Wednesday, April 16, 2008

Commoditisation & Commodification

I thought I'd just re-iterate the distinction between the above terms that was first identified by Douglas Rushkoff:-
  • Commodification (mid to late 1970s, Word) is used to describe the process by which something which does not have an economic value is assigned a value and hence how market values can replace other social values. It describes a modification of relationships, formerly untainted by commerce, into commercial relationships.
  • Commoditisation (early to mid 1990s, Neologism) is the process by which goods that have economic value and are distinguishable in terms of attributes (uniqueness or brand) end up becoming simple commodities in the eyes of the market or consumers. It is the movement of a market from differentiated to undifferentiated price competition, from monopolistic to perfect competition.
These two processes don't just occur to physical things. For example, where knowledge or skill can be codified, as in written down in a manual, it will most likely become traded. This act commodifies such knowledge. Of course, the cost of reproduction of knowledge in a digital age is almost zero, so such knowledge tends to spread. It therefore becomes commoditised, even to the point of being given away freely in wikipedia.

Commoditisation applies to physical capital, human capital and even social capital.

Where do you think reputation based networks are going to lead if not towards the codification, commodification and subsequent commoditisation of social capital. Did anyone really believe that commoditisation of content would stop at news and somehow ignore film, music and other content based industries.

I more than understand the concerns of the "old guard", but I'm afraid that's change for you. The wandering minstrels, town criers and hot metal machinists of the past got used to it, and so will those who face the cold wind of change today.

Commoditisation effects all industries that are intensive in the form of capital that is being commoditised.

Of course, no-one likes this, hence the brouhaha we have in the IT industry about utility computing clouds. This is simply our industry following a well trodden path, as was predicted back in the 1970s. I say predicted because in reality it's just the same old pattern of commoditisation applied again. I covered many of these themes in my Future of Web Apps talk in 2007.
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