Archive for April 3rd, 2009

Dissecting words for fun and profit, or how to be a few years too late

So, after finishing a substantial part of our work on FLOSSMETRICS yesterday, I believe that I deserve some fun. And I cannot ask more than a new, flame-inducing post from a patent attorney, right here, that claims that open source will destroy the software industry, just waiting to be dissected and evaluated- he may be right, right? Actually, not; but as I have to rest somehow between my research duties with the Commission, I decided to prepare a response- after all, the writer is a fellow EE (electrical engineer), and so he will probably enjoy some response to his blog post.

Let’s start by stating that the idea that OSS will destroy the software industry is not new; after all, it is one of the top 5 myths from Navica, and while no-one tried to say that in front of me, I am sure that it was quite common, a few years ago. Along with the idea that software helps terrorists:

‘Now that foreign intelligence services and terrorists know that we plan to trust Linux to run some of our most advanced defense systems, we must expect them to deploy spies to infiltrate Linux. The risk is particularly acute since many Linux contributors are based in countries from which the U.S. would never purchase commercial defense software. Some Linux providers even outsource their development to China and Russia.’ (from Green Hills Software CEO, Dan O’Dowd).

So, let’s read and think about what Gene Quinn writes:

It is difficult, if not completely impossible, to argue the fact that open source software solutions can reduce costs when compared with proprietary software solutions, so I can completely understand why companies and governments who are cash starved would at least consider making a switch, and who can fault them for actually making the switch.”

Nice beginning, quite common in debate strategy: first, concede something to the opponent. Then, use the opening to push something unrelated:

The question I have is whether this is in the long term best interest of the computing/software industry. What is happening is that open source solutions are forcing down pricing and the race to zero is on.”

Here we take something that is acknowledge (that OSS solutions are reducing costs, thus creating a pressure on pricing) and then we attach a second, logically unconnected term: “the race to zero is on”. Who says that the reduction in pricing leads to a reduction to zero? No one with an economics background. The reality is that competition brings down prices, theoretically (in a perfectly competitive environment made of equal products) bringing the price down to the marginal cost of production. Which is, of course, not zero- as any software company will happily tell you. Because the cost of producing copies of software is very small, but the cost of creating, supporting, maintaining, documenting software is not zero. This does not take into account the fact that some software companies enjoy profit margins unheard of, and this explains why there is such a rush by users in at least experimenting with potentially cost-saving measures.

as zero is approached, however, less and less money will be available to be made, proprietary software giants will long since gone belly-up and leading open source companies, such as Red Hat, will not be able to compete.

Of course, since zero is not approached, the phrase is logically useless (what is the color of my boat? any as you like- as I don’t own one). But let’s split it in parts anyway: of course, if zero is approached, software giants will go belly-up. But why RedHat will not be able to compete? Compete with what? If all proprietary companies will disappear, and only OSS companies remains, then the market actually increases, even with increasingly small revenues; the same effect that can be witnessed in some mobile data markets, with the reduction in price of SMS you see an increase in the number of messages sent, resulting in an increase in revenues.

It is quite possible that the open source movement will ultimately result in a collapse of the industry, and that would not be a good thing.

Still following the hypothetical theory that software pricing will go to zero (that, as I said, is not grounded in reality) here the author takes the previous considerations and uses a logical trick; he says that the proprietary companies will disappear, here he says that there will be a collapse of the industry (not of the “proprietary industry”). This way he collapses the concept of the software industry (that includes the proprietary and the non-proprietary actors) and conveniently avoids the non-proprietary part. Of course, this is still not grounded in anything logical. The conclusion is obvious: “that would not be a good thing”. Of course, this is another rhetoric form- by adding a “grounding” in something that is emotionally or ethically based, we introduce an external negative perception in the reader, strengthening what is still an hypothesis.

And then, the avoidance trap:

I am sure that many open source advocates who are reading this are already irate, and perhaps even yelling that this Quinn guy doesn’t know what he is talking about. I am used to it by now; I get it all the time. It is, after all, much easier to simply believe that someone you disagree with is clueless rather than question your own beliefs

This approach is so commonly used that is now beginning to show its age; use the fact that someone may be irate at reading the article to dismiss all critics as clueless people unable to question “beliefs”. The use of this word is another standard tactics, simply removing the idea that the personal position of an OSS adopter depends on illogic, faith-based assumptions; this, of course, would be difficult to defend in an academic environment, where we assume that researchers are not faith-based in their studies. So, this is an approach commonly used in online forum, blogs and such that are meant for a general audience.

It is a mistake though to dismiss what I am saying here, or any of my other writings on computer software and open source.

Of course, I am dismissing it for the content of what you write, not because of my “beliefs”; and I have not read anything else from you, so I am not dismissing what I have not read.

The fact that I am a patent attorney undoubtedly makes many in the open source movement immediately think I simply don’t understand technology, and my writings that state computer software is not math have only caused mathematicians and computer scientists to believe I am a quack.

This is totally unrelated to the previous arguments- who was talking of software patents anyway? We were talking about the role of OSS in terms of competition with the proprietary software market, and about potential effects to revenues.

Unlike most patent attorneys, I do get it and that is probably why my writings can be so offensive to the true believers. I am not only a patent attorney, but I am an electrical engineer who specializes in computer technologies, including software and business method technologies. I write software code and whether you agree with me or not, telling me I simply don’t understand is not intellectually compelling.

Of course, being part of a “class of people” like EE is in itself not qualifying in any way; any comment I made up to now would be equally applicable independently of the author; claiming to “get it” or implying that someone “don’t get it” because he works as a patent attorney is silly, and here the author falls in the same fallacy. By the way, I know some patent attorneys that perfectly “get it”, along with others that believe that open source software is made by fairies in the forest. As I said, being member of a class is in itself useless in deciding the truth of a statement.

I do get it, and the reality is that open source software is taking us in a direction that should scare everyone.

Here the author uses the fallacy of membership discussed before, and uses it as a authority power: “I do get it”. I am qualified, then I am saying the truth. And what I am saying is that OSS is dangerous, and the fact that anyone else (apart from O’Dowd, that believes that Linux will be infiltrated by terrorists) is not perceiving the problem is due to the fact that they are not looking with enough attention.

Sun Microsystems is struggling, to say the least, and the reality is that they are always going to struggle because they are an open source company, which means that the only thing they can sell is service.

Sun Microsystems is struggling for a long time now (unfortunately; I always loved their products). Personally I believe that the new CEO is doing quite a turnaround on the company, that has languished for a long time on a shrinking, highly lucrative market like SGI did in the past, but that is better left to financial analysts. Anyway their financial results were not that good even before the OSS turnaround imposed by Jonathan Schwartz, and so there is no real linking between the two part of the phrase (on the contrary, the OSS part is growing nicely, while the large scale enterprise server part is decreasing fast). It also introduces an additional error, that is the fact that being OSS means that you can sell only services. The author clearly has not read much on OSS business models, but he should not worry: I would be happy to send some papers on the subject.

Whenever you sell time, earning potential is limited. There are only so many hours in the day, and only so much you can charge by the hour. When you have a product that can be replicated, whether it be a device, a piece of proprietary software or whatever, you have the ability to leverage, which simply doesn’t exist when you are selling yourself by the hour.

Of course: this is the reality of consulting. This, however, does not stop companies like IBM Global Services, Accenture and friends to live off consulting, simply by asking very high prices for a day of a specialized consultant. Or, you can find groups like the 451 or RedMonk that are more efficient and targeted towards special markets.

So there is a realistic ceiling on the revenue that can be earned by any open source company, and that ceiling is much lower than any proprietary software company.

So, assuming that by-the-hour services is the only OSS business model possible, and that the price-per-hour cannot match that of large consulting firm, then there is a revenue ceiling that is lower than that of proprietary software companies. The fact that both parts of the phrase are unsustained by arguments makes the conclusion unproven.

It is also an undeniable truth that the way many, if not most, service companies compete is by price. When service companies try and get you to switch over they will promise to provide the same or better service for a lower price.”

This should be a supporting argument for the fact that OSS companies charge a lower per-hour price of competing companies, and uses Sun as an example. Of course, it continues to be an unsupported argument, even considering the fact that the author probably never paid a receipt for a Sun consultant, or would have discovered that their pricing is in line with the rest of the market.

The trouble with freeware is that there is no margin on free, and while open source solutions are not free, the race to asymptotically approach free is on, hence why I say the race to zero is in full swing.”

Now the author switches from OSS to “freeware”, to remind us that Open Source is, after all, free. Probably RMS would say at this point “free as in free speech, not free as in free beer”, but his ideas would be probably dismissed. The use of “free” here is made to create the appearance of a logical connection between “freeware” and open source; of course, the author acqnowledges that OSS is not free, but as part of the same “family” they are participating in the “asymptotically approach free… race to zero”. As stated before: in a perfect competition the race is not to zero, but to the marginal cost; so using “freeware” is a way to imply that this cost is zero as well, when the reality is that it is not zero (but lower than writing everything from scratch, thanks to the reuse opportunity).

And then we move to something completely different (as Monty Python would say):

Unfortunately, many in the patent legal community are engaging in the race to zero as well. For example, there are patent attorneys and patent agents who advertise online claiming to be able to draft and file a complete patent application for under $3,000. One of the most common ads running provides patent applications for $2,800, and I have seen some agents advertise prices as low as $1,400 for a relatively simple mechanical invention. The race to zero is in full swing with respect to patent services aimed at independent inventors and start-up companies. It is also being pushed by major companies who want large law firms to provide patent services for fees ranging from $3,500 to $7,000 per application. This is forcing many large patent law firms to simply not offer patent drafting and prosecution services any longer. There are major law firms that are seeking to outsource such work, hoping to still keep the client for litigation purposes and to negotiate business deals.

Dear writer, this is called “competition”. And as before, it is not a “race to zero”, as you will never find an attorney doing this kind of service for free, without any attachment; or if they do, they will probably go out of business, leaving the market.

Does anyone really think that paying $1,400 for an allegedly complete patent application is a wise business decision? I can’t imagine that if you say that to yourself out loud it would sound like such a good idea.

Well, IF the author can prove that application quality and price are correlated, then this becomes a decision based on economics principles (and depends on the hypothetical future value of the patent, measures of indirect value and so on). If the correlation is not strict, then any rational actor would simply seek the lowest possible price.

Likewise, Fortune 500 companies that are pushing prices down and wanting to pay only $3,500 for a patent application can’t really expect to get much, if any, worthwhile protection. Do they? I suppose they do, but the reality is that they don’t. The reality is that when you are drafting a patent application you can ALWAYS make it better by spending more time. … But to think that you can force a patent attorney or agent to spend the same length of time working on a project whether you pay under $3,500, $7,000 or $10,000 is naïve. Everyone inherently knows this to be true, but somehow convinces themselves otherwise

So, Fortune 500 companies are managed by morons, that don’t understand the value of spending more time. I suspect it is for a lack of culture, or a lack of perception of value; both can be cured by promotion and dissemination of information. Still, this does not applies to Open Source.

As companies continue to look for the low cost solution, quality is sacrificed.

Ah! Here’s the connection! As for patent applications, software has the same correlation: quality-price…

Now I full well realize that much of the open source software is better than proprietary software, and I know that it can be much cheaper to rely on open source solutions than to enter into a license agreement for proprietary software.

…but I can’t say it loud, thinks the author, or they will burn me alive. So, let’s change the subject again:

But where is that going to lead us? Once mighty Sun Microsystems is hanging on for dear life, and is that who you want to be relying on to provide service for your customized open source solutions? What if Sun simply disappears?

Can you trust a company like Sun, that by using OSS is destroying itself? Or are you thinking about using OSS, and take the risk of being such a dying corpse yourself? So, let’s make sure that the poor moron that thinks that OSS can save money understand the risks, by bringing another example: gyms!

I remember years ago I joined a gym and purchased a yearly membership only to have the gym close less than 2 months later. A similar thing happened to my wife several years ago when she bought a membership to a fitness and well-being company who shall remain nameless. Eat better and get exercise counseling and support, what a deal! Of course, it was a deal only until the company filed for bankruptcy and left all its members high and dry. Luckily I put off joining myself otherwise we would have been out two memberships after less than 30 days.

Of course, the parallel between gyms and software companies is not so strict; and is not related to OSS at all – examples abound of what happens, in all sectors. At least, with OSS, you have the source code, and you can do something yourself.

“With once mighty companies falling left and right do you really want to bet the IT future of your company or organization on an industry whose business model is the race to zero?”

So, dear author, the race is not to zero, and yes, I would bet it on open source, so at least I am free to continue to use your gym even after it has closed.