How to make yourself hated by academics.

I have been talking about OSS for a long, long time, and my first public conference on the subject is still imprinted in my mind. It was at a very important post-universitary Italian school, with a renowned economic department, and I got invited to deliver a speech about EU activities in support of OSS, to an audience mainly composed of academics from sociology, economics, political science and such. Just after my talk, one of the professors started a lively debate, claiming that I was a “crypto-communist, deluded and trying to spread the false model of the gift economy upon IT”. Heck, I stopped talking for a moment – something that the people that knows me would find surprising (I tend to talk a lot, on things that I like). I had to think about the best way to answer, and was surprised to find that most of the audience shared the same belief. One professor mentioned that basic economic laws make the very idea of OSS impossible, or only a temporary step towards a market readjustment, and so on.

Guess what? They were wrong. And not wrong a little – wrong a lot (but it took me a few years to demonstrate it).

And so, after all these years, I still find sometimes academics that improvise on the subject, claiming certainty of their models; models that, usually, include hidden assumptions that are more myth and folklore than science. Thankfully for the many ones that are not subject to this faults (Dirk Riehle comes to mind, as Rishab Gosh, Paul David, Francesco Rullani, Cristina Rossi, and many others) we have real data to present and show. I still sometimes open my talks with a mention from “Government policy toward open source software”, a book from AEI-Brookings where Evans claims that “The GPL effectively prevents profit-making firms from using any of the code since all derivative products must also be distributed under the GPL license”. Go tell that to RedHat.

Now, I have a new contender for inclusion in my slides; an article from Sebastian von Engelhardt and Stephen M. Maurer, that you can find in all its glory here. I will try to dissect some of the claims that are hidden in the paper, and that for example push the authors towards “imposing a fixed, lump-sum tax on OS firms and using the proceeds to subsidize their [proprietary software] competitors”. I think that Microsoft would love that – a tax on RedHat, Google, IBM! What can be more glorious than that?

I will pinpoint some of the most evident problems:

  • “For this reason, the emergence of fundamentally new, “open source” (OS) methods for producing software in the 1990s surprised and delighted observers.” Actually, as I wrote for example here, the tradition of collaborative development of software far predates Stallman and Raymond, and was the norm along with the creation of “user” (more appropriately “developer”) groups like SHARE (Society to Help Avoid Redundant Efforts, founded in 1955 and centered on IBM systems) and DECUS (for Digital Equipment computers and later for HP systems), both still alive. Code was also commonly shared in academic journals, like the famous “Algorithms” column of the “Communications of the ACM” journal. It was the emergence of the shrinkwrapped software market in the eighties that changed this approach, and introduced the “closed” approach, where only the software firm produces software. This is actually an illusion: in Europe, the market for shrinkwrapped software is only 19% of the total software+services marker, with own-developed software at 29%. We will return upon this number later.
  • “This made it natural to ask whether OS could drastically improve welfare compared to CS. At first, this was only an intuition. Early explanations of OS were either ad hoc (“altruism”) or downright mysterious (e.g. a post-modern “gift economy”). [Raymond 1999] Absent a clear model of OS, no one could really be certain how much software the new incentive could deliver, let alone whether social welfare would best be served by OS, CS, or some mix of the two.” Argh. I understand the fact that my papers are not that famous, but there are several excellent works that show that OSS is about the economics of production, and not politics, ideology or “gif economies”.
  • “economists showed that real world OS collaborations rely on many different incentives such as education, signaling, and reputation.” See? No economic incentives. People collaborate to show their prowess, or improve their education. Actually, this applies only to half of the OSS population, since the other half is paid to work on OSS – something that the article totally ignores.
  • “We model the choice between OS and CS as a two-stage game. In Stage 1, profit-maximizing firms decide between joining an OS collaboration or writing CS code for their own use. In Stage 2 they develop a complementary product, for example a DVD player or computer game, whose performance depends on the code. The firms then sell the bundled products in markets that include one or more competitors.” So, they are describing either a R&D sharing effort or an Open Core model (it is not well explained). They are simply ignoring every other possible model, something that I have already covered in detail in the past. They also ignore the idea that a company may contribute to OSS for their own internal product, not for selling it; something that is in itself much bigger than the market for shrinkwrapped software (remember the 29% mentioned before?) and that is totally forgotten in the later discussion on welfare.
  • “OS only realizes the full promise of cost-sharing when CS firms are present”. This is of course false: R&D sharing is always present every time there is a cooperation across a source base. But the article mentions only a simplistic model that assumes a OS company and a proprietary company (they insist in calling it Commercial Software, which is not).

There is a large, underlying assumptions: that OSS is produced now only by companies that create Open Core-like products. The reality is that this is not true (something that was for example found in the last CAOS report from the excellent Matthew Aslett) and the exclusion of users-developers makes any model that tries to extract welfare totally unreliable.

Ahh, I feel better. Now I have another university where I will never be invited :-)

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  1. #1 by Felipe Ortega - November 6th, 2010 at 16:01

    Don’t worry, Carlo. You know you have other Universities where you can take shelter from archaic economists :) .

    Ok, now seriously. I’ve been discussing a similar perspective with some friends with respectable backgrounds on Economics and Business studies. After searching for many references to try to understand the backup for claims such as the above ones, I have concluded that the problem is twofold:

    * Open collaboration (you know I always try to broaden the scope beyond software) has fundamentally altered many of the apparently well-known norms of different markets (software, publishing, content providers, journalism, education, etc.). You’ve already mentioned the academic works of people showing this fact in software production, and explaining why (including Dirk, Rishab, etc. and your own publications). However, some “traditional” models for market analysis does not adapt very well to explain the new rules of the game. Their underlying assumption is that fierce competition among firms is granted, and the only way to maximize profits based on products. Hence, we find claims like “code-sharing also guarantees that no OS firm can offer better software than any other OS firm. This suppresses quality competition between OS firms and restricts their output much as an agreement to suppress competition on quality would”. Clearly, customer support, liability, customization and other services are obviated in that equation.

    * As many firms and SMEs has realized so far (not only in open collaboration), modern economy is more and more about services and client relationships (and satisfaction), and less about bare products. Thus, now firms tend to find their own niches to differentiate from competitors based on nurturing customer relationships, and quickly commoditizing baseline technologies and infrastructures that (sooner or later) will be shared or adopted by all stakeholders. As a result, coopetition is now present in many other areas out of the open source field, for instance in aeronautics and automotive industries. Even Telecommunication providers and banking firms has embraced this model under the form of mergers and absorptions, while retaining different corporate identities. Their coopetition may not be very apparent, but it can be clearly traced back to their daily activity, customer deals, campaigns, etc.

    In conclusion, I’m completely aligned with your opinion (no surprise) but I think the basepoint for building correct models explanations should be extended beyond the software market, from the start.

    From case studies about FLOSS projects and companies, we have learnt that prior guidelines and factors to analyze the production and evolution of proprietary software are not valid to explain the new traits introduced by FLOSS. In addition, some software development trends, like agile methodologies, have strengthen even more the focus of software production on customer satisfaction and support (quick response to changes in design and needs).

    Now, we also need to evolve current theoretical models to explain and analyze business relationships articulated in a marketplace (for content publishing, journalism, education, entertainment, etc.) fundamentally transformed by the new rules of coopetition. I also concur with you in that the so-called “gift economy” is not a satisfactory answer at all to explain this new reality. Coopetition has nothing to do with mere altruism, but is deeply rooted in more effective and sustainable models for production of goods (not only tangible products).

(will not be published)