Sunday Aug 30, 2009

Free, the right price for software

Economic systems are about how to use scarce resources and the Price Mechanism is the way in which a optimal resource allocation occurs. Economists use a branch of theory called “Welfare Economics” to analyse and model the efficiency of the productive economy, and a theoretically maximally efficient set of states can be defined within a model, known as the Pareto-efficiency frontier. A perfectly competitive market meets the efficiency requirements, imperfect or distorted markets do not. Distortions can be caused by the existence of monopolistic markets, taxation, externalities or missing markets.

Traditional Welfare economics rarely considers how copyright and patent law create barriers to entry to markets and thus husband the growth of monopolistic markets, where supply is restricted and prices driven up. It needs to be born in mind that overpricing products such as software which are inputs to the economic process as well as output, means that some otherwise efficient goods will not be produced; they cost too much.

It should also be born in mind that the majority of the world's software is not licensed or charged for, although much of this free to use software is not traded at all, remaining the proprietary goods of their owners who use them to produce other goods and/or services. Benkler in his book, “the Wealth of Networks”, suggests there are nine business models for pursuing value in software, of which only three of them involve trading rights i.e. charging for software. If there was no software copyright i.e. copying was legal and free the only price, software would still be written. The overpricing of software distorts both today's market and the innovation creating tomorrow's. The price mechanism should ensure that resources that are scarce and consumed should be payed for. Software is not scarce, although the people that write it and the machines that run it are. Resources such as software should be free.

This was meant to be an essay based on some slides I have been trailing inside the company, but I discovered how hard it is and how much time it takes to actually put ideas into essay form while preparing the paper behind what became Monopoly & Prices, see below. So this is more of an abstract, I shall upload the essay when finished to my personal site downloads page.

Thanks once again to Beggs, Fischer and Dornbusch, whose Economics 8th Edition reminded me of my Welfare Economics.

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Wednesday Apr 22, 2009

You don't manufacture software

Gianugo Rabellino of Source Sense and the Apache Foundation and presented a demolition of the need or inexorability of charging for right to use, he finished this demoltion by quoting Eric Raymond from his paper, "The Magic Cauldron"

"....software is largely a service industry operating under the persistent but unfounded delusion that it is a manufacturing industry. "

Spot on in my opinion, creative workers need to get used to selling time and earning wages again.

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Thursday Apr 02, 2009

News

I have been busy writting a presentation on 'Why Software should be free?', it looks like it'll need an essay/paper as well. The economic theory doesn't lend it self well to a presentation. So that'll be fun.

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Friday Mar 21, 2008

Public Data should be free

A government study has concluded that it would best to stop charging for public data, reported in the Guardian yesterday. In the 80's the UK Government established 'trading funds' for a number of its statistical and data management bodies including the ordnance survey (Maps), DVLA (Road Vehicles and Users), Companies House, the Land Registry, Met Office and Hydrographic Office, and required them to charge for access to data that had either been payed for by the taxpayer, or it was mandatory to provide to government.

This research, conducted by a team from Cambridge University, discovered that freeing the information creates greater value in the economy than would be lost through charge income.

The campaigners for free information argue, firstly that consumers have payed already for the information through their tax payments, and secondly that the government is often in a monopoly position as the only body capable of collecting some of the data through its power of compulsion. The state monopoly makes it very hard to determine a market price, particularly as the marginal cost to supply is zero. The report also denies the argument that participation in a market encourages innovation in the supply chain, because of both the lack of regulation, and the monopoly position of the government. It should be noted that some of the government's "income" is paid with taxation, since the government agencies cross charge each other.

The release of this public information would in all probability lead to innovation in the use cases as more people seek to add value to it, with different approaches and use cases, and its this innovation that will crete real economic value. This is a very real case showing that welfare optisation occurs when information and knowledge is charged at marginal cost, which for digital information is zero or virtually zero.

We'll have to see what the Treasury does.

You might also want to see the Guardian's Campaign Page, Free our Data and the Open Knowledge Foundation's web site.

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Friday Mar 14, 2008

MMORPG, making them massive

During the meeting, we considered the opportunities around Project Darkstar. This is a shardless gaming platform operating environment, written in Java, and inspired by Sun's extensive experience in building mission critical enterprise computing platforms.

MMORPGs seem to be even more popular in some of the far-eastern countries than in the west and its possible that by offering a programming platform Sun can create new conversations with game authors. Make no mistake, Darkstar is a game author's offering. One of the more interesting derivations of Darkstar is project wonderland, built on top of 'Looking Glass' an experimental three dimensional desktop, which has led to the creation of a business/collaboration orientated networked virtual world. This allows us to offer lessons from mission critical computing and its efficiency and predictability requirements, not to mention an understanding of the difference between a game world and business collaboration. It should be noted that networked virtual worlds are seen by both the EU Commission and Gartner as important computing platforms of the future.

The Darkstar code has been published under the GPL v2.0 and talking and thinking about the implications for developers with my colleagues led to my considering Bioware's experimentation with post royalty licenses. This interests me because together with the second life license which explicitly ensures that authors own their intellectual property, they both illustrate that the lawyers (or license designers) can ensure that licenses explicitly target both collaborative and and monetisation behaviour and reinforce the business models of the original license authors. The GPL uses sharing as a gatekeeper condition, while as noted above Second Life license protects author's intellectual property, hence encouraging the development of virtual property within the "world". The Bioware Aurora license ensures that purchaser's of the bioware games get the free right to use all community content. Bioware's Aurora license with which they licensed Neverwinter Nights and its kicker modules ensured that any user created content had to be distributed under the Aurora license. This ensured a no-commerce clause, for the binaries, and the requirement to run the modifications using a licensed version of the runtime. This both protected Bioware's license income and meant that external authors created additional demand for the original game, tools and runtime. N.B. These are not distributed separately.

There is a growing economic theory about the "optimum welfare price" of software and/or information, which I have promised Dominc Kay that I will write up. Copyright and monopoly ownership are legal distortions that inhibit this price occurring in a market. It is however generally the case that most inventors/authors intellectual property rights are fully asserted and freedom only licensed. However, the economic theory is for another day.

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Tuesday Nov 20, 2007

Sun is the greatest and most generous Opensource Company on the planet!

Oddly, it is the 1st Aniversary of the EU's publication of their report, "Economic impact of open source software on innovation and the competitiveness of the Information and Communication Technologies (ICT) sector in the EU". In this report, they identified Sun as the single largest corporate doner of open source code in the world. [.pdf...] Sun had contributed over three times the man hours as the second place company, IBM. This finding was before Sun open sourced JAVA.

 

Corporate contribution to FLOSS

 

Source: Economic Impact of FLOSS on innovation and competitiveness of the EU ICT Sector. (2006), published by the EU Commission.

NB The full report is 287 pages long.

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