Strategy Letter V: Commoditizing Your Complements

Joel Spolsky’s Strategy Letter V explains a powerful business strategy: “Demand for a product increases when the prices of its complements decrease.”

The Core Strategy

Smart companies try to commoditize their products’ complements—making supplementary products cheap, interchangeable, and undifferentiated so more people purchase the main product.

Real-World Examples

IBM and PCs: IBM documented PC interfaces to encourage manufacturers to create cheap add-in cards and peripherals. Lower-cost components drove PC sales.

Microsoft: By licensing DOS to multiple PC manufacturers rather than exclusively to IBM, Microsoft made PCs commodities. Cheaper hardware increased demand for operating systems—their actual profit center.

Enterprise Software: IBM supports open-source software because consulting (their complement) benefits when enterprise software becomes commoditized.

Sun and Java: Sun promoted bytecode architecture to make hardware interchangeable, expanding software demand—though this paradoxically hurt Sun since they were primarily a hardware company.

Key Insight

Hardware easily commoditizes software (through abstraction layers), but software rarely commoditizes hardware. This asymmetry shapes strategic decisions across the technology industry.

My Takeaway

Understanding this principle reveals the hidden logic behind many tech company decisions that seem irrational on the surface. As a founder, identify your complements and consider how commoditizing them could grow your core business.

What complements could you commoditize? I’d love to hear at persdre@gmail.com.