It's Time to Stop Saying Hardware Is a Commodity Business -- Only Bad Hardware Is a Commodity

By Sarah Lacy , written on October 4, 2012

From The News Desk

Earlier today -- Croatian time -- I gave a keynote on global entrepreneurship at a technology conference in Zagreb. It's been a very quick trip, and I haven't been able to explore much of Croatia's entrepreneurial scene, so apologies to readers who've come to expect that from my travels.

Like many Eastern European countries, Croatia is blessed with some great development talent and, I'm told, benefits from some good regional venture funds, and incubator-like programs such asĀ seedcamp. But like many European countries, there are concerns about how local entrepreneurs can navigate through a troubling economy and limited domestic market.

Local telecom giant, T Hrvatski Telekom, has organized the event, in part to inspire Croatians out of that way of thinking. I was invited to speak because my book on global entrepreneurship recounts example after example of entrepreneurs around the world of people who haven't let constraints like these hold them back. Indeed, most of the best Silicon Valley companies were built during down cycles in the economy.

Before my keynote the audience was treated to a talk by Michio Kaku, in many ways a speaker far more prestigious than I am. He, too, has spent years traveling and exploring the emerging world, but he has more degrees than me, his books have sold way better than mine and he was recently named one of New York's smartest 100 people. So far be it from me to disagree with Kaku.

... but I will anyway.

Our views of the world were mostly complementary. He talked about how the development the West had experienced over centuries was now happening in decades in the emerging world. He talked about the advantages of greenfield opportunities for building new infrastructure in Asian nations, and the forward-looking plans of countries like China which are creating whole new industries. He is an optimist concerning the power that technology unlocks -- not only the Internet, but he painted a bold future where living with cancer won't be fatal -- it'll be merely inconvenient, like catching the common cold. We'll be able to predict tumors so accurately, that they'll be treated on a cell-by-cell basis long before they become a problem. It was a bold keynote that allowed the mind to race with what the future may hold.

But there was one big thing I took issue with: Kaku's belief that all hardware is becoming a commodity. He's not alone in this -- this was the prevailing wisdom of most renowned business schools for the beginning of this century. Indeed, the fortunes of once-great hardware companies, which are dramatically shifting their businesses to software and services to stay afloat and please Wall Street, have seemed to back that up.

But we better hope hardware innovation isn't dead. Because if it is, software and Web innovation will soon stagnate as well. While great hardware is nothing without great software, innovations in hardware breathe new life into software as well, making products possible that simply weren't before.

It's so commonplace now we almost take it for granted, but think of the impact of the iPhone, and the myriad new companies, services, and applications it has unleashed. One piece of hardware has made so many things that were never possible before, suddenly possible, unleashing billions of dollars in potential market opportunity.

Not all of these are profound improvements on the state of humanity, but it has dramatically taken the convenience and access to information afforded by the Internet to a whole new level. Your friends can seamlessly know where you are via Foursquare; you can make reservations while you walk to a restaurant; you can entertain your kid with Yo Gabba Gabba videos anywhere that you have a data connection; you can buy movie tickets on your phone rather than waiting in a crowded line at the theatre. The mobile Internet reaches populations and parts of the world the desktop Web never did. And mobile has transformed real world industries in ways even the Web didn't. Think about a company like Uber that has, in a short time, upended decades-old monopolies by cab companies in major US cities.

The iPhone, and its copycats, have made such an impact on the market that companies who didn't take it seriously enough are already reeling. Witness the struggles of ecommerce companies who haven't yet figured out elegant mobile browsing and one-click payment options, first generation Internet companies like Yahoo or even more modern Internet companies like Facebook who are slammed by investors for not having an aggressive enough mobile strategy. Having a great mobile Web experience is no longer optional. That's not because phones exist or even because smart phones exist. Those long pre-dated the iPhone. It's because of the hardware innovation of that particular device. Because of Apple's refusal to accept that all hardware was a commodity.

If one piece of hardware can do all of that, how on earth can we say hardware will merely be a dumb commodity going forward?

I'm hopeful that we're on the cusp of a new revolution in hardware, thanks to a powerful global supply chain that has made production and financing of devices flexible and affordable, platforms like Kickstarter that help hardware companies prove they have an audience so they can get funding, and the imagination and sense of gadget wonder that the iPhone, iPad, the newest Kindles, and young companies like Jawbone, Square, and Nest have collectively unlocked. I think we're at the dawn of a new age of hardware innovation -- or at least I hope we are, if we are going to develop the next wave of devices all of these services and software run on.

Kaku talked about how governments fail to set smart policy, because they are run by lawyers who look at the world as a fixed economic pie and simply think about how to allocate resources to each sliver of it. Innovators and scientists and technologists, on the other hand, look to expand the size of the pie.

Looking at current hardware vendors and assuming they'll just keep producing what we have now, only quicker and cheaper and faster, makes about as much sense to me as that fixed economic pie world view. New hardware makes the pie bigger, the same way any other type of innovation does.

[Image courtesy Wikimedia]