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How Much Profit is Enough?

52 replies on 4 pages. Most recent reply: Sep 12, 2005 1:37 PM by oswaldosalcedo

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Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

How Much Profit is Enough? (View in Weblogs)
Posted: Jun 27, 2003 10:05 AM
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Summary
The open source model assumes that the value of code is not necessarily monetary. Is this a precursor to the new economy, or will the capitalist world succeed in establishing money as the ultimate measure of all worth?
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A colleague recently forwarded an email from the proprietor of a web development company which said "As CEO of a small Web development shop (28 people), I never expected to be affected by the trends toward outsourcing large, software development jobs to overseas firms. ... [My company] has lost three medium-sized jobs (less than $25,000 each) to groups in India and Pakistan (and these are just the ones we have known about)." It took the best part of three hundred years for the industrial revolution to move the majority of manufacturing to the sweatshops, but it looks like the creation of the intellectual property that drives the information economy will get there in easily less than a hundred.

What's a Program Worth?

I am fascinated by questions of price and value. Anyone who has looked at computer hardware and software must be aware that the price of a new piece of computing functionality nowadays has more to do with its utility to the user than its cost of production. I remember attending an Intel seminar way back in the early 1980s (I was more involved in engineering then) when someone asked the presenter "How can you justify the price of a CPU chip?" The instructive answer was "We charge what the market will bear," which clearly reflects the element of utility. Today we see Intel spending huge amounts on "brand awareness" advertising direct to consumers to affect users' perceptions of utility. It's as though an engine manufacturer advertised to suggest you buy cars made by their customers. What do I care if my computer has an AMD chip in it, as long as it does the job?

Tom Peters predicted in the 1980s that the nature of markets would change, and that the successful modern corporation would be the one that could identify emerging markets and exploit them before their competitors had realised the opportunity existed. Traditional economic theory, or at least the small amount that I'm familiar with, assumes that an efficient market is able to dictate to the suppliers. Unfortunately the rise of corporate power and the ubiquity of advertising allows the suppliers to manipulate demand, in effect creating their own markets. How much easier to become aware of an emerging market you yourself have created!

In the 21st century the way to dominate your market is to run the most "efficient" (as few employees as possible, with manufacturing contracted out) and "flexible" (hire and fire at will, with no workforce guarantees or stability) operation you can, and charge as much as you possibly can. This is why we aren't employees any more, we are "human resources" (and it's also why I've been self-employed for almost as long as I can remember). If you manage your branding with saturation advertising then consumers will remain loyal to your product rather than preferring a more sensibly-priced competitor's. It's worked for Intel, Nike and Starbucks, and it's worked for Microsoft too - in a stroke of brilliance they have even outsourced the management of their other outsourced operations!

We can clearly see this becoming a reality in the United States, one consequence of which is the ugly spectacle of poor kids killing each other for a pair of trainers that retails for $125 despite the fact that their overseas sweatshop production cost is less than $5. What does this say about price and value?

Do We Have a Choice?

For a long time the tabloid press justified their practices by claiming that they only publish what people want to read. They have now succeeded so well that they have almost eliminated the broadsheet competition that used to offer an alternative. Whose interests does this self-fulfilling prophecy satisfy?

In a marketplace where survival depends on ruthless competition and a refusal to support human values, choice becomes limited. The inadequacies of the most popular software products clearly show that the products are leading demand, not following it. The market must consume what is available, or refuse to consume at all, and the latter is not an option for the business users who form the most profitable sector of the software market - they must compete in their own markets.

Are Microsoft just producing what the users want to run? Hardly: nobody in their right mind would specify a software environment as buggy as [pick your version of] Microsoft's Office or Windows. Yet at the slightest sign of competition from the open source world Microsoft's response is to begin a virulent campaign of misinformation and disinformation.

Open source software is "viral", they say, because it imposes terms and conditions on those who would use it. In truth only some licenses, such as the GPL, impose conditions on those who redistribute it, so anyone can run open source software, but Microsoft act as though running gcc on Windows will somehow encroach on their IP rights. It's amusing really: on the one hand Microsoft claim the right to profit at will from their own creation of intellectual property, and yet on the other they cry foul when faced with software whose licensing terms embrace the spirit of the cathedral not the bazaar, and threaten to introduce a measure of liberality into the software market.

It's no accident that the music industry now talks about "software" rather than "product". Software (be it music or computer code) is different -- the marginal cost of an additional copy is as close to zero as makes no difference. The vendors, however, are free to set their own price, which is now dictated by advertising-driven desires rather than real needs.

Is Open Source a Crime?

Unfortunately there seems to be no limit on corporations' manouevers to increase their profits, and few effective sanctions against them. Corporate interests are so powerful, and so closely tied to government, that it's quite likely open source technologies will become unviable. All it needs is for the corporations to successfully assert their rights to produce computer systems which will only run "approved" applications.

Corporations have persuaded most arms of the US government, always willing to accept that what's good for "the economy" (by which they mean corporate profits) is good for the country, that a crime against copyright is a serious offence. This merely reinforces the power of the corporate hegemony. How long will it be before Microsoft perfect (or, more likely, buy the inventor of) the technology that allows their operating system to prohibit non-approved applications? Their Palladium project shows that's where they want to go today. Anyone who finds a way around the technology will be charged with intellectual property crimes.

One legislator recently suggested, completely seriously, that the (automated) destruction of an offender's computer system would be a legitimate punishment for a third (automatically-detected) copyright offence. Wouldn't any self-respecting corporation like to get the contract to write that application? The fact that such idiots can be elected to govern a great nation is my primary evidence that capitalism and democracy together will ultimately lead to the self-destruction of the human race.

Ultimately it's all about greed. It's good to make a profit, and it's better to make a huge profit, so open source software is unamerican. Quite how the displaced IT workers in the developed economies are supposed to pay for the products they need to survive I'm not sure. That's not the corporations' problem. Presumably we'll all end up working in advertising.


David DeCesare

Posts: 3
Nickname: zaphod
Registered: May, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 10:45 AM
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The fact that such idiots can be elected to govern a great nation is my primary evidence that capitalism and democracy together will ultimately lead to the self-destruction of the human race.

What do you suggest? Socialism or Communism? Those philosophies merely transform greed for money to greed for power and control. Besides, just because someone in political power says something stupid doesn't signify the end of the world. Have there been any laws passed that allows a company to destroy your computer? No.

That's why America is a republic and not a pure democracy nor a monarchy. A republic helps ensure that niether the will of one person nor the whims of the masses throws a civilization into chaos. In my opinion, it's the best form of government that keeps human nature in check.

Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 11:23 AM
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Thanks for your response. I would suggest socialism (not a proper name, so no capitalisation required), but I'm well aware that such a suggestion may bring me floods of hate mail. I'm also prepared to admit that you are correct in your assertion that socialism is also vulnerable to greed, which is why my final paragraph identified greed as the problem.

Being a socialist by inclination, I remain concerned about the fate of those with less choice than I have myself. Although nobody has (yet) passed a law that allows a company to destroy my computer, the US has a Digital Millenium Copyright Act whose provisions are both far-reaching and draconian. There is no indication that the RIAA is inclined to back off its enforcement attempts, and now the software industry is climbing on the bandwagon.

I'd like to see it made illegal to use any publishing technology that disallows what used to be described as "fair use" (such as copying a short section for the purpose of comment or personal research), but such use isn't being taken into account in current proposals. When people talk about "digital rights management" they aren't talking about the rights of the user.

Your opinion notwithstanding, I'm not convinced there's much to choose between the USA today and monarchic or "pure democratic" states. I don't see human nature being kept all that tightly in check, but it would be fatuous of me to suggest any quick fix. At least some politicians are trying to address the problem by doing more than just posting in a blog.

It's our greed that will drown us in our own shit, and I guess that one six-billionth of the shit will have come from me.

James Britt

Posts: 1319
Nickname: jamesbritt
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 12:09 PM
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Ultimately it's all about greed. It's good to make a profit, and it's better to make a huge profit, so open source software is unamerican.

Huh? How does one follow from the other? Is it not possible that it is good to make a (possibly huge) profit, AND volunteer to help others? Does not the USA have a strong history of charity, both at home and abroad? Have not countless communities shown the willingness to help their neighbors? Ever hear of barn-raising? It's quite American (though not exclusively so).

While a select group of large corporations get the major press, most companies do not exist by screwing their customers, employees, or stockholders. Extrapolating from a few fringe cases is hardly compelling.

Unfortunately the rise of corporate power and the ubiquity of advertising allows the suppliers to manipulate demand, in effect corporate .

Do you *really* believe this? Are you really convinced that most people are such sheep that they can simply be told what to buy, irrespective of any actual need? Or is it that you just disapprove of how people decide to spend their money?

Are Microsoft just producing what the users want to run? Hardly: nobody in their right mind would specify a software environment as buggy as [pick your version of] Microsoft's Office or Windows.

Well, actually, plenty of people in their right mind picked Microsoft. Consider the alternatives: Some variant of Unix that required a CS degree to install, or Apple, who held a hardware monopoly and used it to keep prices too high. Wintel PCs were cheap and easy to use. They gave the consumer choice. You can pick your own hard drive, sound card, monitor. Despite whatever bugs, they *still* offered better overall value to the consumer. Or, perhaps, this is a case were the spending decisions of the less-enlightened just prove the evil dominance of large, greed-driven corporations.

David DeCesare

Posts: 3
Nickname: zaphod
Registered: May, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 12:21 PM
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I would suggest socialism (not a proper name, so no capitalisation required)

I guess it's ironic that socialism doesn't require capitalization.

Ian Rae

Posts: 21
Nickname: ianrae
Registered: May, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 2:53 PM
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> of a small Web development shop (28 people), I never
> expected to be affected by the trends toward outsourcing
> large, software development jobs to overseas firms. ...

I see this as a good thing. Anyone in the world, no matter what country they live in, should have access to good-paying jobs. In Europe now you can live in one country and work in another. With software development, distributed work teams is easy, and therefore pretty much inevitable.

> Unfortunately the rise of corporate
> power and the ubiquity of advertising allows the suppliers
> to manipulate demand, in effect creating their own
> markets.

The evidence for this is not really there. If it were true then the top tech companies in 1980, Honeywell for instance, would still be top. But most of the 1980 companies don't even exist anymore because they couldn't generate demand for their products.

Perhaps a bigger factor in software is its high substitution cost. Switching from Microsoft Office to Corel WordPerfect Office, for example, would have massive costs in training and data migration. The result is that there really is no substitute (no competitor) for Office, or Windows, or most other software. The result is the high prices that we see.

When a technology stabilizes, like BIOS software or printer drivers, then its substitution cost falls.

Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 4:02 PM
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I guess it's ironic that socialism doesn't require capitalization

No more than that capitalism requires socialization :-)

Ernie Varitimos

Posts: 38
Nickname: erntheburn
Registered: May, 2003

Re: How Much Profit is Enough? Posted: Jun 27, 2003 5:17 PM
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I'm sorry but this is just a big f**king whine. We are living in the most successful and vibrant culture ever to grace this earth. Our form of government, our freedom to choose our own destinies, along with our capatilistic ideals are what have made us great. The drive to succeed in the market place against insurmountable odds is what fuels us and motivates us. The opportunities in the USA are boundless, we shouldn't be deterred by market conditions and competition.

Sure, I agree that outsourcing is eating away at jobs here at home, and open source has commoditized certain industries. So What? Should we withdraw into our personal carapaces, whine and dance the victimization waltz, then beg our government to save us by extending its teet so we can be feel pacified and safe? Or do we take on the challenge and rize about it all, confront these situations, look at them as opportunities, use our ingenuity, go out and create new technologies, new markets, new customers, and once again raise the bar and show the world how America, Capatilist America, is the leader, not because of greed, not because of big corporations, but because of individual's self determination and freedom (f**k socialism), our abilitiy to express that freedom and the unbridled opportunity it presents is what we are all about and why we will continue to lead. And while we're at it we will produce a profit, and our dreams will be realized!

-ernie
http://javachief.org

Peter Kidson

Posts: 15
Nickname: peterkid
Registered: Jun, 2003

Re: How Much Profit is Enough? Posted: Jun 28, 2003 3:07 AM
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There is only one alternative to the free society you seem to hate so much. It is called slavery, aka socialism/communism/totalitarianism - the system where the government owns everything and everybody and dicates every aspect of your life by force.

It's what the USSR had, and also explains why present-day western Europe is such a cultural and economic backwater relative to North America.

What those two primitive societies have in common with you, is regarding profit and freedom as a dirty words. So let me turn the question around :
How much state control is enough?

Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 28, 2003 2:32 PM
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... and show the world how America, Capatilist[sic] America, is the leader ...

If you think there has to be a leader then I suppose you'd want it to be your own country. If your representation of America's culture is accurate then I guess that world peace and harmony are a long way down the list of priorities.

The opportunities in the USA may be boundless if you're white and middle class. If the culture is so vibrant, what's it doing for the twenty million inhabitants who live below the breadline? Don't tell me, they're poor because they choose to be.

Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 28, 2003 2:43 PM
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There is only one alternative to the free society you seem to hate so much.

Just because you don't have the imagination to conceive of alternatives, don't believe that alternatives don't exist. Presumably as a member of a free society my freedom includes the right to criticize? Your characterization of socialism is simply a regurgitation of right-wing propaganda. While the USSR was no ideal society it was at least originally an attempt to find an alternative to the degrading conditions imposed by the Czars. I'm certainly not an apologist for Soviet communism.

The freedom you (wrongly) suggest I regard as a dirty word also includes the freedom to choose whether or not to buy the products of third-world factories whose laborers have to work upwards of seventy hours a week for wages as low as 13c per hour. If those conditions don't concern you, presumably their freedom is less important than yours.

If you regard state control as the only alternative to capitalism then your paucity of imagination beggars belief.

Steve Holden

Posts: 42
Nickname: holdenweb
Registered: Apr, 2003

Re: How Much Profit is Enough? Posted: Jun 28, 2003 2:53 PM
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>
> Unfortunately the rise of corporate power and the
> ubiquity of advertising allows the suppliers to manipulate
> demand, in effect corporate .

>
> Do you *really* believe this? Are you really convinced
> that most people are such sheep that they can simply be
> told what to buy, irrespective of any actual need? Or is
> it that you just disapprove of how people decide to spend
> their money?
>
I'm not sure I'd say "most", but the less education you have the more likely you are to believe you need the products advertised. So yes, with that qualification, I really believe it. Otherwise, how can we explain the killings that occur for a pair of Nike or Adidas training shoes? Are you honestly suggesting the kids that do this have a real need for fashion footwear?

You seem to feel that I'm being holier than thou. Of course people are free to spend their money on whatever they want, but you underestimate the social pressure they are under, and completely overlook the fact that the advertising spend of wealthy corporations generates the pressures.

You are correct in saying that most companies trade fair, but we run the risk of the big companies becoming monopolies and forcing their smaller suppliers into confirming to the patterns I described.

Ernie Varitimos

Posts: 38
Nickname: erntheburn
Registered: May, 2003

Re: How Much Profit is Enough? Posted: Jun 28, 2003 4:43 PM
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Steve replies;
The opportunities in the USA may be boundless if you're white and middle class. If the culture is so vibrant, what's it doing for the twenty million inhabitants who live below the bread-line? Don't tell me, they're poor because they choose to be.

A vast number of the people who have made fortunes in this country started out "below the breadline" without any assistance from the government. Some arose from dire circumstances against impossible odds. The difference is that the opportunity to pursue their success was and is their inalienable right, however it's still left to the individual to create their lot. There will always be disadvantaged and for the indigent, those that can not care for themselves, we should as a society provide the care they need, every other able body should be on their own.

I'm not going to dignify your attempt to bait this dialog with race.

Peter Kidson

Posts: 15
Nickname: peterkid
Registered: Jun, 2003

Re: How Much Profit is Enough? Posted: Jun 29, 2003 3:31 AM
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> > There is only one alternative to the free society you
> > seem to hate so much ... How much state control is enough for you?

> Just because you don't have the imagination to conceive of
> alternatives, don't believe that alternatives don't exist.

OK then, explain this alleged alternative to freedom that isn't totalitarian state control.

> Presumably as a member of a free society my freedom
> includes the right to criticize?

Indeed. In a free society the state, if it exists at all, would not have the right to censor you. This is an essential ingredient of capitalism.

> Your characterization of socialism is simply a
> regurgitation of right-wing propaganda.

In that case the right wing must have got something right. Socialism ~is~ totalitarian state control - more and more decisions taken by the state, fewer and fewer by the people themselves.


> While the USSR was no ideal society it was at
> least originally an attempt to find an alternative to the
> degrading conditions imposed by the Czars. I'm certainly
> not an apologist for Soviet communism.

I'm relieved to hear it. But you're mistaken if you think there was ever any goodwill in the bolsheviks. Being thorough socialists they were totalitarian thugs right form the start, which is why they sabotaged Russia's then emerging reformist movement.


> The freedom you (wrongly) suggest I regard as a dirty word
> also includes the freedom to choose whether or not to buy
> the products of third-world factories whose laborers have
> to work upwards of seventy hours a week for wages as low
> as 13c per hour.

Yes. But you might want to think twice before demoting them to 0c per hour by not buying their work.

> If those conditions don't concern you,
> presumably their freedom is less important than yours.

Nothing you have thus far said mentions anything about them not being free.


> If you regard state control as the only alternative to
> capitalism then your paucity of imagination beggars
> belief.

Go on then, enlighten us.

Peter Kidson

Posts: 15
Nickname: peterkid
Registered: Jun, 2003

Re: How Much Profit is Enough? Posted: Jun 29, 2003 4:39 AM
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> the rise of corporate power and the ubiquity of
> advertising allows the suppliers to manipulate
> demand

Advertising is a form of persuation, a fundamental part of free speech. Would you prefer the state to ban this?

>.. the less education you have the more likely you
> are to believe you need the products advertised.

Less educated people are more easily persuadable? Perhaps. So what do you recommend - a state ban on anyone trying to use persuasion on anyone below a certain level of education?

>.. how can we explain the killings that occur for a pair
> of Nike or Adidas training shoes?

Lack of proper upbringing. Lack of sufficient deterents.

> Are you honestly suggesting the kids that do this
> have a real need for fashion footwear?

All you "need" is a cave to live in and some animal skins to wear. Everything beyond that that is wants. And Yes, kids, like everyone else, do want stuff. Would you like the state to somehow stop people wanting things?


> you underestimate the social pressure they
> are under, and completely overlook the fact that the
> advertising spend of wealthy corporations generates the
> pressures.

So you want the state to ban or limit advertising?


> You are correct in saying that most companies trade
> fair, but we run the risk of the big companies becoming
> monopolies and forcing their smaller suppliers into
> confirming to the patterns I described.

The only harmful monopolies are those created by the state (itsef a monopoly). Monopolies like Microsoft that arise without state interference are not a problem, since if they don't deliver value for money they thereby invite in new competitors.

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