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Bill Gates Argues 'Supply and Demand' Doesn't Apply To Software (gatesnotes.com)
"Not enough people are paying attention to this economic trend," writes Bill Gates, challenging the widespread use of forecasts and policies based on a "supply and demand" economic model. An anonymous reader quotes the Gates Notes blog:
Software doesn't work like this. Microsoft might spend a lot of money to develop the first unit of a new program, but every unit after that is virtually free to produce. Unlike the goods that powered our economy in the past, software is an intangible asset. And software isn't the only example: data, insurance, e-books, even movies work in similar ways.
The portion of the world's economy that doesn't fit the old model just keeps getting larger. That has major implications for everything from tax law to economic policy to which cities thrive and which cities fall behind, but in general, the rules that govern the economy haven't kept up. This is one of the biggest trends in the global economy that isn't getting enough attention. If you want to understand why this matters, the brilliant new book Capitalism Without Capital by Jonathan Haskel and Stian Westlake is about as good an explanation as I've seen.... They don't act like there's something evil about the trend or prescribe hard policy solutions. Instead they take the time to convince you why this transition is important and offer broad ideas about what countries can do to keep up in a world where the "Ec 10" supply and demand chart is increasingly irrelevant.
"What the book reinforced for me is that lawmakers need to adjust their economic policymaking to reflect these new realities," Gates writes, adding "a lot has changed since the 1980s. It's time the way we think about the economy does, too."
The portion of the world's economy that doesn't fit the old model just keeps getting larger. That has major implications for everything from tax law to economic policy to which cities thrive and which cities fall behind, but in general, the rules that govern the economy haven't kept up. This is one of the biggest trends in the global economy that isn't getting enough attention. If you want to understand why this matters, the brilliant new book Capitalism Without Capital by Jonathan Haskel and Stian Westlake is about as good an explanation as I've seen.... They don't act like there's something evil about the trend or prescribe hard policy solutions. Instead they take the time to convince you why this transition is important and offer broad ideas about what countries can do to keep up in a world where the "Ec 10" supply and demand chart is increasingly irrelevant.
"What the book reinforced for me is that lawmakers need to adjust their economic policymaking to reflect these new realities," Gates writes, adding "a lot has changed since the 1980s. It's time the way we think about the economy does, too."
eBooks are less expensive but eBooks aren't a new product, they're just a new package for the same product in the same market (books). The price doesn't go down because eBooks represent a production/distribution innovation by book publishers and distributors.
I also think the argument for near zero production cost for new copies of software is too oversimplified. Software that is sold/licensed involves a complex licensing system that requires tracking and monitoring of software licenses to prevent the end-user from exploiting free copies. These days it also seems to involve a persistent long-term effort to provide bug fixes and security updates for software that's already been produced.
I'd kind of lump licensing and patches as part of the production cost of software, even though it doesn't align with the reality that mechanically duplicating existing software is essentially free and it isn't a requirement for actually producing additional copies. But those non-production costs seem like part of the long-term life cycle of the product, and I'm guessing the fact that software vendors are capable of making a profit means that the economics of software shows that it's not so mysterious that vendors can't find a pricing model.
Prices are controlled in many cases by the whims of the copyright owners. If Microsoft says you have to pay them $200 (hypothetically) for a (legal) copy of Windows or Office, that is so. But if the difference to alternatives gets too large, people might accept the effort to switch to something else. A case of price elastic demand, quite well known in traditional economy.
Some anecdotal evidence about myself:
I have switched to Libre office myself for private use, partly for financial reasons, partly for political ones (I really don't want to feed Microsoft money). Also planning to use Linux when support for Win7 runs out.
But if Microsoft were to drop the price of Windows to $20, laziness might win out and keep me on Windows. On Libre Office they have lost me permanently, as I already have put in that effort to get familiar with the new tool. Wasn't much effort either, only inserting images into documents is still a bit cumbersome and annoying.
Where Bill Gates is right are those cases where a satisfactory free alternative already exists and people can adopt it effortlessly. In those cases, the opportunity to make money from the main product is gone. Perhaps you can still earn money from add-ons to the free product.
C - the footgun of programming languages
Big pharma is only able to overcharge because the FDA creates a virtual monopoly, through its costly and lengthy process at the end of which very few companies are allowed to make a drug. Try to make an Epi-pen and sell it, it only costs like $30 to make. Auto-injectors were created in the 1970's and the patents on it has expired a long time ago. We have no overcharge issues with non-prescription (non-FDA monopoly) drugs.
https://mises.org/wire/lack-ep...
https://www.cnbc.com/2018/08/1...
Everyone contributes what they want, everyone takes what they need and the world improves over it.
You can only have that with digital goods that can be multiplied instantaniously with basically zero cost.
That's why proprietary software always dies out in the long run and loses over to FOSS eventually.
We suffer more in our imagination than in reality. - Seneca