Example of FOSS Economics

People who read my blog regularly know I’m big on looking into discovering what it is that will allow software creators, bug fixers and all the other people involved in producing functional products with a sustainable income.

Only two weeks ago I was talking with Matt Lee of the Free Software Foundation about this problem and apparently someone he knows had sold himself online for 6 months as a free software hacker by setting levels of pledges and some rewards and products for people who invest in the project and although the FSF doesn’t consider economics important enough to be a goal (much to my disappointment) the activists there are aware of it.

Now computer world uk is reporting on the exact same system, one where the artist, programmer or team sets out to raise money for a project and does so by setting a structured list to encourage higher amounts of money to be pledged.

Just like me they’ve avoided using words such as “charity” and “donation”, which I think are really not applicable to what we’re trying to do: viz. find a way to make Free as in speech economically sustainable.

What do you think about a stepped pledge model? Do you think that the model requires far too many direct supporters and existing backers before it can be made to work? Should I conduct myself in a similar fashion by creating a set of pledges for the ground control project and advertising it very widely?

Spending VAT: Jobs for the Chavs

Tomorrow will see the increase of the Value Added Tax (VAT) similar to the sales tax in the USA, it will go back up to 17.5% from a year low of 15%.

This low VAT rate was introduced in order to increase the amount of spending going on in the UK.

This would make sense, if the problem in the UK economy was that money was being hoarded by common folk with large fat savings accounts. The problem is that money is not being hoarded by the middle or lower classes, most of it has moved either to the ultra rich or overseas as the products consumed in the UK are predominantly made overseas.

So lets see, the logic of this is that most of the money of increased spending will remain in the country… cycling around. Don’t forget money is a reflection of work/value added, so it’s not like you can just print more money, that doesn’t do anything over than devalue existing currency. A bit like diluting juice more and more, you technically get more drink, but you don’t get the same strong taste.

If value is leaking away into Chine and other producing countries, what you don’t focus on is getting people service jobs. That’s about as short sighted and dumb as one could be. Sure it’ll solve a short term problem, but it will increase fragility of the whole system and ultimately lead to cardiac arrest in the economy.

It’s similar to the Halton Council, who persist in attracting even more super market chains to set up shop in Widnes. As if having 400 supermarket jobs will somehow solve job problems and generate wealth, when in fact it’s likely to just drain away the market in massive dilution of a single industry sector.

My economic New Year’s wish is that local and national government see sense and set up more funds, grands and subsidies for creative people who can prove that they spend their free time working on business plans, art, software, music, what ever takes your fancy. Cultivating a sense that the community will support you as you find your feet with your work is surely more useful than giving grants and tax breaks to the likes of Tesco or Wallmart/Asda.

Thoughts?

Making Money with FOSS Part 3

Greetings everyone interested in FOSS economics, ok so this week NickFox has written another great blog entry with some arguments against and for my last blog entry about making money with FOSS.

fund-development-logoAnd now for my reply, as requested, to continue this interesting debate (your interest may vary), so lets get stuck in:

This is indeed true. The community itself and it’s development of software has no use for software it cannot touch. However, that said, closed source software does have its uses.

I wouldn’t deny that proprietary software has it’s uses, to the individual. It’s easy to see how it’s useful for the immediate task. What it doesn’t have though is a future. The cost to the community of maintaining compatibility, of supporting these closed offerings is not zero. Very often the companies who put these things out do not bare those costs and instead it’s the community serving the community that pays the integration price.

My point is that we must be careful, account for all costs.

I also think there will require a bridge between the two business models, a stop gap if you will. That stop gap is in-fact the FOSS community semi-adopting and supporting closed source applications.

Mr Fox may be right that supporting some commercial apps will make us more attractive in the immediate short term, but in the long haul it will discourage users from investing in and developers from making compatible or comparative software.

For instance, if flash for linux was not available, the community would have already have developed gnash to a much more advanced state. We’d have a much better flash experience than most other platforms and it’s likely that the gnash project would be a more serious competitor on mobile and alternative platforms. We might also have seen faster progress and pressure on the svg standard.

Now I’d never stop any one person from taking advantage of these proprietary offerings to improve their own experiences. But I would encourage them to also think of them as stop gap measures and proceed with investing time and money into the free software alternatives. This is more of the “Use but Pay for Future Freedom” model, rather than the OSS’s “Doesn’t matter so long as it works” and the FSF’s “It must be Free Software or you can’t use it”.

As users, if we don’t value freedom then we loose it. But conversely if we don’t value functionality, then we loose people. A balance is needed, the communication of the importance of Free Software ideals with some of the practicalism of OSS, a balanced approach that sees the short term satisfied without the long term forgotten to complacence.

there is no real competition in the market for Microsoft.

Microsoft are a monopoly, this is not a problem for the community alone to solve, but it is also a problem for competition commissions and legal systems around the world to not let Microsoft get away with it’s licensing arrangements with OEMs. Fairness won’t come about until either we in the FreeDesktop world have something 50x better or monopoly regulators start doing their jobs.

what reason does a development company have to try to change to the open source business model when they are targeting the largest audience possible?

FOSS is not just about making things available on a FreeDesktop like Ubuntu. It’s about choosing to respect your users, even if it means that some of those users will port it to Ubuntu for you. If they are FOSS, then they don’t need to really concern themselves with any of the small players, and can focus on windows all they like. FreeDesktops will take advantage of what they need to.

Proprietary software on Ubuntu will still require investment, but this time it’s static and not very future proof. It’s functional now perhaps, but it’s not secure, it’s not efficient and it’s not very stable. It’s easy to see how skype could drop it’s “Linux” support like a lead balloon and leave us powerless to stop them.

Finally, the point is while the closed source business, due to lack of competition among other things will not make the change to open source, I believe if the FOSS community were to build the bridge, they would use it.

As well as convincing users of the usefulness of using FreeDesktops, we must at the same time be able to convince them of the necessity of demanding FOSS licenses from their software providers. Just like users are already demanding organic and other valuable, non mass produced ideals. The time is right for Linux and the time is right to communicate to users, the general public, that what they buy matters.

Businesses will follow, so long as we have a way for users to buy something from a FOSS marketplace.

I also would like to respond to Simon who commented on my last entry:

Your model assumes that users know what they want and while that may sometimes be true, most of the time it is not. There is a big difference between what users THINK they want, and what they ACTUALLY want. You can see that in many forms in FOSS, for example, there are users wanting option A to be added to program Z, when what they actually want is a better application behavior (and that option A is not really necessary).

That’s very true, users have to not only be able to ask for what they think they want, but they have to trust producers that communicate why they think that’s a bad idea. There needs to be a trusting relationship and to some degree users will have to be convinced to invest in pure R&D. Purely idealistic because users aren’t that future proof when it comes to spending money.

Perhaps some kind of governmental or organisational research fund? or some website which developers and project managers can get together to get users interested in further development? I’m confident these problems can be solved if people really push in that direction.

All of this is my opinion, I would appreciate everyone’s thoughts on this subject below in comments or on your own blogs.

Really Making Money with FOSS

So many people have attempted to describe, explore and probe the economic workings of the Free and Open Source Software business. Recently Nick Fox has given us his thoughts on what this means.

And this is my critical article explaining why he is wrong, sorry Nick got to be critical. The first half of the article is fairly correct as far as I know. so I’m just going to skip to the bad parts:

Commercial software being generally closed source is a necessary evil.

This assumes proprietary software is the only model for profitable commercial software. It is not. It also assumes that FOSS can’t possibly be commercial, a big mistake and a common myth. You can take a copy of a GPL licensed program and sell (that’s right, for money) the software to someone. So long as you don’t remove the recipients freedoms and they get to redistribute, that may sound like it crushes your commercial opportunities and it does sort of, but I’ll get to that.

noncomm

However creating software as a business requires a level of production protection that is not usually accepted in the Linux circles. Compiled and protected sources are a bad thing for software freedom and progress, however they are good for free market business.

This part floored me. The idea that proprietary software could be in any way free market is so absurd that I can’t understand how this idea has come about. The nature of the free market is that goods or services will be priced very close to the costs of replication and distribution when supply is above demand, software had infinite supply and will always be above demand.

The costs of software replication and distribution are very close to zero. So in a free market, all software is free of cost by order of the invisible hand. What is NOT free of cost is the creative production. But because the creative industries can not yet find a secure way of funding their production; they have gotten government regulation (copyright) to warp the nature of the free market to create temporary monopolies on distribution instead. Shifting costs around. And if you’ve been following your economics, a monopoly will tend to price things at the very maximum a customer is willing to pay, not the minimum it’s economically sustainable to charge (as in the free market).

The separation of first creation and replication of copies, I think is important to understanding the nature of these economic processes. Writing software is creative production, copying software is replication production, they are not the same thing.

So, what we have here is an industry that is not only removing user and developer freedoms, but it’s doing it at the expense of the free market too. On the other hand, FOSS is free market, it doesn’t claim to have created an economic rewards system to drive the cost of one economic activity into another one. It’s goal is to create a social and legal framework for collaboration. The software production is priced accordingly through commission or (more normally) through the needs of the user’s time and the distribution is priced very close to zero.

The incentive to make money inside the Linux community will help to break the cycle. When businesses find there is money to be made by producing Linux based applications for busness users, it will help bring Linux to more desktops. While I very highly advocate the Free and Open Source movement, I am suggesting that closed source software for sale does have it’s place, and in fact may help bring Linux to more desktops.

I recommend watching this video on motivation first:

As we’ve already discussed, there is money to be made from FOSS, it’s just you have to follow the economic landscape. You can’t go begging on government to bail you out of your unprofitable software distribution business with anti-free market copyright laws. You have to make your money from the development of software, not the distribution of it. This shift in thought needs to accompany the shift to FOSS, because without it FOSS will be uneconomic in the old mindsets.

Closed, proprietary software has no place in a rational, enlightened, scientific and honest economic world. It is NOT a necessary evil, it is a plain misunderstanding of economic mechanics. An attempt to create rents on distribution instead of maintaining the economic costs of production. It’s is not good, useful or progressive and the longer we hold onto some of these mythologies the longer it’s going to take to drag our industry out of the dark ages.

My own thoughts are that in order to fund software production properly, we need to have ways of getting money from users who want software to be made or changed, to programmers who want to earn money writing software. It’s not an easy task.

Debian Money

debian-fundingSteve McIntyre the leader of the Debian distribution recently posted a request for what to do about all this money that the Debian organisation has acquired. I thought I’d add my two fake pennies, since I’ve talked about economics in FOSS before and the failure of the DunkTank1 was an interesting case study.

So here are my first thoughts on money in the Debian project:

  1. Consider ownership, who is the arbour and decider and who does responsibility stop with.
  2. Money isn’t as useful as the flow of money, paying for people/work/etc needs continued donations (as is already known).
  3. Needs dedicated tools for managing and tracking money in a public way, none of which I can find in use.
  4. Donors in future should specify exactly what the money should be used for, designate project where money is required and how much.
  5. Learn from the capitalist system, create automated mechanisms for handling value so as to avoid politics.

Most interesting to me is the automated mechanisms. Here we have a team of people who believe in the democratic process and will have to discuss and talk about what to do with the money and no one will really agree fully. So what if you gave everyone a share of the money? Or more usefully, what if you gave everyone involved in the project a voting share of the money, where they can decide what to spend their allotment on based upon how well argued the case is for various projects? It would collapse a lot of problems you get when you have an organisational administrative effect over the control of certain resources (i.e. Authoritarian Socialism) but you’d have a new set of problems too…

You’d still have the problem of deciding how much of a share each person would get of course. You could do it equally or you could base it on some metric such as number of packages managed or amount of work put in. But they’re all difficult to manage really. You’d also have people who would like to inject their real cash into the system (possible not a bad thing) and once you’ve got some of these mechanisms tried out and you’ve got one that works, it could be replicated to provide some sort of income for dedicated full time FOSS developers.

But then no matter what they do they’re going to need to record everything: Where the money is, where the money is needed and where the money is coming from, project info, updates and speculation. Sounds like a job for a whole group of developers right? Tools will be helpful in making sure money and promises don’t get corrupted or forgotten.

Anyway, the Debian community is in a unique position to try out some fairly progressive ideas about managing money in a group context and I’ll be keeping and eye on it for inspiration and possibly even some interesting social tools.

1 An event where by Debian leaders wanted to pay certain Debian developers and/or administrators to do some tasks that would not be done otherwise.