Subject: Re: How accurate is Metcalfe's law? (Was: Ximian software)
From: "Gerald P. Dwyer, Jr." <>
Date: Sun, 06 Jan 2002 08:21:51 -0500

At 03:01 PM 1/5/02 -0800, Ian Lance Taylor wrote:
>"Stephen J. Turnbull" <> writes:
> > >>>>> "Ian" == Ian Lance Taylor <> writes:
> >
> >     Ian> What I am claiming is that software licensing is not related
> >     Ian> to that time in a meaningful way.
> >
> > Ah, you've rediscovered the "Diamond-Water Paradox", that's all.  This
> > is true of _all_ trade.  Some goods are cheap to produce (found gems)
> > but extremely valuable, resulting in huge unearned profits for the
> > lucky finder.  Other goods, production cost much more closely matches
> > the revenues (retail groceries).  Fair?  I guess not.  But it's
> > nothing special to software.
>I do understand that.  It's not what I meant.
>I'll try again.  I believe that capitalism's strength is allocating
>scarce resources efficiently.  It does this by arranging for the price
>to go up when the supply is low.  Therefore, capitalism is
>particularly effective when the price is tied to the supply.  It
>encourages people to make more supply available, and to become more
>efficient in using the supply.
>If we assume that the main supply for software is developer time (this
>is an unproven assumption), and we assume that the goal is good
>software, then it would be good to look for a way to tie the price of
>software back to developer time.
>Since the price of software is not so tied, we as a society are not
>getting the best possible software.  Instead, the price of software is
>tied to licensing.  This encourages not good software, but licensable
>software.  It's possible that the two are the same, but I consider
>that to be unlikely.  For example, it encourages companies to maintain
>private lines of development, and to not publish new ideas or share
>new techniques.

This lack of a direct link is no different than many other things where 
it's hard to tie the marginal cost of production and the benefit. A 
lighthouse has the same marginal cost whether two or two thousand ships go 
by. I think that the point was made well a day or so ago by Stephen 
Turnbull. There's a positive marginal cost to producing software and 
there's a zero marginal cost of anyone using it. (It's non-exclusive and 

This I think is what gives free software the possibility of working as a 
market solution. The copyright scheme makes something scarce that's zero 
marginal cost -- and annual licences or fees per use only make this worse 
-- and free software can be zero marginal cost to use _if_ programmers can 
be paid to write free software. From what I can tell, there are two things 
that can make free software work as a money-making proposition One is 
selling the programming solution when a customer wants it -- what I gather 
was the Cygnus model -- and another is selling related services.

Just to be sure I'm clear, both proprietary software and free software are 
inefficient relative to something we can dream up but won't work given 
self-interested people. The inefficiency of proprietary software of 
charging for what's zero marginal cost to produce is what creates the 
possibility for free software to succeed in the market even thought its 
production and pricing are not ideal either.

>In other words, I suspect that software licensing optimizes the wrong
>thing for maximal benefit to society.  And since software licensing
>relies on a wholly artificial property right granted by society, this
>deserves to be questioned.  To cite the obvious example, Bill Gates
>has become very very wealthy by selling relatively shoddy software.
>This happened because his revenue was based on license rather than on
>quality developer time, and that happened because society granted him
>a property right in something which is not obviously property.
I personally doubt that there is an optimal solution. But then I don't 
think that optimal solutions exist in the world to this sort of thing. The 
optimal solution in a relatively standard economic model would be payments 
from the government to the programmers. We could have software supplied by 
the government. <grin> (I'm pretty sure that you're not advocating that.)
>Even for programs which are useful to a large number of people,
>software licensing is not the only way to link developer time to user
>value.  The ASP model, in which the program is made available as a
>service accessible over the Internet, is another approach.  It is
>entirely feasible to charge users $1 each time they use the service
>(or simply the first time they use the service), assuming they have
>preregistered with a credit card or a Paypal account.

I don't think that payment per use is a "solution" at all. It is a device 
to charge more to users who use the program more. Given that even one use 
is zero marginal cost, this is likely to be less efficient than a flat fee 
per user (unless the program would not be produced without charging per use.)