Subject: Support as insurance
From: Russell Nelson <nelson@crynwr.com>
Date: Sun, 28 Nov 1999 10:37:52 -0500 (EST)

Ben Laurie writes:
 > You can't have it both ways: free software can't be worse than
 > prioprietary software because it has no warranty, but giving a warranty
 > indicates that its worse than proprietary sofware. Eh?

No, that's not my point.  I'm just saying that it's difficult to treat
support as insurance, and even more difficult for a free software
company.  Let me try explaining it a different way.

Insurance is a bet.  You're betting that the disaster *is* going to
happen, and the insurance company is betting that it isn't.  The
reason they make money is because they're in a better position to
evaluate the risks than you are.

In the case of support as insurance, the disaster is that you'll
actually need to rely on the company to fix their software because the
software doesn't work for you.  Can you see how you might know more
about this eventuality than the company?  This is the problem -- when
you're allowed to affect the outcome of a bet, the bet is unfair.  Las
Vegas has laws against entering into bets except those which have been
studied in advance and are considered to be safe from this moral
hazard.  And if you get to decide whether the software doesn't work
for you or not, then it's an unfair bet.

The way proprietary companies make it into a more fair bet (although
you can see that Microsoft considers Win98 networking to be an unfair
bet since it refuses to cover that in its support agreement) is that
they force everyone to pay for the support.  Even if you *know* you'll 
never call for support, you have to pay for it anyway.  Doing this,
they increase the size of the risk pool.  But still they end up paying 
out a lot (support is a big cost center at most companies).

If you end up paying out very often on insurance, then you're losing
your bet very often.  Essentially, you're *not* providing insurance,
you're just bundling a service that you know most of your users are
going to use.  And so, you can't price it as insurance.  If you do,
you'll lose money big-time.  Instead, you have to price it as a fee
for service.  If the price is fixed, then the amount of support had
better be fixed.

Consider "health insurance", which in this country is a completely
perverted system.  It's not insurance, it's just a tax dodge which
funnels money inefficiently through an insurance company into the
hands of doctors.  You can see this because most deductibles for
employer-provided (that is, mandatory) health insurance are laughably
low.  And, nearly every insurance policy pays out every year.  There's
an insurance policy overlaid on top, wherein the employee pays a
certain percentage up to a maximum.  *That* is the real deductible.

Now, the reason that insurance is usually considered moral and
gambling is usually considered immoral, is because the risk in
insurance is a necessary part of some productive activity, whereas the
risk in gambling is manufactured.

-- 
-russ nelson <sig@russnelson.com>  http://russnelson.com
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