The OEM’s dilemma ⌥ why shifting to open software is hard
In The Innovator’s Dilemma (1997) author Clayton M. Christensen highlights the critical and difficult choices that companies face: Do they continue to invest in successful older products, or do they shift towards newer, promising but unproven and to be developed products, with high risk and uncertainty? These considerations apply at many different levels, not only at the individual product level but also for the business model and in the corresponding thinking/incentivized behavior of individual employees.
https://guidedimports.com/blog/odm-oem/ explains the difference between Original Design Manufacturing (ODM) versus Original Equipment Manufacturing (OEM). ODM products — also known as ‘private labeling’ — are variations on a theme, different colors and print patterns on a mass-produced baseline item for example. In contrast, OEM products require dedicated R&D resources, and the unique and hard-won outcome of the design process requires protection from intellectual theft and copying.
Open source software is more like ODM: Packaging, configuring and branding of a set of freely available software components. Differentiation is in minor customizations or configurations, or the use of the software as part of a service/platform (as-a-service).
In many areas, the world is experiencing a shift towards flexibility and software, to accommodate an accelerating rate of change and correspondingly shorter deployment/investment cycles. OEM companies see this popup in the form of rapidly evolving business requirements. These market forces imply an increase in the use of open source software (i.e. leverage what exists, is tested/proven/supported and fulfills 80% of requirements), and this transition is hard for OEM minded people as it requires a shift from intellectual property right protection and conservative traditional thinking to an open, collaborative sharing mindset.
Counterexample: YouTube
At the same time, not everybody is on the same curve or in the same phase of development. Consider Google’s YouTube who recently switched to a hardware-based Video Coding Unit (VCU), moving away from software to gain a 20–33x improvement. As stated there, “Hardware in general is a risk because it’s a long-term commitment”, and software emulation can be used to reduce this risk. Perhaps this example can serve as a beacon of hope?
The hard truth about software
From the preceding paragraphs and popular media headlines in general, it might seem like hardware belongs in the past and software is the future. After all, most of the big successful tech companies — Amazon, Apple, Facebook, Google, Microsoft — would be considered “software” companies moving towards “the cloud”, and McKinsey tells us that value is migrating there.
For the average user, hardware is predominantly experienced through software. True, we interact with our computers through our mouse and keyboard, and watch things change on our displays, but these hardware components remain fixed — and have been like that for decades. What changes, is the application programs we use, the websites we visit, the Tweets we engage with: The software.
It is interesting to consider how people perceive value; perhaps change is value, because it creates a contrast with what we had before? Add to that the personalization features offered by software: Users can configure applications to match their unique preferences. Conversely, if we do not perceive change, we do not see much value: We take things for granted, we start seeing them as being all the same, and commoditization kicks in.
What’s next?
Software will always run on hardware, both are necessary elements and one is not superior to the other. For hardware oriented companies and people, explore the world of software, and vice versa. Collaboration and co-design across both domains will likely lead to winning solutions.