Is it COTS or Commodity?
by Michael Hay on Dec 21, 2011
I find the IT community seems to be in a state of confusion between the two—now mind you I think that some people get it and can easily discriminate between the two. Commercial off the Shelf (COTS) offerings are just that. A more formal definition of COTS from Wikipedia follows:
In the United States, Commercially available Off-The-Shelf (COTS) is a Federal Acquisition Regulation (FAR) term defining a non-developmental item (NDI) of supply that is both commercial and sold in substantial quantities in the commercial marketplace, and that can be procured or utilized under government contract in the same precise form as available to the general public. For example, technology related items, such as computer software, hardware systems or free software with commercial support, and construction materials qualify, but bulk cargo, such as agricultural or petroleum products, do not. (source: Commercial off-the-shelf – Wikipedia, the free encyclopedia)
My colleague Ken Wood talks about commodity in a post several months ago, Soybean Is A Commodity, where he muses on what is and is not a commodity. His summary is that basically the output and the resulting measures of many of the devices and systems that are produced in the ICT field are a commodity. However, the systems and devices themselves aren’t.
He says, “It is my opinion that there is a misunderstanding and confusion in the IT industry between ‘commodity goods’ and ‘consumer products’ when it comes to technology. I can’t pinpoint the exact origin of why or how these two concepts seem to have become synonyms for each other, especially in the IT industry, but there is a difference between commodity goods and consumer products.”
Personally, I think that this stems from confusion about COTS and commodity, and may have crept into the ICT vocabulary just like “NIC Card” and “Transparent to the Application,” see my previous post where I ranted on the topic of language misuse in ICT. While occasional misuse is relatively harmless, I believe that the misapplication of commodity has resulted in inappropriate thinking about the costs of technology. Let’s explore this last point for a bit.
Let’s assume that hard disk drives and the resulting capacity were a commodity, if so they are a strange beast I would have to say. In fact they may even represent a kind of unique commodity which follow the law of supply and demand, but have planned cost erosion. The cost erosion is associated to predictions by industry patterns like Moore’s law, and is somewhere between 20%-30% per year. Imagine that—a commodity with a predictable annual per unit price decline. I’m sure that the mathematical wizards on Wall Street would love to have something with the level of predictability experienced in both consumer and enterprise capacity production/purchases. Sure tragedies like those in Thailand and restrictions of rare Earth metals can cause disruptions in supply that has the potential to increase costs if demand is not damped or constrained, but through the innovative human potential and given enough time even these unfortunate events have little impact. So is storage capacity a commodity? I would say that unless the definition of a commodity has changed, both the capacity measures and the actual devices aren’t a commodity. They are rather COTS devices with commodity properties.
With that in mind, what about CPUs, memories, and more importantly advanced systems that aggregate and combine COTS in unique ways to release innovation? In my opinion the clear answer is no. Storage, servers, networking, etc. are not commodity, but surely can be COTS. Obvious questions are: Why is this important? Why does it matter? I see this is important because of the potential for COTS to contain innovations unique to a particular technology supplier. This matters to any consumer of ICT because these innovations may actually be a better match to your business, and potentially even the entire market as a whole.
This last statement “entire market as a whole” is interesting because I see that the fundamental tectonic plates of the technology industry are shifting to favor more OPEX-friendly technologies. It also means that as a consumer, you may be willing to pay more for innovation in the short term especially if the technology delivers innovation you can leverage and amplify, or it reduces your OPEX such that you can reinvest money elsewhere. So where do we see this occurring in the industry now? Well, I would say that the trend to deliver complete IT stacks as I’ve discussed in The Rack is the New Server, the Data Center is the New Rack, is an example where CAPEX may be a bit higher but the potential for savings on the backend through staff reallocation, reduced maintenance costs, and assured configurations may make the slightly higher CAPEX worth it.
So the next time you hear an IT professional say something like, “That’s just a commodity technology…” stop them and correct the usage of commodity with COTS. By keeping this terminology misuse in the ICT industry it serves to devalue innovations that vendors add, users can take advantage of, and that creative companies can leverage to engender new innovation on top. I personally fear that without a grass roots effort to make a change here as an industry we are going to be increasingly satisfied with mediocre offerings and products.
As a former Federal employee with extensive procurement experience, I would argue that there is much less confusion that one might think. The reason is that COTS is typically something that the Government or its contractors worry about, but not the average person or business. In the past 10-15 years, Government purchasers have been “encouraged” to buy COTS products rather than custom components that meet the complete set of requirements, but cost an arm-and-a-leg. Examples include $640 toilet seats, $7,600 coffee makers, $436 hammers and other overpriced spare parts used by the military (http://www.chron.com/CDA/archives/archive.mpl?id=1985_37485).