The economics of this decade can be summed up as a fight between abundance and scarcity. (Pictured is the first oil well, courtesy the Paleontological Research Institute.)
Digital goods are abundant, their economics that of abundance. The time and attention of buyers is limited, the products on offer unlimited. So if you can monetize small slivers of that, as Google, YouTube and MySpace do, through truly deep personalization (it’s all about you and what you want to know, see and feel) you’re going to make money.
In contrast there is oil economics, which the current Administration has been making paramount. Oil is based on an economics of scarcity. The providers have the whip hand, and by manipulating supply they can maximize their value. OPEC does it, refiners do it, integrated oils do it by owning their own dealers.
The producers of "copyright" goods — movies, TV, music, books, software, etc. — all depend on an economics of scarcity. You’ve got to see that movie now, you’ve got to turn on the TV to this channel at this time, you’ve got to get the #1 hit and be the first on your street to read the #1 book. You want to run the new Windows applications, so you need Windows now, and new hardware to run it. This makes the supplier of the good king, able to name their own price by manipulating supply — just like an oil company. And it’s good to be the king.
Trouble is, it doesn’t work anymore. The Internet provides too much
abundance for it to work. And thus we have business model problems.
Intractable ones. You can’t turn a scarcity-based business model into
one based on abundance. It’s impossible.
- Scarcity business models give the power to the intermediary who represents the seller.
- Abundance business models give the power to the intermediary who represents the buyer.
Open source software, too, takes advantage of the economics of
abundance. Their business model is based on support, an assurance that
what you have will work. Proprietary software, on the other hand,
demands payment for features — the money goes into what will come next.
This is what makes our time so similar, in my eye, to the 1890s.
It’s because we’re really facing a basic change in business economics that we have this crisis.
Back then we were moving to mass production, mass consumption and
mass merchandising models, driven by new technologies that transcended
time and space. The nation trumped the locality. The U.S. rose to
economic leadership because it had the largest national market, and
thus could supply the goods to dominate smaller national markets.
The move from an economics of scarcity to one of abundance is just
as wrenching. And the resistance is greater. That’s why we haven’t seen
many new technologies emerge this decade (the commercial Internet is
over a decade old). Our policies favor scarcity over abundance. They
even try to force scarcity (as in digital goods) where non exists.
In the end the people of the 1890s’ crisis had no choice. The Uneeda biscuit in the airtight sanitary wrapper made the cracker barrel obsolete.
In the end we face the same reality. The planet must be saved or our
grandchildren will die. The future lies in the economics of abundance.
Resistance is futile.
Dana, I know I can’t convince you that open source is just a tactic. But I can show you how to easily marginalize the true believers in “open source”. The strategy with software goes like this… Give the base product away for free, charge for “Pro” features. The base product should be useful to people, something they will keep on their hard disks and use. The “Pro” features should be tempting enough that 1 day, 1 week, 1 month, or 1 year out, the free user will be tempted to upgrade. Notice there is nothing about source code here. Keep it proprietary. One day the open sourcers come along and ask for the source. You just say “It’s already free, X hundred thousand people use it regularly, and we have a Y% Pro conversion rate. What value are you really gonna add?” The last question being purely rhetorical and any attempt to answer it demonstrating advanced rectal cranial inversion.
Proprietary software developers have come to realize something… You can’t compete with free. It’s a lesson the open source crowd is going to have driven home to them in the next 5 years. Case in point: iTunes software for Mac/Windows driving the sale of accessory products (iPods, iTunes Store content, Airport Express, etc.)
Dana, I know I can’t convince you that open source is just a tactic. But I can show you how to easily marginalize the true believers in “open source”. The strategy with software goes like this… Give the base product away for free, charge for “Pro” features. The base product should be useful to people, something they will keep on their hard disks and use. The “Pro” features should be tempting enough that 1 day, 1 week, 1 month, or 1 year out, the free user will be tempted to upgrade. Notice there is nothing about source code here. Keep it proprietary. One day the open sourcers come along and ask for the source. You just say “It’s already free, X hundred thousand people use it regularly, and we have a Y% Pro conversion rate. What value are you really gonna add?” The last question being purely rhetorical and any attempt to answer it demonstrating advanced rectal cranial inversion.
Proprietary software developers have come to realize something… You can’t compete with free. It’s a lesson the open source crowd is going to have driven home to them in the next 5 years. Case in point: iTunes software for Mac/Windows driving the sale of accessory products (iPods, iTunes Store content, Airport Express, etc.)
What value would open source add? Well, let’s look at iTunes. If it were open source, then there would be a version for Linux and even more iPods might be sold. Of course, the flip side is that people could then make iTunes or an iTunes knockoff work better with non-Apple hardware and less iPods and other Apple stuff might be sold. Clearly Apple doesn’t care much for supporting Linux, or the would have already written their own version of iTunes for it (should be a fairly easy port from OSX). So they aren’t going to risk hurting their hardware sales just to avoid the work of doing their own port.
But what if you’re not Apple? Let’s say you are a new entrant hardware player. By using open source software, you can push some of the development load on to your enthuiast user base. Also the ability for the user community to easily mod your device increases its potential longevity and justifies a price premium over similar devices with a closed feature set. Now in the long run this could come back to haunt you as it means less room to sell upgrades that only add features instead of new capabilities, but it also increases your chances to be around long enought to have such problems.
Clearly, taking an existing product, that is selling well, open source has little utility. The true value of open source, however, is on the new entrant side. If you are focused only on applications, sure open source just looks like a marketing tactic. However, if you look at things from a platform perspective, you can see that there is a whole philosophy to open source. Basically, you are sacrificing the jackpot payout for increasing the chance of hitting it. In a country where people would rather play the lottery than worry about being financially responsible, it is not surprising that the business model of open source seems so alien.
What value would open source add? Well, let’s look at iTunes. If it were open source, then there would be a version for Linux and even more iPods might be sold. Of course, the flip side is that people could then make iTunes or an iTunes knockoff work better with non-Apple hardware and less iPods and other Apple stuff might be sold. Clearly Apple doesn’t care much for supporting Linux, or the would have already written their own version of iTunes for it (should be a fairly easy port from OSX). So they aren’t going to risk hurting their hardware sales just to avoid the work of doing their own port.
But what if you’re not Apple? Let’s say you are a new entrant hardware player. By using open source software, you can push some of the development load on to your enthuiast user base. Also the ability for the user community to easily mod your device increases its potential longevity and justifies a price premium over similar devices with a closed feature set. Now in the long run this could come back to haunt you as it means less room to sell upgrades that only add features instead of new capabilities, but it also increases your chances to be around long enought to have such problems.
Clearly, taking an existing product, that is selling well, open source has little utility. The true value of open source, however, is on the new entrant side. If you are focused only on applications, sure open source just looks like a marketing tactic. However, if you look at things from a platform perspective, you can see that there is a whole philosophy to open source. Basically, you are sacrificing the jackpot payout for increasing the chance of hitting it. In a country where people would rather play the lottery than worry about being financially responsible, it is not surprising that the business model of open source seems so alien.
Ah Jesse. I even told you it was a rhetorical question. In the Spring of 2001, Apple shipped iTunes software. Way back then, “open source” was going to take over the world just as Dana says it will today. Yet, Apple bucked the trend, turning a proprietary application into a giant commerce platform by giving it away for free. Apple wasn’t even the first to play this game. Netscape did it in 1995, giving its Navigator software away for free to seed the market for its server products. And it did pretty well with that model until its record IPO made it bloat and Microsoft playing the same game brought it to its knees. All proprietary software, BTW…
The truly ironic part of this trend of proprietary developers embracing “you can’t compete with free” to marginalize open source is Oracle’s new play… undercutting RedHat with its own fork! The Sleepycat acquisition scared lots of open source purists. But with its separation from RedHat, the pattern is clear. Oracle will have a host of OS and database services it offers basically for free. Customers who want to use Oracle’s industry standard platform (which becomes standard because it is free) pay for enhanced functionality. Some of the base may be a flavor of open source (Berkeley DB, Linux). Some of the base will be proprietary (Oracle low-end database). Open source is just a tactic in this system.
Ah Jesse. I even told you it was a rhetorical question. In the Spring of 2001, Apple shipped iTunes software. Way back then, “open source” was going to take over the world just as Dana says it will today. Yet, Apple bucked the trend, turning a proprietary application into a giant commerce platform by giving it away for free. Apple wasn’t even the first to play this game. Netscape did it in 1995, giving its Navigator software away for free to seed the market for its server products. And it did pretty well with that model until its record IPO made it bloat and Microsoft playing the same game brought it to its knees. All proprietary software, BTW…
The truly ironic part of this trend of proprietary developers embracing “you can’t compete with free” to marginalize open source is Oracle’s new play… undercutting RedHat with its own fork! The Sleepycat acquisition scared lots of open source purists. But with its separation from RedHat, the pattern is clear. Oracle will have a host of OS and database services it offers basically for free. Customers who want to use Oracle’s industry standard platform (which becomes standard because it is free) pay for enhanced functionality. Some of the base may be a flavor of open source (Berkeley DB, Linux). Some of the base will be proprietary (Oracle low-end database). Open source is just a tactic in this system.
Yes, we agree that taking a sucessful proprietary solution open source makes no sense. However, you have not addressed the issue of completely new platforms — not standalone free software applications but paid products that have a software component. I would argue that using open source in these platforms is a fundamental design choice and goes beyond mere marketing tactics.
Yes, we agree that taking a sucessful proprietary solution open source makes no sense. However, you have not addressed the issue of completely new platforms — not standalone free software applications but paid products that have a software component. I would argue that using open source in these platforms is a fundamental design choice and goes beyond mere marketing tactics.
Never said it was a “mere marketing tactic” Jesse. And it’s not just about design either, no matter how much anyone would like the geeks of the world to be the heros. “Open source” is a product tactic uniting design, marketing, support, etc. There are times when it’s useful to deploy, times when it’s not terribly hurtful, and times when it’s sheer lunacy. But the whole product does not need to be “open source”. Portions can be varying degrees, and the proportionality can be in flux as the whole product evolves. It’s like a spice. Add a pinch where you need to. Don’t jump dump a gallon of chili powder into a pot of gumbo because chili powder is a seasoning (tactic), not a base (strategy).
And the funny thing is, that even above the protestations of the open source jihadists, closed systems can be excellent and can be relevant even today! This is the kind of critical thinking one learns at a top computer science graduate school (like UC Irvine, where I went). Software quality is a misnomer. The right term is “software qualities” (plural). “Transparency” and “openness” are just two of many desirable qualities of software, or products in general. There are often trade-offs among all the imaginable qualities. When someone touts one particular software or product quality is supreme, as a strategy rather than a tactic, I know that someone is a KoolAid drinker. Perhaps some day we’ll see a movement centered around “maintainability” rather than “transparency”. Or maybe a resurgence of “modularity” with new component architectures. FWIW, I am a modularity KoolAid drinker, so I’d welcome that.
Never said it was a “mere marketing tactic” Jesse. And it’s not just about design either, no matter how much anyone would like the geeks of the world to be the heros. “Open source” is a product tactic uniting design, marketing, support, etc. There are times when it’s useful to deploy, times when it’s not terribly hurtful, and times when it’s sheer lunacy. But the whole product does not need to be “open source”. Portions can be varying degrees, and the proportionality can be in flux as the whole product evolves. It’s like a spice. Add a pinch where you need to. Don’t jump dump a gallon of chili powder into a pot of gumbo because chili powder is a seasoning (tactic), not a base (strategy).
And the funny thing is, that even above the protestations of the open source jihadists, closed systems can be excellent and can be relevant even today! This is the kind of critical thinking one learns at a top computer science graduate school (like UC Irvine, where I went). Software quality is a misnomer. The right term is “software qualities” (plural). “Transparency” and “openness” are just two of many desirable qualities of software, or products in general. There are often trade-offs among all the imaginable qualities. When someone touts one particular software or product quality is supreme, as a strategy rather than a tactic, I know that someone is a KoolAid drinker. Perhaps some day we’ll see a movement centered around “maintainability” rather than “transparency”. Or maybe a resurgence of “modularity” with new component architectures. FWIW, I am a modularity KoolAid drinker, so I’d welcome that.
Ok. I think the only thing we disagree on then is the difference between a tactic and a strategy. In my book, a tactic is too limited a term for what you are applying it to. Perhaps we could all agree if we started talking about strategies involving open source as opposed to strategies of open source?
Ok. I think the only thing we disagree on then is the difference between a tactic and a strategy. In my book, a tactic is too limited a term for what you are applying it to. Perhaps we could all agree if we started talking about strategies involving open source as opposed to strategies of open source?
Doubt it. Talking about a strategy involving open source makes about as much sense as talking about cookies that involves ginger. Dana makes a mountain out of an anthill calling open source a strategy or a basis of a strategy or any of that. It’s a flavor or an ingredient.
The question here is do you want to be a cheerleader or do you want to be knowledgeable? Do you want to be on a team or do you want to be relevant? Do you want to be an advocate or do you want to actually do something?
I guess the best way I can describe it is this… Do you ever get embarrassed for someone when they are making a public ass of themselves? Lots of people do. I do a little, but not as much as some people I know. It’s a strange kind of empathy. But I do get embarrassed for software developers that ship crappy products. I get embarrassed for the whole profession. Last night, helping a friend upgrade Norton AntiVirus, I got serious feelings of embarrassment for whomever put that upgrade user experience together. I get the same kind of feeling when some open source do gooder tries to tell some unsuspecting person (whom I will probably have to bail out of a stupid computing decision at some point) to dump Windows and go with Linux. My grandfather’s computer club is a great example. Every couple of months, he asks me about it. Nobody takes into account that he has all his e-mail and finances and games and stuff on Windows. Nobody ever takes into account that he’ll never ever ever get the concept of a boot loader. He didn’t grow up with this stuff or the pace of change in it. And yet “open source” is so damned great, that he is told to switch to it. That whole attitude is stupid in spades.
Doubt it. Talking about a strategy involving open source makes about as much sense as talking about cookies that involves ginger. Dana makes a mountain out of an anthill calling open source a strategy or a basis of a strategy or any of that. It’s a flavor or an ingredient.
The question here is do you want to be a cheerleader or do you want to be knowledgeable? Do you want to be on a team or do you want to be relevant? Do you want to be an advocate or do you want to actually do something?
I guess the best way I can describe it is this… Do you ever get embarrassed for someone when they are making a public ass of themselves? Lots of people do. I do a little, but not as much as some people I know. It’s a strange kind of empathy. But I do get embarrassed for software developers that ship crappy products. I get embarrassed for the whole profession. Last night, helping a friend upgrade Norton AntiVirus, I got serious feelings of embarrassment for whomever put that upgrade user experience together. I get the same kind of feeling when some open source do gooder tries to tell some unsuspecting person (whom I will probably have to bail out of a stupid computing decision at some point) to dump Windows and go with Linux. My grandfather’s computer club is a great example. Every couple of months, he asks me about it. Nobody takes into account that he has all his e-mail and finances and games and stuff on Windows. Nobody ever takes into account that he’ll never ever ever get the concept of a boot loader. He didn’t grow up with this stuff or the pace of change in it. And yet “open source” is so damned great, that he is told to switch to it. That whole attitude is stupid in spades.
Again, I agree with most of what you are saying. The thing is, you are focusing on open source strictly from a consumer perspective. Of course, open source gives no direct benefit to consumers. Open source, however, can give a benefit to product developers. Benefit to developers should eventually get passed along to consumers, so open source does have an indirect benefit to consumers. Again, I am not saying that open source is strictly better than proprietary — both have their place. If you are a cook, talking about the different ways to use ginger in cookies makes a lot of sense . . .
Again, I agree with most of what you are saying. The thing is, you are focusing on open source strictly from a consumer perspective. Of course, open source gives no direct benefit to consumers. Open source, however, can give a benefit to product developers. Benefit to developers should eventually get passed along to consumers, so open source does have an indirect benefit to consumers. Again, I am not saying that open source is strictly better than proprietary — both have their place. If you are a cook, talking about the different ways to use ginger in cookies makes a lot of sense . . .