When Your Skills Are a Commodity

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Earlier this week, I had the pleasure of speaking with a colleague in Silicon Valley who is a top notch expert in one of the hottest fields, Big Data Analytics. As the name implies, he is an expert at creating and performing analysis on massive data sets. This gentleman spent many years as a high-end technology consultant, and I have no doubt he was well worth it.

He used an interesting phrase, the "commoditization of technology skills."

We are all aware of two perils that can put your skills, whatever they are, in danger of devaluation:

  1. Automation: If whatever you do can be done by a machine, well, you are likely to be out of work pretty soon. There are still chauffeurs around, but far fewer than there were buggy drivers a hundred years ago, and how many stable managers are still left?
  2. Obsolescence: If the skills you use are, in principle, useful, but an alternate technology takes over, you are left without much to do. In the technology world this happens often, which is why engineers are constantly trying to keep up. For example, if you are an expert in Fortran (a programming language from the 1950s), the programming skills you have are still useful, but your "tool belt" is not useful to many.

However, there is a third peril, and that is commoditization.

Commoditization happens for products and services when something that was originally custom-built and expensive, and thus useful only to those customers who could extract extremely high value out of it, becomes simpler and cheaper to manufacture, and thus becomes a commodity. Automobiles were originally either a plaything for the extremely wealthy, or of use only to very high-level executives whose time was so valuable that it was worth buying one to get to their destinations faster (like private airplanes today); today, just about every family in the developed world has a private car. Similarly, radios were originally large pieces of furniture manufactured by RCA with very high fidelity; today, you can get it in software. Simon Wardley has done some fascinating work in describing how commoditization affects your company's value chain.

It turns out that skills themselves also become commoditized.

When a new type of skill is required, e.g. new programming languages, there are few who actually have the knowledge, experience and artistic sense to provide it. However, since this new skill presumably is of great value in either generating revenue or reducing costs, high demand and low supply lead to high prices. At this phase, expensive consultants are the only place to go.

Over time, as more people learn and practice the skills, and as demand increases, supply enters the market. Because these consultants earn so much, more people desire to enter the market, but few have the artistic skills to compete, and so they demand training. Formalized training is nothing more or less than the creating of a science, a process, around something that was formerly an art known to few.

As training increases, and more people with less art and more repeatable process enter the market, supply increases, especially from non-"artistes", thereby driving down the price. The firm that used to hire $300/hour consultants and pay them for quarter-time, or 2,000*$300*.25 = $150,000, can now get a full-time on-site employee for $100,000.

This process occurs with every skill set out there, unless it is displaced by Automation or Obsolescence, or it is protected by a monopoly or guild, such as a lawyers' guild (ABA), doctors' guild (AMA).

If you are selling skill-based services as your core, ask yourself, "what is the commoditization process that will occur in my skill set, who will lead it, how, and when?"