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Still Crazy After All These Years
How Much Profit is Enough?
by Steve Holden
June 27, 2003
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.

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About the Blogger

Steve Holden has been using computers longer than some of you have been alive, and he still isn't tired of it. The fascination is to do with the modeling flexibility that information systems allow. Steve consults to help his clients design and build their network architectures and programmed web systems, and teaches networking, database and security classes. He is the author of "Python Web Programming" (New Riders, 2002) and chaired the PyCon DC 2003 conference.

This weblog entry is Copyright © 2003 Steve Holden. All rights reserved.

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