Accelerated commoditization: prize your customer's privacy

Over the past few years, I’ve seen more and more interest in commoditization. Historically, commodities are found in the basics: food (corn, wheat, sugar), oil, precious metals, etc… Whether it be the major computer hardware vendor offerings, web browsers speed/security/features, or open source vs. commercial software, the differentiators between the survivors trend to zero. Two seemingly unrelated topics (counterfeiting/open source hardware) actually strengthen the commoditization case further and point to the real value within businesses.

In a recent edition of the Harvard Business Review, a case study titled “Can Knockoffs Knock Out Your Business” examines the issue of counterfeit merchandise, and its effect on a business’ growth. While this study centered around the what and how, the why is of the most interest to me. Counterfeiting works. In some instances it’s an extra run of the product on the same equipment that makes the originals. In this article, it’s actual reproductions of the originals. The bogus items show up nearly as fast as the introductions. As the anti-fraud holographic logos and woven magnetic fabric goes into the costs, the counterfeiters reproduce those techniques and technologies for less money. The result is a logarithmic difference: the price of the original work skyrockets beyond many consumer’s price points, and the counterfeiters bring the style back into the have not’s hands. As more, better reproductions exist, the end consumer cannot tell the difference. This is the very definition of a commodity.

Wired Magazine documents another example of commoditization in the article “Build It. Share It. Profit. Can Open Source Hardware Work?” The Italian hardware manufacturer Ardunio offers their board schematics, design files, and software online under an Open Source agreement. Users may outsource the schematics to anyone, anywhere to build the parts. Individuals probably won’t bother with such steps because of minuscule differences in price, but some companies have begun building Ardunio’s designs. According to the article, there is still a quality difference with Ardunio’s product, but that should be overcome in short order with a simple rise in board demand.

I believe both of these articles show the increasing and accelerated commoditization of the global marketplace. Fewer and fewer products are truly unique, and those which are found desirable are quickly and cheaply duplicated. Why is this of interest within the privacy realm? It really comes down to what sets the market leaders apart from the copycats. Two things that don’t tangibly show up on a balance sheet, but are often assigned an arbitrary (and sometimes quite large) value – reputation and information.

Reputation is easily damaged with counterfeits. The gaming, salon and clothing industries all take extraordinary measures to ensure the chips/hair product/fashions are original. Through “customer education” campaigns, cosmetics manufacturers stress the fragility of the product’s they sell, and their short shelf life – buy from the authorized distributor’s such as salons and avoid spoiled product. The gaming industry’s chips are a relatively expensive product, and have the latest technologies and techniques implemented within. They implement quite a bit of manpower and have a well defined perimeter. Lastly, they may also swap all chips within the entire casino out at a moments notice, foiling large counterfeit losses. Fashion designers can’t help but be copied; everyone always wants the latest styles. Looks are kept fresh with seasonal collections of the hottest new looks. As Heidi Klum points out – “You’re either in, or you’re out”.

Information may be either market or customer intelligence; this is where the intangibles lie. A company knowing it’s customers is paramount to success. An account manager calls and logs feedback on everything from an order to delivery and final consumption. Each progressive order should be smoother, with fewer unknowns – how many, at what cost, what speed of delivery, etc… This information becomes very valuable, and potentially riddled with private information the customer would rather keep out of others hands. Relationships built over years yield vast sums of details of a customer, some personal – wife, kids, likes, dislikes, handicap – and some company confidential – terms of payment, liquidity, employee productivity, etc… In my opinion, as commoditization takes over every industry, this customer information, and the data it is built upon, will be of the utmost importance and most prized within a privacy breach.


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