posted by David Adams on Tue 26th Oct 2004 16:30 UTC
IconThe software industry is undergoing a gradual transformation, and consumer fatigue is at its root. The licensing model that has formed the basis for the modern software industry is facing challenges on many fronts, and the industry is scrambling to keep its footing. Where this period of change may lead software producers and consumers isn't quite clear, but some trends are emerging. Since the proliferation of the internet, unauthorized redistribution of digital goods has become rampant. But although software sharing probably won't kill the software industry, the reasoning behind it shares some pedigree with the customer revolt that promises to transform the way software is sold.

Four of the top 20 richest people in the world made their money from software. Over the past two decades, no other industry has been responsible for making a select few people so much money so quickly. And it's especially amazing because so many of these people started with so little.

You don't need a lot of infrastructure to create a blockbuster software program. And most importantly, if it becomes popular, you just keep selling copies like you're printing money. The sale price of a software license is not based on the price of the component parts like a manufactured good. It's usually not even based on its complexity or the amount of R&D effort it took to produce it. It's a product with unlimited supply, whose price is set by the demand for it in the marketplace.

For example, the complexity of the Oracle database and the amount of man-hours that has gone into its creation is probably less than that of the Windows operating system, but it costs a hundred times more. Lucky for Bill Gates, there's a demand for a much higher quantity of Windows licenses. I guess that's why he's more than twice as rich as Larry Ellison.

Bytes and bits, considerable brainpower, and a lot of good fortune created empires, and it was all based on a simple formula: create some software that people want, preferably software that large businesses want in large quantities, charge the maximum amount that the market will bear, sell lots and lots of licenses, make a better version of the software a couple of years later, that fixes some of the annoying problems that plagued the earlier version, sell lots and lots of licenses again, and so on.

Intellectual Property

Other industries produce and sell goods of this type. The book publishing and motion picture industries also produce "virtual" goods for which the cost to produce another copy is relatively small. The only way that someone can write a software program, or a song, or write a book and have a hope of being the primary beneficiary of its proceeds is if there is a legal mechanism to prevent its unauthorized copying and redistribution. It's about enforcing intellectual property rights, and from the very birth of the concept, consumers have been a little reluctant to grant it the same moral weight as physical property.

Intellectual property has always existed, but its owners have had mixed success in enforcing their ownership of it. In early societies, inventors of new tools or methods were probably content to be given credit for their ideas and enjoying a boost in status for, say, inventing the wheel, or irrigation. Later people developed layers of secrecy around their knowledge, such as the expert stone masons of medieval Europe, who founded a secret society upon their desire to maximize their earning potential by limiting the number of practitioners of their craft.

Around the same time, intellectual property was also protected by laws. Church scholars who translated the Bible into local languages were savagely executed by the church/state in an attempt to keep a monopoly on religious and political power. But the average inventor didn't have much protection, and was lucky to even get credit for his or her invention. This went on for centuries. Famously, Isaac Newton invented Calculus but reportedly sat on his discovery for years for fear of someone stealing his ideas.

Eventually, governments created protections for intellectual property, via patents and copyrights. Patents started to take off in Europe in the 16th century, with the monarchy asserting control over commerce and innovation. Copyright proliferated in the 18th century, with the widespread ownership of printing presses. Overall, these laws were a boon to the advancement of knowledge and art in the world, because it gave inventors and creators an opportunity to more easily benefit monetarily from their creations, and perhaps even dedicate themselves full-time to their professions. Eventually, intellectual exercise, which had long been the domain of the economic elite, was opened to normal folks.

The typical individual, the ultimate "consumer" of these ideas, however, was never all that keen on the higher ideals. A good idea was a good idea, and people were always eager to appropriate it for their own benefit. Eli Whitney was constantly in court trying to protect his patent on the cotton gin, and by the time the courts ruled, his patent had expired. The early days of book and pamphlet were a free-for-all. Shakespeare probably didn't earn much money from the publishing of his plays and sonnets, but, having cribbed most of the stories for his plays from other authors, I doubt he worried much about it.

Even when one country enforced copyrights rigidly, other countries were always eager to capitalize on the inventions of others. Several of America's founding fathers were dead set against honoring European patents, hoping to give the fledgling state a leg up in competing with Europe's massively more developed economy. In the 20th century the U.S.S.R. and its satellite states were loath to pay royalties to Western authors and artists. And today, the marketplaces of countries all over the world are filled with unauthorized copies of software, music, movies, and books.

Table of contents
  1. "Identity Crisis: Page 1"
  2. "Identity Crisis: Page 2"
  3. "Identity Crisis: Page 3"
  4. "Identity Crisis: Page 4"
  5. "Identity Crisis: Page 5"
  6. "Identity Crisis: Page 6"
  7. "Identity Crisis: Page 7"
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