boomberg bloopers

Frank LaMonica frankl at
Sat Feb 17 23:20:35 UTC 2001

The real problem with the MicroSoft model is that they artificially
inflated the price of software to way beyond its true cost to develop. 
Now they are implying that the government should help them maintain that
artificial price point.  Many developers working on open source projects
today are funded directly or indirectly by commercial companies who plan
to make money by selling all sorts of other added value.  These "clued
in" companies recognize that the supply and demand for software
development is weighted far to the supply side.  What is lacking in
supply is organized support, culpability for product quality, commitment
to schedules demanded by commercial requirements, management direction,
and the list goes on....  The software itself can be created at a cost
that is only a fraction of what MicroSoft charges for their products. 
Look at MicroSoft's cash reserves and the insane salaries of their upper
managers if you think they are only generating a "fair" profit.  People
used to say that the software business allowed companies to print their
own money.  That model is being eroded by the internet.  Consumers now
have direct access to development resources, so the true cost of
software is being passed through the system.  That scares MicroSoft,
because the legions of people in their organization who create ZERO
value can no longer milk the industry.  

Seth David Schoen wrote:
> Brian Behlendorf writes:
> > Bullocks - you may agree or disagree with the
> > contention that swapping someone else's IP against their will is theft,
> > but you can't claim that someone who writes software and *intentionally*
> > gives it away for free is a threat to anyone.
> That person is a threat to the revenues of the people selling
> comparable software.  That threat is real, even though it arises from
> totally legitimate activities (from the point of view of many
> different political philosophies and legal regimes).
> If there were a big market for some kind of labor and a lot of people
> began to do that same labor as volunteers, or as a hobby, the people
> who did it for a living would see their livelihood threatened, even
> though the activities of the volunteers or hobbyists are totally
> legitimate.
> Imagine for example that on a certain street there are two Internet
> cafes, run by starving entrepreneurs who think an Internet cafe is an
> honest business with some growth potential.  Now along comes a retired
> hacker who made three million dollars from the exuberance of investors
> (I won't say whether it was rational or irrational) about a project to
> which he made major technical contributions.  This retired hacker has
> _always_ wanted to have his very own Internet cafe, so he buys a
> warehouse, renovates it (sparing no expense), and opens it up.
> Possibly he doesn't have a huge amount of business sense, so his
> Internet cafe is not very profitable.  In fact, maybe it loses money.
> But the retired hacker doesn't care -- he's got his own Internet cafe!
> And he doesn't feel a need to charge high prices, or to pay low wages;
> he's happy to offer reasonable prices to his customers, and reasonable
> wages and benefits to his employees.  The customers are happy; they
> keep coming back.  The employees are happy; they don't leave.
> Everybody enjoys the Internet cafe.
> Except the proprietors of the _other_ Internet cafes, which are
> rapidly losing business.  Those Internet cafes are being run for
> profit; their owners need to make money!  If they don't, they're going
> to go out of business, and lose their own investments of time and
> money.  They can't afford to be unprofitable for more than a month or
> two; they wouldn't be able to pay their Internet service bills or
> order food and dozens of kinds of exotic coffee.
> But since customers are flocking to the retired hacker's Internet
> cafe, the for-profit cafe owners are starting to feel the pinch.  They
> feel threatened because they realize that the retired hacker is free
> from the vagaries of market forces and competition; he's mostly doing
> it (as the autobiography of a certain famous non-retired hacker once
> suggested) "just for fun".  And in the process, he's likely to
> bankrupt the cafe owners with traditional business models.
> If you look at bottom lines instead of ethical or legal principles,
> _any_ competition -- especially competition from competitors who
> experience fewer costs -- is undesirable and harmful.  It doesn't
> matter to the bottom line whether the competitors are thieves,
> "dumpers", ideologues, hobbyists, or corporations.  From a certain
> point of view, further, certain participants in a given market are
> likely to appear "subsidized" (they have a whole _category_ or a whole
> _level_ of resources completely unavailable to other participants),
> and so it will be hard for other participants to conceive of any
> kind of meaningful and "fair" competition.  (The sense in which they
> say that the other participants' "subsidies" are "unfair" will depend
> on a lot of factors.  You can see a few different examples reflecting
> very different perspectives.  And consider how different firms would
> react to the idea "You must fundamentally and dramatically change your
> business practices or business model by ____ in order to compete
> with ____", depending on the nature of the change and of the
> competitor.)
> To be somewhat concrete, even if every single Linux company went out
> of business and you and I both lost our jobs, Microsoft would _still_
> not "win"; they would still face very substantial competition from
> Linux and free software which would still undermine their revenues
> (relative to their early and mid-1990s market share).  One reason
> for this is that the free software thus produced (as Martin Pool
> pointed out) will _still be available_ and _still be useful_ even if
> the companies which sponsored its development go out of business.
> This is almost always not true for proprietary software companies: if
> Corel goes broke, Microsoft has simply lost a competitor in the market
> for office suites.  But if Sun drops out of that business, OpenOffice
> is still going to be around, still going to be just as available as
> before, and probably still as actively maintained.
> That gets into the second reason: many of us would keep producing free
> software or contributing to the maintenance of free software even if
> we were never paid to do it.  So free software development can
> continue apace (for some values of "apace") without software companies
> doing it commercially.  I mean, lots of the software I'm using to type
> this message was written _by a 501(c)(3) charity_ and _using
> tax-deductible charitable contributions_!  What kind of competition is
> _that_, to be a for-profit company competiting head-to-head with a
> 501(c)(3) offering directly analogous goods and services to the
> general public?
> So one possible consequence that some people foresee is that the
> "pure-play" proprietary software companies are just going to go out of
> business, because they can't compete against charities and hobbyists
> once people realize that the charities and hobbyists can write and
> support really good general-purpose software.  And this is a
> possibility which is not an unusual prediction in the free software
> community, and I think we can see from the statements we're discussing
> that some people in the proprietary software world _definitely_ see it
> as a real possibility.  (This is not to say that there is not going to
> be specialized proprietary software and lots of niches of some sort
> for software which is not published -- but a trend toward a world
> where Richard Stallman's vision of "generally useful software" being
> free is realized.)
> Going out of business is a real, time-honored, traditional market
> response to changing conditions.  Some people (Schumpeter?) have
> written entire books on how it's supposed to be a really good thing
> that firms can go out of business.  But surely those firms would have
> to see that (by whatever means it might happen) as "a threat", surely
> they would have to feel threatened by that.
> --
> Seth David Schoen <schoen at>  | And do not say, I will study when I
> Temp.  | have leisure; for perhaps you will
> down:   (CAF)  | not have leisure.  -- Pirke Avot 2:5


 Frank LaMonica                           frankl at
 Strategic Director of Multi-Media  \//\  VA Linux Inc.
 (512) 378-3003                           (512) 378-3004 fax
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