Commoditization of Software Services

“Commoditization of software programmers” is the bogeyman that keeps software marketers awake at night.

Some people contend that due to the high investment in processes that Indian software industry has done over the years, this can never happen to the Indian industry.

I, on the other hand, take the position that commoditization has already happened; furthermore, such commoditization has been very fundamental to the growth of the Indian software industry. In other words, far from being a bogeyman, commoditization is the bedrock of the Indian software industry.

To understand this phenomena, it is necessary to understand first what a commodity is. Here is what Wikipedia has to say about commodity:

“A commodity is anything for which there is demand, but which is supplied without qualitative differentiation across a market.”

- Wikipedia 

Here is how the Merriam-Webster’s Online Dictionary defines a commodity:

Merriam-Websters Online Dictionary

I find the Wikipedia definition very relevant to the Indian software industry. They key phrase is “without qualitatitve differentiation”.

If an American or European company needs 100 Java programmers, what is the qualitative differentiation between TCS, Infosys and Wipro? The short answer is, “None”. This naturally tends to “diminish the importance of factors (as brand name) other than price”.

The most interesting one for analysis is the Webster’s definition 1(c) – “a mass-produced unspecialized product”. This is at the heart of the Indian software success story so far.

Let us look at the mass-produced part first.

Here is how Nasscom opens its Press Information Note on its Education Initiative:

Nasscom Education Initiative

(Download a copy of this document).

Translate all the high-sounding phrases into plain-speak and you have mass-production written all over it!

[This note goes on to confess that current mass-production factories ("the vast network of academic infrastructure that churns out 3.1 million graduates annually") are not doing a good job (this is referred to as "unsuitable for employment due to a skill gap") and needs to be supplemented by additional industry effort.]

Now we move to the “unspecialized” part of the Webster’ definition.

Mass production is always bound to be unspecialized and our mass production factories are so unspecialized that the commodity is unidentifiable when it comes out of the factory (“Is this a potato or a tomato or a carrot or what?”). Hence a modicum of programming knowledge is imparted by the industry during entry level training programs (“Oh! This is a software programmer!”). Now the commodity is ready for sale (“deployment” is the politically correct term for this).

Not only is the programmer a commodity, the very process of developing business software is fast becoming “unspecialized”. For more on this, refer Nicholas G. Carr’s book “Does IT Matter?“

The dictionary definitions do not delve into the deployment side of the commodity trade, but there is much to be observd there also. This is where the Indian software industry differs from typical commodity trade. More on this in my next post.

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