening), and application servers (watch the march of J-Boss) Where ever there is someone charging high prices for products that move in high volume, those market segments are ready for commoditization. (OpenOffice.org is a good example.) There is no area of software, which is immune to commoditization.

Except perhaps databases! Oracle and IBM’s DB2 are so ahead, and the whole process is so complex. Anyone have thoughts on this? I would appreciate some feedback.