Only the Free World Can Stand Up to Microsoft

by Tom Hull

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  1. The reproduction and distribution cost of software is zero at the margin. This means that in theory it is no more expensive to produce software which can be freely distributed and used by everybody than it is to produce software for a limited clientele.

  2. The pricing of software bears no relationship to the cost of its development. The two factors that do matter are market size (which is limited by price and utility) and competition. Given a market for a software product, the maximum margin can be obtained by precluding or eliminating competition.

  3. Software companies that are able to thwart competition attain pinnacles of power which are inconceivable in other industries. Partly this is due to the enormous cash flows that are possible in the absence of competition from products with nil reproduction costs, but largely it is due to the complexity of software itself, which allows dominant companies to design "standards" which exclude future competition.

  4. All niche markets for software rapidly evolve toward monopoly or an equilibrium where a small number of players tacitly agree not to mutually destroy their profits. (Established companies can defend their market share by reducing their prices to practically nothing, making price competition suicidal for newcomers.) However, there are cases of asymetrical competition, where a large company with other sources of income can destroy a smaller company that depends on a single niche revenue stream.

  5. Microsoft has a secure revenue stream based on its dominant position in personal computer operating systems software, and uses the power inherent in that position to favor its other business activities with its ability to dictate "standards" and to undermine competition, especially where power (as opposed to mere money) is at stake.

  6. Capitalists invest in new software ventures with the hope of gaining a dominant position in a new niche market. There is essentially no new investment in existing niche markets, since it is impossible to compete with an established dominant player on the basis of lower costs and the possible gains of an uphill battle for a small share of a shrinking pie rarely justify the risks. In their wildest dreams these capitalists want nothing so much as to be just like Microsoft.

  7. The drive to restrain Microsoft under the rubric of antitrust law seems mostly to be the effort of companies who find their own power positions threatened by Microsoft's activities. They seek to make it harder for Microsoft to undermine their own businesses. However, they are fundamentally similar to Microsoft in that they don't question a world where technology companies working from private caches of intellectual property are able to control the use of that technology for their own best profit.

  8. In the market equation, demand is equal to, and in many ways the master of, production. Yet in the world we live in, production is highly organized and efficient and commands enormous financial resources and seductive powers of persuasion, while demand is fragmented, uninformed, and powerless. While consumers can still kill a product that they have no desire for, they are nearly powerless to direct or even influence the detailed designs of those products. For software products, consumers can only choose among a given set of alternatives, which are extremely complex, dauntingly impenetrable, and generally designed more for the company's anticompetitive purposes than for the user's tasks. (Even the old fashioned option of doing without is often impossible due to the intricate web of interdependencies as new hardware and software march in lock step into the future.)

  9. The real "killer software" is free software: software that is free of intellectual property claims; that is published in source code form, so can be inspected, evaluated, fixed and enhanced by anyone with a mind to do so; that is freely distributed and can be installed on machines and used without limit. Free software is the software that kills the closed, nefarious software product industry. It is software that users can select intelligently, to do today's tasks, and which they can collaboratively build on to handle future needs. Free software is the one thing that not even Microsoft can compete with.

  10. Still, there is one core problem: who pays for developing free software? The usual answer -- which leads to all of the trouble above -- is that investors pay for development, which they recover from their profits. The only real answer is that development costs must be paid for by users. The key point here is that what is paid for is not the distribution or use of the software, but its development, and that the development of free software implies that it can be used by anyone. I think there is a simple way to handle this: anyone who wants a piece of software developed or enhanced posts a "request-for-proposal," including a sum that the requester is willing to contribute towards its development. Intermediary organizations can pool these requests, and interested parties can up the ante. Developers can then search through the current postings and bid on development work or work on spec. Developers can also post their own proposals, which users can then buy into.

  11. Free software can be developed less expensively than closed software products. Even for well paid professional developers, fully underwritten by conscientious users, the cost of free software would be significantly less than the premiums now being paid for empire building. The quality would be better, especially in terms of fitness for use. Free distribution would ensure maximum exposure and choice: a free market based purely on utility and quality. The service component of software would also open up: anyone who wanted to could start from the same code, to learn, support, and teach. The best service providers would succeed.

  12. Simple steps can get this movement underway: Form an initial organization to sort out the technical issues, suggest working arrangements, study the economics, hack out a legal framework, seed and coordinate the requests, and canvas for initial technology contributions (including the large body of currently available freeware), do some evangelical work. Urge large companies and organizations to budget a small fraction of their annual software outlays for proposals. Set up a review group for intellectual property issues, challenge dubious claims, and investigate the feasibility of buying and releasing rights to valid claims. Encourage the development of more local organizations -- local to place, to industry, to niche, to taste -- with the initial group breaking up or fading away: common methods and procedures, but no centralized control.

  13. Let's call this organization, this whole framework, "The Free World." It stands for free and open knowledge, free and open development, software that works for you. Take a stand. Make a contribution. You have nothing to lose but CTL-ALT-DEL.

Copyright 1997 Tom Hull. You may link to this document and/or redistribute it electronically.

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