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."

Comments

of course....

[Transient0]

like all property/physical world analogies to information, the differences trump the similarities in every attempt at relevance.

the fundamental issue being that you can't copy a pound of sugar from one box to another and still ahve the same amount of sugar in the first box.

Re:of course....

[jfdawes]

The problem really is that the act of copying a piece of software is terribly easy and costs: The price of the electricity used to run the devices doing the copying plus the cost of wear and tear on the device plus the cost of the media used to store the new copy plus the cost of wear and tear on the media.

This is probably on the order of hundredths or thousandths (hundreds and thousands, yay) of a cent. For any piece of software.

And the old piece of software is still there, unchanged. The act of copying it does not destroy the original.

Some people may argue that the cost of research and development should be born by the user. They may be correct, who am I to say, however the only version of the software that has those costs directly associated it is the original.

Getting back to copying a pound of sugar. Just say we had a machine capable of copying the pound of sugar, given some carbon, hydrogen and whatever other raw materials it needed and electricity. Put the original pound of sugar (the one grown/ harvested/ processed/ researched/ transported/ etc) in the machine and "copy" it. Should the user of the copy have to pay for transporting the orginal to the shop where it was sold? Or just for the raw materials and electricity used in the copying process?

Re:of course....

[ewtrowbr]

You either missed to point, or didn't read the article. A commodity is roughly defined in the article as something for which there is broad demand. The interesting part comes with the networked interchange of the commodity. The analogy holds equally well for sugar and software. "the process of commodification frames the market conversation between consumer and producer"

Re:of course....

[Anonymous Coward]

The problem really is that the act of copying a piece of software is terribly easy and costs: The price of the electricity used to run the devices doing the copying plus the cost of wear and tear on the device plus the cost of the media used to store the new copy plus the cost of wear and tear on the media.

You forgot that every time you copy software illegally, an angel gets his wings ripped off and baby jesus cries (for 3 hours.)

Re:of course....

[Shurhaian]

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.

Re:of course....

[ciaran_o_riordan]

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.

Re:of course....

[serutan]

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.

Re:of course....

[LouieLing]

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
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/vebl en /

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.

Ooh, extra points, I want some!

[thelenm]

Everyone knows that Shakespeare (who was a sugar freak) would have released his work as Open Source in an MP3 format if the British Empire hadn't stopped him.

Try this instead

[jfdawes]

From David Stutz's website (http://www.synthesist.net/writing/commodity_softw are.html)

One SENTENCE!

[Milo Fungus]

simoniker really just wanted to one-up David Stutz by including sugar, Shakespeare, open source, MP3s, and the British Empire in one SENTENCE! Is there a special karma bonus for that?

(Hey! I just did it too! Can I have the karma bonus as well? Nevermind the karma. Just visit my website and support the Creative Commons.)

Lessons in history

[Un0r1g1nal]

While there are many lessons to be learnt from history, the human race in general seems not to care, actually let me rephrase that .. .. the people with all the money and the governments supposedly representing the masses but actually more likely on the pay check of said rich people/companies do not care in the slightest. They would prefer to opress progressive science by stopping technological advancement by whatever means necessary, because it would put a dent in their profits!!

Re:Lessons in history

[ErikTheRed]

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.

/.'ed Text

[comforteagle]

I often used the phrase "the commodification of software" to represent what I believe is the critical force behind the rise of open source software. Broadly used software is now defined primarily by its capacity for networked data exchange of standardized commodity datatypes such as a web page, an MP3 file, a UNIX executable, or a Word document, rather than its application model and user interface. This short note 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.

Commodity

The word commodity is used today to represent fodder for industrial processes: things or substances that are found to be valuable as basic building blocks for many different purposes. Because of their very general value, they are typically used in large quantities and in many different ways. Commodities are always sourced by more than one producer, and consumers may substitute one producer's product for another's with impunity. Because commodities are fungible in this way, they are defined by uniform quality standards to which they must conform. These quality standards help to avoid adulteration, and also facilitate quick and easy valuation, which in turn fosters productivity gains.

Karl Marx considers commodities important enough to begin his book Capital with a discussion of them. The first chapter concludes with a discussion of what he terms "the fetishism of commodities," from which the following quote is taken:
A commodity appears, at first sight, a very trivial thing, and easily understood. Its analysis shows that it is, in reality, a very queer thing, abounding in metaphysical subtleties and theological niceties. So far as it is a value in use, there is nothing mysterious about it whether we consider it from the point of view that by its properties it is capable of satisfying human wants, or from the point that those properties are the product of human labor. It is as clear as noon-day, that man, by his industry, changes the forms of the materials furnished by nature, in such a way as to make them useful to him.

Marx asserts that commodity markets are more about power, politics, and even religion, than they are about their actual underlying resources. Commodities exist to facilitate exchange (and, since this is Marx, to subjugate the laborer). They are a way to build up an abstract world in the image of commerce, rather than reflect a more natural order for the world. Commodities are a reflection of the politics of human values: the contracts by which commodities are defined, and the standards that form the foundation for such contracts, are more important than the inherent quality of the commoditized thing. This is a very important lesson to learn, and one which the open source community should heed when marshaling its limited resources.
Commodity, the bias of the world

Shakespeare, of course, always has something to say.

Here is a soliloquy that concludes Act II of King John on the topic of Commodity. It is delivered in the play by the bastard son of Richard Coeur de Lyon, who has just convinced England and France, at war with each other, to suddenly strike an opportunistic political bargain and ally themselves against the city of Angiers:

Mad world! mad kings! mad composition!
John, to stop Arthur's title in the whole,
Hath willingly departed with a part,
And France, whose armour conscience buckled on,
Whom zeal and charity brought to the field
As God's own soldier, rounded in the ear
With that same purpose-changer, that sly devil,
That broker, that still breaks the pate of faith,
That daily break-vow, he that wins of all,
Of kings, of beggars, old men, young men, maids,
Who, having no external thing to lose
But the word 'maid,' cheats the poor maid of that,
That smooth-faced gentleman, tickling Commodity,
Commodity, the bias of the world,
The world, who of itself is peised well,
Made to run even upon even ground,
T

Oh yeah? new form of karma whoring

[Rosco P. Coltrane]

David gets extra points in my books for including sugar, Shakespeare, open source, MP3s, and the British Empire in one article.

"To MP3 or not to MP3, that is the question:
Whether 'tis GNUer in the mind to suffer
The slings and arrows of outrageous coffee with no sugar
..."

Okay, do I get points now?

Commodities: Low Cost vs. Standards

[G4from128k]

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.

software == bullets, snipers not a commodity

[puzzled]

The fact that software is approaching $0 in cost doesn't mean there are less jobs for software people, it just means that a great deal of what was purely IT 'territory' is now going to be dual role, with software developers having to know a portion of the business as well.

The large employers with their vertical silos inside the organization will fight (and loose) this change, while smaller employers everywhere are already reaping the benefits. Stop billing yourself as a 'software' guy and go get some background in operations accounting, marketing, logistics, whatever, but the days of the separate priesthood are numbered - your choices are a.) on top of the wave b.) not very palatable fish food.

I'm a sniper and while the target rich environment of the pre bubble economy is gone there are plenty of profitable things left to 'shoot'.

Re: Empires... empires... empires...

[bill_doors]

Since the beginning of the humankind, empires always has tried to repress freedom movements... fortunatelly empires always fall... is just matter of time... :)

Strongly disagree

[Sean80]

I can't get to the article - it appears to already be /.'ed. However, I must say I strongly disagree with the assumption that software is a commodity. I think what Open Source has done is place into question the approach which the software industry takes. In my view, this does not in and of itself make software a commodity.

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.

Lots of words ... summary

[rjstanford]

Well, after reading all the way through the article:

1. Commodities are things that can be exchanged for one another. They are able to be sourced by and consumed by multiple entities.
   
2. UNIX programs are commodities in a way due to the standardization of the core POSIX APIs.
   
3. Document formats, such as the Microsoft .DOC format, are going to change to allow documents to be used more as commodities.
   
4. This is both good and inevitable.
   

It really didn't say a whole lot else. I mean, it was an interesting introduction, but I found myself looking for a page 2 on which the point would be made. Hrmph.

Commodity the way gasoline is a commodity

[Latent Heat]

Software is a commodity in the way a gallon of gas is a commodity -- if to run my car I had to pump in exactly 10 gallons of gas, and then I had to add exactly 10 ounces of a detergent additive, and there were several incompatible brands of detergent additive on the market, and everytime I wanted to fill the tank I had to read labels and figure out if I had the right kind.

I am thinking that OSS is a commodity in the sense that computer hardware was a commodity in the pre-PC days of CP-M and the S-100 bus. Jerry Pournelle had this mantra "iron is expensive, silicon is cheap" that a person would "invest" in a boat anchor cabinet, a good power supply, and an S-100 backplane and then plug in boards with memory, processors, and peripherals and upgrade the silicon while keeping the boat anchor iron.

This putting a computer together from parts required someone who knew what they were doing, and Pournelle plugged the idea of "system integrators", dudes who would in essence sell you generic hardware, but in their markup they were selling you a service of knowing what hardware was compatible with what and where to get the drivers for everything.

For all the talk of Linux weenies and lusers, the average Linux distro really is not an end user product, but it seems that the Linux savy could pull together pieces parts of software and put together systems tailored to the requirements of specific customers. You know, open and free software, but the money is to be made in providing services, and the service is being the propeller head who knows what software is out there and what works with what, and what configuration tweaks will make a customer happy.

The PC kind of changed Pournelle's model. The silicon was cheap, but the iron (cabinet, motherboard, power supply) started coming from Free China and later from Not-Quite-As-Free China and it became cheap, and with the business model of Dell, it is pretty much cheaper just to replace the whole system than poke around with doing your own upgrades.

As far as the software, the software has kind of moved away from this mix and match model as well. Sure, a Windows install may be as hard as some Linux distro installs, but who even installs software -- you buy the computer with Windows, Office, and networking already installed from Dell. So I guess the system integration has become a mass market instead of a cottage industry.

I am thinking that for Linux to catch on, there has to be some patron, some "angel", some big player to do the system integration and sell ready-to-run systems to the mass market. Is it Wal-Mart and Lindows? Is it SUN and their "Java workstation?"

Re:Reading the comments

[PCM2]

You can't buy a "pound of software", strictly speaking. What can be commoditized is time; specifically, the time spent to create software.

I think you're missing the point. A commodity market is one in which there may be multiple suppliers, but the product obtained from each is (in the eyes of the purchaser) undifferentiated. Not all software can be seen this way, but certain software categories can be.

• I might say, "I am going to buy a J2EE application server." Hearing that, you need not assume I mean BEA Weblogic. There are a number of alternatives, and which one I pick doesn't really matter (at this level of decision-making, anyway).
• I might say "I am going to buy a relational database." There is no reason to assume I mean IBM DB2 -- but I might mean that. Whatever.
• I might say, "I am going to buy a disk defragmenter." There's no particular reason why that needs to be Norton Utilities. Etc.

If you have a bunch of products, and they're all perceived as being roughly identical and undifferentiated, then you have a commodity market. All that has to happen is for a free alternative to come along -- similarly undifferentiated, but equal in perceived value -- and the bottom drops out.

Most software isn't quite at that level yet, though. Superficially it may be, but as I drill down in the decision-making process it becomes more complicated. J2EE application servers differentiate themselves not by the base server container, but by the add-ons the vendor supplies to do business processing. Databases do various sophisticated things, such as clustering and replication, and each one does it in a different way, enough so that you could defend a decision favoring one over the other.

Web server software isn't a commodity market, either. Apache isn't successful just because it's free. It doesn't have a lot of competition because it would take a lot of work to produce a product of comparable value, and Apache would still be free. Those that do try to compete, again, have to differentiate themselves -- e.g. Zeus is all about speed.

This article seems to be arguing that the ways in which Microsoft seems to be trying to differentiate its products -- e.g. through the Word file format -- are based on activities so mundane (legible documents) that their markets cannot possibly be defended against commoditization. Maybe that's true, I dunno. To sound the old "impending paradigm shift" trumpet seems a little melodramatic to me, though.