Conservation of Attractive Profits

Introduction

This is a theory put forward by Clayton Christensen, the famed business thinker.

The PC Industry

It’s most easily understood with an example from the PC industry.

A lot of the value in the early days of the PC industry was in hardware. As hardware became more commoditised, the value of software increased. As open source software became prevalent, the value of software decreased. Arguably the value now is in data.

To use the old adage ‘as one door closes another opens’. As one thing becomes commodised, it enables the next wave of innovation to be built on top, which sustains profits in the industry as a whole.

Conclusions

It should be taken with a pinch of salt. Most companies are operating in a commoditised market, and there is still money being made throughout the PC industry. However, it’s a useful thought experiment - what products can be built on top of technology X once it becomes commoditised?