Ever wonder why Hubspot gives away most of their software for free? Their CRM, Sales Automation, Calendar applications are all available for users without charge. Joel Spolsky, Founder of Stack Overflow, identified what would be recognized as a major pattern in technology business in his post ‘Strategy letter V’ (in June 2012) – “companies seek to secure a chokepoint or quasi-monopoly in products composed of many necessary & sufficient layers by dominating one layer while fostering so much competition in another layer above or below its layer that no competing monopolist can emerge, prices are driven down to marginal costs elsewhere in the stack, total price drops & increases demand, and the majority of the consumer surplus of the final product can be diverted to the quasi-monopolist.”
All other parameters being equal demand for product increases when the prices of its complements decrease. That’s what propelled Microsoft which licensed its OS to IBM but not exclusively, and then to Compaq and HP who all legally created IBM PC clones and fought for a ever decreasing margin but a ever increasing market size, all the while making Microsoft and its OS win.
“…In general, a company’s strategic interest is going to be to get the price of their complements as low as possible. The lowest theoretically sustainable price would be the ““commodity price””—the price that arises when you have a bunch of competitors offering indistinguishable goods. So: Smart companies try to commoditize their products’ complements. If you can do this, demand for your product will increase and you will be able to charge more and make more.”
This early development reflects in the growing practice of companies making large contributions to open source products and projects. Netscape open sourcing their browser ( to sell their servers) or Sun open sourcing Java is not much different from the motivation of Microsoft buying Github.
Closer home in the SAAS and Sales Tech Stack you see Hubspot doing exactly the same by offering CRM and Sales Automation softwares for free and charging well for their marketing automation stack. I would like to write a more exploratory piece on this topic in the near future. For now read the reference paper which triggered this article.
Link provided below.
Laws of Tech: Commoditize Your Complement https://www.gwern.net/Complement
Strategy Letter V by Joel Spolsky(June 2012) https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/
