Subject: Re: Open Source Developer Exchange (Economics)
From: "Stephen J. Turnbull" <>
Date: Sun, 02 Mar 2003 23:08:47 +0900

>>>>> "Ron" == Ron Lancaster <> writes:

    Ron> * Most consumers are willing to pay a fee for software as
    Ron> long as they aren't the only one's paying. For example, many
    Ron> will pay a 49.00 fee for a software package, but only if that
    Ron> didn't represent the total cost of developing the software
    Ron> (otherwise the burden isn't shared).

Ghostscript proves you are wrong.  I'm sure there are other easy
examples.  Burden-sharing only matters to people who need to make sure
their competitors (including the developer!) don't get a leg up.

    Ron> Finally, I believe there is at least a fourth business
    Ron> model. That is to allow projects to be funded by consumers
    Ron> with the results to be shared by everyone. Thus cosource, and
    Ron> sourcexchange, and others?

Ransom license.  It's not an exchange, but it's a sort of free-lance
vendor-driven competitor.

    Ron> So what does this fourth model have to do?

    Ron> * The consumer must be protected from most forms of
    Ron> risk. That is they need to know accurately three things: the
    Ron> work to be performed, cost, quality, and schedule.

This is inherently difficult.  Where I see cosource and sourcexchange
failing was in the attempt to automate.  Consider the case where the
developer proposes a project he'd like to work on.  Customers sign up,
but since there's no contract and no requirements discussion, they
have lot of uncertainty.  What is needed here is a "project broker",
who collects the most important customers, gets them together (perhaps
virtually) with the developer, and bangs heads together until they
have a specification, schedule, and some funding commitments.

    Ron> * The developer's risk must be kept fairly low (otherwise
    Ron> they might be better off adopting proprietary licensing).

This is also inherently difficult.  Financially, they're always better
off with proprietary licensing (proprietary licensing does not stop
you from delivering source, remember; so you can always have all the
benefits of open source and a proprietary license, too---what's
missing from this is the lower costs of enforcement that closed source
gives---but open source sure as hell doesn't improve on proprietary
plus source from that point of view!)  So whatever makes them "better
off" must be something else---but what?  Go ahead, ask, see what FSB
says.  My money says they'll say ten more or less different things in
the first nine posts.  Once again, you need a head-bashing broker to
get this straight, especially if there's a possibility of several bids
on the project, with various possibilities of competition and
collaboration mixed in.

    Ron> However, this only answers what to do to make the consumer
    Ron> comfortable with using the exchange, not with why they would
    Ron> use it.  Why they would use it is because a feature has been
    Ron> deemed worthwhile and it is only obtainable through this
    Ron> exchange (ransom uses this model).

No, you're missing the whole point of an exchange.  It's a place where
businessmen meet to do business, without really paying too much
"transaction cost".  Exchanges make money in three ways:

    (1) Everybody goes there because everybody else goes there
        (network externalities leading to some monopoly power).  That
        makes it easy to pick up "features" there, but doesn't imply
        that the features aren't available elsewhere.

    (2) There are specialists there who have information about market
        conditions you can't get elsewhere.

    (3) There are skilled brokers there who can represent you while
        you're taking care of your real business, or keep a stock on
        hand so that you can go, put in an order, and not have to hang
        around interviewing every Tom Dick and Sally who offers to
        fill it.  Or just be better at handling the people on the other
        side of the table than your average blue-blooded nerd.

cosource and sXc lacked all three, although (2) is what they were
hoping for, I think, and unless I miss my guess, is in part
a way of adding (3) to

    Ron> The advantages to the developers of the project are that they
    Ron> receive monetary benefit from their efforts at a fair market
    Ron> price.

"Fair market price" is an oxymoron, or redundant, depending on whether
your stomach turns when you read Friedman or Galbraith.

Institute of Policy and Planning Sciences
University of Tsukuba                    Tennodai 1-1-1 Tsukuba 305-8573 JAPAN
               Ask not how you can "do" free software business;
              ask what your business can "do for" free software.