[ExI] stargate

Fri Jan 24 11:55:55 UTC 2025

On Fri, 24 Jan 2025 at 09:27, efc--- via extropy-chat <
extropy-chat at lists.extropy.org> wrote:

> Nothing new here... they are trying to "commoditize your complement" to
> ensure no one gets the ultimate prize and power.
>
> https://www.lesswrong.com/posts/mbYX3JnohWRF8KTT2/tech-economics-pattern-commoditize-your-complement
> .> _______________________________________________
>

I found this article a bit difficult to understand (I am not an economist).
So I asked DeepSeek R1 to explain the web page
<https://gwern.net/complement>
The Thinking, Reasoning and Explanation result is impressive.
BillK

DeepSeek R1 Thinking -
Okay, I need to explain the article from Gwern.net about "Commoditize Your
Complement" to someone who isn't familiar with economic theory. Let me
start by understanding the key points from the search results provided.

The main idea seems to be that companies in the tech industry try to make
their complementary products into commodities to increase demand for their
own products. From webpage 1, Joel Spolsky identified this strategy where a
company becomes a monopoly in one layer of the tech stack while making
other layers competitive. This drives down prices of the complements,
increasing demand for their product. Examples given include Microsoft
commoditizing PC hardware with MS-DOS, leading to cheaper PCs and more
demand for their OS.

I should break down the concepts of complements and substitutes first.
Webpage 5 and 9 explain that complements are products used together, like
smartphones and apps. If the price of one goes down, demand for the other
goes up. Substitutes are alternatives, like tea and coffee. The cross-price
elasticity is important here, but maybe I don't need to get too technical.

The strategy of commoditizing complements is about making those
complementary goods so competitive that their prices drop to marginal cost.
This benefits the company's main product. For example, IBM making PC parts
commoditized, which helped Microsoft's OS. Webpage 1 also mentions Google
investing in projects that make mobile browsing cheaper, which benefits
their ad business.

I should use simple examples. Like, if a company sells printers, making ink
a commodity (cheap and widely available) would make people buy more
printers. But if the company instead sells ink, they might make printers
cheap to sell more ink. The key is controlling the monopoly layer and
commoditizing the rest.

Webpage 6 and 2 also support this, mentioning how companies use open-source
software to commoditize a layer. For example, IBM supporting Linux to
commoditize software and boost their consulting services. Sun's Java tried
to make hardware a commodity, which backfired because Sun was a hardware
company.

I need to explain why companies do this. By making complements cheap, the
main product's demand rises. Microsoft didn't care if PC makers competed
fiercely because more PCs meant more OS sales. The article also talks about
vertical integration vs. this strategy. Vertical integration is controlling
all layers, but commoditizing is cheaper and avoids anti-monopoly issues.

Maybe use the smartphone example: Apple controls iOS (monopoly) while
allowing many app developers (commoditized), so Apple profits from the
ecosystem. The article also mentions how this creates a "desert of
profitability" around the company, keeping competitors away.

I should structure the explanation with an intro to complements, the
strategy, examples, and implications. Use simple language, avoid jargon.
Check the other webpages for more examples. Webpage 7 has PB&J as
complements, which is a good everyday example. Webpage 9's pen and ink
example is also helpful.

Make sure to cite the relevant webpages as I go. Mention Spolsky's original
idea, Microsoft and IBM examples, Google's projects, and the open-source
contributions by companies. Highlight the key takeaway: companies focus on
monopolizing one part of the stack while making others competitive to boost
their profits.

---------------------------------

Explanation -
Here's a simplified explanation of the article "[Laws of Tech: Commoditize
Your Complement](https://gwern.net/complement)" for someone new to
economics:

---

### **Key Idea: Control One Layer, Make the Rest Cheap**
The article describes a common strategy in tech where companies aim to
dominate *one part* of a product’s "stack" (like software, hardware, or
services) while making other parts *so competitive* that they become cheap
commodities. This drives up demand for their own product and lets them
capture most of the profits.

#### **Example 1: Microsoft vs. IBM**
- **Microsoft’s Move:** In the 1980s, Microsoft sold its operating system
(MS-DOS) to many PC manufacturers, not just IBM. This turned PCs into a
commodity—lots of companies made them, prices dropped, and PCs became
widespread.
- **Result:** Cheap PCs meant more people bought them, which increased
demand for Microsoft’s OS. Microsoft became the monopoly in operating
systems, while IBM lost control of the PC market.

#### **Example 2: Printers and Ink**
- Imagine a printer company that sells cheap printers but expensive ink.
The printers are a "complement" to ink—if printers are affordable, more
people buy them, and the company profits from selling pricier ink.
Conversely, if ink were cheap, printer sales might rise.

---

### **What Are Complements?**
- **Complements** are products used together. For example:
  - Smartphones and apps (cheaper apps → more phone sales).
  - PB&J sandwiches (if jelly gets expensive, fewer people buy bread and
peanut butter).
- When the price of one complement drops, demand for the other rises.

---

### **Why Companies Do This**
1. **Monopoly Power:** By controlling one layer (e.g., software), companies
can charge premium prices.
2. **Commoditize Complements:** Make other layers (e.g., hardware) cheap
and interchangeable. This:
   - Boosts overall demand for the product stack.
   - Redirects profits to the monopolized layer.
3. **Avoid Competition:** If complements are commoditized, no rival can
dominate those layers.

#### **Real-World Strategies**
- **Open-Sourcing Software:** Companies like IBM and Google fund
free/open-source projects (e.g., Linux) to commoditize software layers,
ensuring their consulting or ad services remain profitable.
- **Browsers and Servers:** Netscape gave away its browser to sell more
servers.
- **Google’s Odd Projects:** Google invests in free tools (e.g., fonts,
Android) to make internet access cheaper, which indirectly boosts ad
revenue.

---

### **Why This Matters**
- **Power Dynamics:** Companies like Apple or Microsoft profit by
controlling critical layers (iOS/Windows) while letting others compete in
apps or hardware.
- **Innovation vs. Control:** While commoditizing complements spurs
competition in some areas, it can stifle innovation in others (e.g., small
hardware makers struggle to profit).
- **"Desert of Profitability":** Successful companies create ecosystems
where they’re the only profitable player, making it hard for rivals to
survive.

---

### **Key Takeaway**
Tech companies often focus on dominating *one critical part* of a product
(like software) while ensuring other parts (like hardware) become cheap and
generic. This lets them control pricing, maximize profits, and outlast
competitors. Think of it as a game where you corner the market on chess
pieces while letting everyone else sell boards.

For more details, you can explore the full article [here](
https://gwern.net/complement).
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