The Simple Economics of Open Source

[Raffael Cavallaro]

> The closed source world is based on a diseased model
> (pretending software is a product).

This "diseased model" has made billions for a number of firms, so, from an
economic standpoint, your argument rings rather hollow, especially when
compared to numerous open source ventures which have yet to post a cent of
profit.


> Scarcity of an intellectual secret may make a software
> package containing that secret more valuable, but scarcity of
> a software package is likely to make it less valuable (since
> support will be hard to find, and upgrades unlikely). OTOH it's
> scarcity of a piece of artwork that makes it valuable.

You're conflating separate markets. Unique artworks (paintings, for example)
have no real equivalent in the software world, because software sales are
based on essentially unlimited identical copies.

My example referred to IP in the art world - secret working methods that
allowed artists to produce works their contemporaries could not - methods of
bronze casting, for example, or formulas for oil painting media. These IPs
are like closed source in that, without them, competitors are shut out of a
lucrative market.

My point was, and is, that it makes no economic sense to open source an IP
that could be used to create a monopoly. MS understands this, and works
ceaslessly to create such monopolies. Note that this has *nothing
whatsoever* to do with what is best for consumers. Obviously, the consumer
is better off in an open source world for two main reasons:

1. Open source leads to commodity pricing, and hence, lower costs for
consumers. Closed source leads to monopoly pricing, and higher costs for
consumers.

2. Open source leads to more robust code, and hence more reliable products,
benefiting consumers. Closed source leads to slipshod QA due to the desire
to be first to market in order to establish the monopoly. This poor QA
obviously does not benefit the consumer.

I think part of the open source community's problem is this naive belief
that just because a certain model (open source) leads to products that
benefit consumers more, markets will allow consumers to choose this
production model. This belief is naive because it fails to consider that the
producers' interests are in no way congruent with the consumer's. The
producer has every reason to go closed source and attempt to secure a quick
monopoly. We live in this world now, and there's no reason to believe that
it's going to go away any time soon. I think open source advocates grossly
underestimate the power of monopolies, and the unwillingness of consumers to
break ranks even though it *may* provide long term benefits, because
breaking ranks entails large short term costs, especially in network utility
- i.e., the loss of interoperability with the rest of the monopolist's
customers.

BTW, all software is *not* support. This is another open source community
bias which comes from living in the server room. Lots of software is
*client* software, which requires little or no support from the vendor.
Instead, these support services are provided by full time IT people, who may
be certified by the vendor, but who are paid by the enterprise. In other
words, MS makes their money on enterprise licences for Office, not for
troubleshooting the enterprise's problems with Office. For the most
lucrative software businesses, software *is* a product, not a service.

Ralph
-- 

Raffael Cavallaro, Ph.D.
raffael at mediaone.net