The Perfect Commodity

1
Chapter 3

• The Perfect Commodity
• By Rick Christoph

2
What does it mean to be a Commodity

• Standardized product
• Compete on cost basis
• High customer awareness of product
• Which life cycle stage?

'I've had a perfectly wonderful evening. But this
wasn't it.' -- Groucho Marx
3
The Lifecycle
4
Commodity Impact on 5 Competitive Forces

• Rivalry?
• Buyer Power?
• Supplier Power?
• Entrants?
• Substitutes?

5
Early IT Hardware

• Emerging technology
• No Standards
• Rapid change
• Unit Record, Punch Card, Disk

'Some cause happiness wherever they go others,
whenever they go. -- Oscar Wilde
6
Some firms fail

• GE, Univac, RCA
• Buyers seek power at lower cost

http//en.wikipedia.org/wiki/UNIVAC
7
Introduction Issues

• Early PCs
• Several different approaches
• Strong push to standardize
• Customer base grows as costs drop
• Venders make products similar to lower switching
  costs

8
Growth issues

• The PC market of the late 90s
• High adoption rates
• PC Technology moves toward an infrastructure
  base
• Knowledge is rapidly disseminated
• MANY entrants

9
Overshooting

• Technology develops past the point needed by
  users
• Users can be satisfied with lower end units
• Do not need to upgrade as rapidly
• Consider Windows 3.1 to Win 95
• Now look at Windows XP to VISTA

10
Semiconductor Technology

• The transistor was invented at Bell Labs in 1947
  by John Bardeen, Walter Brattain, and William
  Shockley
• http//www.pbs.org/transistor/
• Advances in process have allowed system designers
  to pack more performance into more devices at
  decreased cost

11
Moores Law
http//www.intel.com/technology/mooreslaw/index.ht
m
12
Semiconductor Performance

• Electricity (electrons) moves at speeds close to
  the speed of light (186k miles/sec)
• As switching elements of a semiconductor get
  smaller, they can be placed physically closer
  together
• Since the absolute distance between elements
  shrinks, device speed increases
• Semiconductor manufacturing cost is related to
  number of chips produced rather than number of
  devices per chip

13
Semiconductor Performance

• As device size shrinks, performance improves and
  capability increases (more logic elements in the
  same size package and those elements operate
  faster)
• During the period from 1960 to 1990 density grew
  by 7 orders of magnitude
• 3 circuits to 3 million
• By 2020, chips will hold between 1 to 10 billion
  circuits

14
Example Semiconductors

• Semiconductors are produced in processing plants
  called fabs
• Fabs produce semiconductors on silicon wafers
• The wafers are sliced from extremely pure silicon
  ingots and polished
• These wafers can range in size from 6 to 12
  inches (150 to 300 mm) in diameter
• http//www.infras.com/Tutorial/sld001.htm

I never forget a face, but in your case I'll be
glad to make an exception. -- Groucho Marx
15
Semiconductor Processes

• Current state of the art fabs process 300 mm
  wafers, but moving to 450 mm.
• It costs 1.7 billion dollars and takes 30 months
  to construct and equip a fab
• Fabs are completely obsolete, on average, in
  seven years

16
Semiconductor Processes

• Each wafer holds many identical copies of the
  semiconductor
• The wafer moves from process to process across
  the fab, slowly being built up to create the
  final product
• The last step in the process slices the wafer up
  into the individual chips which are tested and
  packaged

17
Semiconductor Processes

• From early in the design of a fab, the number of
  wafers the plant can process per month is
  determined
• To maximize return on capital investment, the
  process engineers attempt to produce the greatest
  number of the highest value chips
• Decreasing device size increases both the number
  of chips per wafer and the speed of the devices
  produced

18
Semiconductor Processes

• The drive to use larger wafers stems from the
  economies of scale why 450 mm is key.
• 2.5 times as many chips can be cut from a 300 mm
  wafer as compared to a 200 mm wafer
• 300 mm fabs cost 1.7 times as much as 200 mm ones

19
Device Geometries

• Device geometry is defined by minimum feature
  size
• This is the smallest individual feature created
  on the device (line, transistor gate, etc.)
• Current feature size in leading edge fabs is 0.10
  microns
• Human hairs are 80 microns in diameter

20
Roadblocks to Device Shrinkage

• Most common chips are made using the
  Complementary Metal Oxide Semiconductor (CMOS)
  process
• Chips using CMOS only consume power when logic
  states change from 1 to 0 or 0 to 1
• As clock speeds increase the number of logical
  operations increases
• http//www.research.ibm.com/journal/rd/462/nowak.h
  tml

21
Recording Technologies

• Progress in recording technologies is even more
  rapid
• http//www.duxcw.com/digest/guides/hd/hd2.htm
• http//www.columbia.edu/acis/history/1301.html
• Disk-based magnetic storage grew at a compounded
  rate of 25 through the 1980s but then
  accelerated to 60 in the early 1990s and further
  increased to in excess of 100 by the turn of the
  century

22
Exploding Demand

• As personal computers have grown in computing
  power, storage demands have also accelerated
• Operating systems and common application suites
  consume several gigabytes of storage to start
  with
• The World Wide Web requires vast amounts of
  online storage of information
• Disk storage is being integrated into consumer
  electronics

23
Recording Economics

• At current rates of growth, disk capacities are
  doubling every six months
• Growth rates are exceeding Moores Law kinetics
  by a factor of three
• Price per megabyte has declined from 10,000 in
  1956 (IBM RAMAC) to 0.01 cent now.
• http//en.wikipedia.org/wiki/Computer_storage_dens
  ity

24
(No Transcript)
25
Bit Density

• Data density for disk drives is measured in bits
  per square inch called areal density
• 2001 areal density was about 70 gigabits per
  square inch and climbed to some 100 gigabits per
  square inch by the end of 2003
• Areal densities are now near 1000 gigabits per
  square inch
• http//www.pcmag.com/encyclopedia_term/0,2542,tar
  ealdensityi37970,00.asp

Baseball is 90 mental, the other half is
physical Yogi Berra
26
Life Cycle Maturity

• Overshooting becomes common
• Becomes difficult to get customers to buy new
  product as old product satisfies
• How can firms compete?
• COST!

27
The ultimate commodity

• Carr suggests the possibility of one huge
  hardware network where you buy only the computing
  power you need.
• You would no longer buy software only service
• Think of the electric system

28
What about software?

• Early software was very costly and hard to write
• A completely proprietary asset
• Groups have developed to build software and sell
  to firms
• Firms have bought the software even though they
  are no longer different as all competitors use it.

29
ERP software

• Possibly the ultimate expression in company
  management systems
• If competing firms operate SAP, how can they
  build a competitive advantage?

30
Life Cycle Decline

• Technology is total commodity
• Seek to re-define the system
• May happen in a complete network environment

I like pigs. Dogs look up to us. Cats look down
on us. Pigs treat us as equals. Sir Winston
Churchill