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The Implications Of Software Commodity?
comforteagle writes "David Stutz has written elegant piece over at OSDir.com titled 'Some Implications of Software Commoditization'. It explores the concept of commodification in a historical context while also seeking to discover lessons that might be applied to contemporary open source business efforts. David gets extra points in my books for including sugar, Shakespeare, open source, MP3s, and the British Empire in one article."
Commodities have two key business properties. First, competition is based on price -- the efficient low-cost producer gets the business. Second, commodities are standardized so that the same commodity from two different sources can be interchangable.
With regard to price competition, OSS seems to have a big advantage. Free beats proprietary on price any day. The only interesting question is whether OSS software makers are more cost-efficient ($/line-of-code) at developing new software than are close-source vendors. Perhaps this will come down to a competition between developing -world OSS developers who work parttime for free for OSS versus developing-world developers who get paid a fraction of the labor rate, but work full-time for commerical software vendors.
With regard to standards, I fear that Microsoft has made itself the de facto standard inspite of all the open standards bodies. Even the web seems to be moving into the MS camp. Websites are developed to display well in Internet Explorer, streaming media is often only available in Media Player, everyone uses MS Office, and soon many might be forced to use MS trusted computing. I'm not sure how open standards can re-assert themselves to commodify the playing field in terms of non-MS-controlled "standards."
Software won't be a commodity as long as one player controls the standards because one player has monopoly marketshare and everyone neds to be compatiable with that standard.
Two wrongs don't make a right, but three lefts do.
...have nothing on the even greater implications of hardware commodity and its impact on web server scaling.
As others have already noted - and which was noted in "IT doesn't matter" - is that the issue with packaged software is that everybody can buy it for a reasonably small price. In so much, it by definition becomes a commodity. However, packaged software covers only a small portion of the market for software. In-house solutions and so forth could not be considered a commodity if they provide a sustainable competitive advantage for some particular company. Imagine a software toolkit which allowed a company to estimate, with 99% accuracy, the future movements of markets in which they compete. It would be laughable to consider such a piece of software a commodity.
So what's the point of all this. I think what Open Source has done is pressure the big software houses to become more innovative than ever before. It's not good enough to come up with a good idea (a la MS Office or MS Windows) and tack feature after useless feature onto it just to get people to upgrade. Companies then need only buy software upgradesto "keep up with the Jones." However, there isn't any competitive advantage in this, and the economics of IT has borne that statement out - nobody has ever really revolutionized their companies using IT. What the software houses need to do is envisage IT products in terms of months of useful life, and not years, or even decades. The key issue here will become: "how long can this piece of software give me a competitive advantage before everybody has it?" Exclusive contracts with software houses will become the norm, before software is released "to the masses." Software products will be canibalized within months by the same company that originally produced it. Sales cycles will decrease to days, rather than months or years as it stands now.
Finally, for-profit companies will need to mobilize to head off the threat of Open-Source. Intrinsic motivation is a hard battle to fight, and software companies will need to fundamentally change the way they approach HR issues and corporate reporting hierarchies if they want to compete with a legion of programmers who write code because they want to and they enjoy it. Monetary compensation schemes simply can't bring that level of devotion to a task.
Yes, the software industry as we know it, and the software it produces, will become a "commodity." Companies that understand how to avoid this will just blow away their competitors by bringing fundamentally brilliant software products to market. And you know what? The customer, as always, will win, over and over again.
Bravo to Open Source for forcing this upon the industry.
Like they say: Those who fail to learn history are doomed to repeat it. Those who actually do learn history are doomed to know what's coming from the other 99.99999% of humanity.
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As this and the next earlier sibling post point out, the commodity here isn't just the software - it's the time and effort that went into developing the software. That cannot be recovered - whereas sugar(consumed, broken down, exhaled as, largely, carbon dioxide and water, both of which are taken up by plants and put back together) works its way back into the ecosystem, and thus, is just as copyable as time and effort, which are ongoing without the steps in the middle.
Getting off topic here, but the point is, just because software can be copied quickly doesn't make it any less valuable to produce, and that value to the consumers is what defines a commodity.
NB: YMMV. IANAL. Take the above with a grain of salt.
If a food copier existed - if you could create as much food as you wanted, for the same cost as producing one portion of food - there would be riots in any country that prohibited the copying of food. (and rightly so.)
Commerce, like creativity, is brownian motion. Don't hold back society because you're afraid the stock prices of last centuries monopolies will drop.
Copyright is simply artificial scarcity for software. We have enough scarcity in the world.
Expert in software patents or patent law? Contribute to the ESP wiki!
You keep saying that word, but I do not think it means what you think it means...
Yes, usually a commodity is something cheap that has lots of competition- but that isn't the point. A commodity is 'something that is used to make other stuff(tm)'.
The point is that the good sold is used as an input to make other goods.
That used to be a 'big deal' when people with invisible hands were groping[for 42]... Now, ehh...
Oh, and I say Windows is not a commodity because it's not a goodInherently when something becomes a commodity you cannot charge as much for it. Imagine if the cost of cars scaled the same way. Granted cars are a very bad example since they have no really changed in price at all. Just arguably more features.
Still, how do people make money producing a commodity? There are many ways, refer to sugar industry execs for lessons, same with coffee, and for that matter all the crops. You make your money in quantity, you make it so cheap to produce that you produce a lot more to make your tiny profit margin actually work.I would argue that the cost of research and development should be borne by whoever wants to bear it, whether for profit or not. Giving away something is no crime just because someone else wants to sell it. But it can become a crime if big business controls the government, and it can become immoral if big business controls the media.
The ultimate goal of programmers is to eliminate the need for programmers, through intelligent software that reprograms itself according to need. I think the ultimate goal of business should be to eliminate the need business. I think we will reach a point, through commodification and automation, where the necessities of life are trivial and at least some of the luxuries are cheap. The only people capable of making that happen are open-source types who create because they want to improve the world.
The business world in general is going to become like the music industry, keeping prices high through artificial scarcity, enforced essentially at gunpoint by a bought government. An ominous undertone of the free and opensource software controversy is the theme that only businesses should be allowed to threaten other businesses. The idea that providing jobs is more important than eliminating the need to do the work itself may be disguised as morality, but the real motive is to keep a few people in castles no matter where the rest of us have to live.
You are all so dazzled by the commodity form that you cannot "think out of the box" & see that the process of commodification is endemic to capitalism
l en /
as is the notion of scarcity, well as the fiction
of the "Law of Supply & Demand". This is no where
better exposed than in the writings of Thorsten Veblen, a unique & much neglected U.S. economist & social critic. This little excerpt for your gestation is from his "The Engineers and the Price
System" (1921):
The mechanical industry of the new order is inordinately productive. So the
rate and volume of output have to be regulated with a view to what the
traffic will bear -- that is to say, what will yield the largest net return in
terms of price to the business men who manage the country's industrial
system. Otherwise there will be "overproduction," business depression, and
consequent hard times all around. Overproduction means production in
excess of what the market will carry off at a sufficiently profitable price. So
it appears that the continued prosperity of the country from day to day hangs
on a "conscientious withdrawal of efficiency" by the business men who
control the country's industrial output. They control it all for their own use,
of course, and their own use means always a profitable price. In any
community that is organized on the price system, with investment and
business enterprise, habitual unemployment of the available industrial plant
and workmen, in whole or in part, appears to be the indispensable condition
without which tolerable conditions of life cannot be maintained. That is to
say, in no such community can the industrial system be allowed to work at
full capacity for any appreciable interval of time, on pain of business
stagnation and consequent privation for all classes and conditions of men.
The requirements of profitable business will not tolerate it. So the rate and
volume of output must be adjusted to the needs of the market, not to the
working capacity of the available resources, equipment and man power, nor
to the community's need of consumable goods. Therefore there must always
be a certain variable margin of unemployment of plant and man power. Rate
and volume of output can, of course, not be adjusted by exceeding the
productive capacity of the industrial system. So it has to be regulated by
keeping short of maximum production by more or less as the condition of the
market may require. It is always a question of more or less unemployment
of plant and man power, and a shrewd moderation in the unemployment of
these available resources, a "conscientious withdrawal of efficiency,"
therefore, is the beginning of wisdom in all sound workday business
enterprise that has to do with industry.
To read the rest of this essay see:
http://socserv2.mcmaster.ca/~econ/ugcm/3ll3/veb
His analysis of the relationship between "big business" and the application of science & technology is first rate even if his suggested resolution seems more fanciful today than when he
first proposed it.
Any commoditization of computer software in the last, say 10 years, is surely coming on too fast to be compared with "historical context" that spans tens or hundreds of generations of humans.
...
But look at how much things have changed in the past three or four generations. The industrial age has increased production of food and materials for much of the world. Travel became much easier and common among all classes of people.
Whoops, I meant to back up a bit further and mention Gutenberg's press first. It enabled mass communication in ways not previously possible.
Okay, back to our recent ancestors: Trains, planes and automobiles. Telegraphs, phones, motion pictures, TV, the internet. We can now have live audio-visual conversations with people on the other side of the planet or even in orbit around our planet.
Pop Quiz: Ronald McDonald, Chernobyl, Neil Armstrong. What percentage of the world's population do you think doesn't know what each of the three of those refers to? These are all from the past 50 years. Okay, 50 years allows for a lot of old-fashioned news telling. How long did it take for most of the world to know about 9/11 or the Northeastern blackouts?
The point being that I believe it to be obvious that todays rapid communications must have an affect on the commoditization process. I don't know how long software commoditization will take, but I don't think we can put it in historical context.
I used to believe that many technologies like TV, computers and phones would merge into one multifunction device eventually. Now I believe that computer technology will evolve into discrete single purpose devices with simple interfaces. And they will eventually be intuitive or at least simple to use like a microwave or phone or car. (Windows users may run into troubles operating Macintosh computers, but Chevy drivers can operate a BMW with no extra training.)
But I also believe that we are in a chaotic[1] time in IT. I suspect vendors are milking as much money out of stepwise "improvements" as possible, and I exect OS and app design to continue evolving for a while. I *think* my career as a network administrator is secure for the next 30 years or so, but I'm not entirely sure. Some time after that I expect what we use PCs for today will be simple to use devices that don't need ongoing supervision and maintenance.
[1] Chaotic Evil vendors and Chaotic Good/Neutral/Evil software projects, for you D&D types.
The funny thing is, as I read the comments here, everyone speaks of software as if it's a physical thing. Sure, it has a physical reference, but there's nothing you can point to and say, that's software, like you can with sugar or wheat. You can't buy a "pound of software", strictly speaking.
What can be commoditized is time; specifically, the time spent to create software. It can be rationalized, measured, spent, etc., and there is already an existing metaphor for compensating one for these various actions: the hourly rate. Software production costs time and money (or no money, as we'll see).
Read the whole discussion before you blow up.
In a sense, Free Software takes the whole paradigm of time having value and does away with it entirely. With Free Software, one cannot expect to receive money for the time spent. One creates software and turns it loose on the whole world, or some small portion of it and receives recognition (or not) from the receiving audience. Strictly speaking, if you receive money for developing something, it cannot be considered Free Software - somebody paid something for it.
In a sense, it is a slap in the face to software companies and to those of us who work for money. Free Software says that the time and money spent hiring a programmer and designers (or me) to produce a given piece of software was wasted: what y'all spent millions over the course of six months to develop, we can do for free in eight months or a year.
On the other hand, there is an argument to be made in favor of the greater public good. Software is expensive, and specialized software is even more so, perhaps out of the reach of some developing businesses. Certain types of software are important enough that perhaps they should be free, but determining which is an impossible task. An operating system - that's pretty easy; an MP3 player - not so easy. How does an MP3 player benefit the overall public?
To my mindset, money helps smooth over one of the basic problems of humans: ego. If we lived in a world where everything was produced freely and given freely, that would be great. But how do you compensate for that jerk down the road who sits on his ass all day and just takes and takes rather than giving back to society in some form? The answer is you force him to pay for the materials he uses and consumes. That requires money. Sure, he could work it off, but we've already established that he's a lazy bastard and won't work.
Thus, I have to come down in favor of paying for software. I don't think it can be properly commoditized in the same sense that sugar can. In fact, I'm not even sure there's a proper word for that type of a thing. What I do know is that certain forms of Free Software are a kind of slap in the face - saying that the time I spent and the education I paid for are worthless.
These are only my views. Pillory away.
To celebrate the occasion of my 1000th post, I will post no more forever on Slashdot. Goodbye.