Commoditize Your Complement

principle

If your product depends on something else to be useful, making that complement cheap and widely available can increase demand for your product—and leave more of the customer’s budget available for it.

IBM published its specifications so that other manufacturers could build peripherals. The result sounds self-defeating: IBM helped outsiders flood part of its own ecosystem. But cheap peripherals made the expensive IBM computer easier to buy and use.

Make the other layer compete

Products joined as complements cooperate in use but compete for the customer’s money. Under a shared-budget-constraint, every extra dollar required for peripherals is a dollar unavailable for the computer. Opening the specifications increased the number of peripheral makers, pushing that layer toward abundance while IBM retained control and pricing power over the main machine. The strategic move is to concentrate scarcity in the layer you sell and encourage competition everywhere your product depends on.

Where it shows up

IBM opens the peripheral market

By enabling many manufacturers to produce compatible peripherals, IBM reduced the cost of assembling a complete system without reducing the price of its central product. This is the reverse of vendor-lock-in: rather than owning every required piece, IBM benefited from letting suppliers compete around its machine.

Commoditization can travel upstream

Compatibility does not guarantee that value remains with you. If competitors can also connect to the newly abundant complement, platform-commoditization may reach your own layer and erase its differentiation. The principle works only when cheaper complements strengthen demand for something you can still keep scarce, distinctive, or controlled.

Open the bottleneck you do not monetize

Map the complete cost of adopting your product, then identify the required component you neither sell nor need to control. Publish an interface, specification, or compatibility path that lets multiple suppliers compete to provide it—but first check that the same opening will not make your own product interchangeable.

Episodes that teach this

Substitute Goods & Complementary Goods | Interesting Economic Facts · explained at 8:59 1,058 views
IBM published specs so many manufacturers could make peripherals, making peripherals cheap while IBM's main computer stayed expensive.