Subject: Re: street performer protocol
From: "Stephen J. Turnbull" <turnbull@sk.tsukuba.ac.jp>
Date: Fri, 19 May 2000 01:38:07 +0900 (JST)

>>>>> "Shimpei" == Shimpei Yamashita <shimpei@gol.com> writes:

    Shimpei> Stephen--can you give me (us) a quick overview of the
    Shimpei> financial history of the semiconductor and biotech
    Shimpei> industries and tell us why it's relevant to the free
    Shimpei> software marketing model?

The industries experienced enormous growth with high current profits,
and invested large amounts in assorted kinds of R&D, with capital
gained from IPOs and other issues of stock.

As the industries began to mature (in the case of semiconductors) and
failed to make good on the promise (compared to other promising high
risk high return investments == dot coms, in the case of biotech), the
amount of capital available compared to needs became scarce, cost
control became important, and a few firms (Intel is the classic case
in semiconductors) became dominant in R&D and innovation, and others
were forced to specialize in manufacturing.  Everybody outsourced
anything that wasn't "core competence".  Since most biotech is still
very much basic research, you see feverish activity in "building
alliances", because noone can afford to go it alone anymore.

The analogy is that Crispin is claiming that the Red Hat and other
Linux distribution successes are innovation (in software) driven, and
thus the stock market rewards them for investing in development.  But
investors could sour on them just as fast as they did on biotech---how
is Red Hat going to finance its development programs then?  Maybe a
couple of firms can do it on their current revenue, but I bet (based
on the analogous history) that most of them are paying developers out
of venture capital, and when the venture capital dries up, they'll
have to cut costs.  The first thing that will have to go, when the
bean counters take over, is basic development, because that doesn't
directly move product and generate revenues.  This will lead to
consolidation in the industry; I don't think that there will be more
than two or three profitable (on the scale necessary to finance the
kinds of development programs the major distributions run) Linux
distributions after say three years.

And even they will be hard-pressed to keep up in many of the new
fields: embedded OSes, clustering, etc.  These will be the province of
specialists (often ex-members of big distribution development groups
who are sick of the budgetary limitations and intergroup competition
for support characteristic of maturing organizations).  At least,
that's what's happened in biotech: extreme specialization in
application fields as well as in basic technology.

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