giving away what’s nonscarce in order to sell what’s scarce

Since Helio Beltrao’s speech at the Austrian Scholars Conference, I’ve been listening to The Starfish and the Spider.

Helio didn’t convey how knee-jerk leftist the authors are. I find it a difficult "read" for that reason. They even use the word "coercive" to describe voluntary hierarchy while giving a government agency as an example of a starfish organization and offering "free" universal healthcare for San Francisco’s children as an example of what decentralization can achieve!

They also compare Napster to a locksmith opening your home every day so that your neighbors can help themselves to your stuff, while also describing trespassing, breaking and entering into animal-testing labs, and stealing research records as "civil disobedience." Nothing vaguely libertarian in this book.

But if you can wade through all that, there’s a lot of interesting information, too. For example, a hint at the relationship between decentralization and the distinction between legitimate and illegitimate property:

The Spider and the StarfishFor some companies, decentralizing isn’t just a matter of trying to succeed; it’s a matter of survival. As in the music industry, starfish are wreaking havoc in the software industry. Unlike the litigious record labels, however, Sun and IBM have found innovative ways to ride the decentralized wave. IBM saw that Linux — the open-source operating system that rivals Microsoft Windows — was gaining traction. Instead of competing with the decentralized market entrants, IBM supported them. It deployed six hundred engineers whose sole job was to contribute to Linux, and it actively supported the development of Apache and Fire-fox, the open-source browser that competes with Microsoft’s Internet Explorer.

IBM’s strategy was based in part on the "whoever is my enemy’s enemy is my friend" philosophy. That is, "if these programs are hurting Microsoft, our competitor, then let’s help them." But it’s not just about thwarting competitors. IBM has predicted that open-source is going to win out in the end. The company could spend resources developing competitive products, but chances are they ultimately would lose out. The open-source movement simply has too much momentum.

Rather than try to develop a competitive operating system in-house, IBM supported the development of Linux, then designed and sold hardware and software that was Linux-compatible. IBM is harnessing the collective skill of thousands of engineers working collaboratively worldwide, and at no cost to IBM.

All of a sudden, there’s a new culture of collaboration among the world’s leading technology companies. What would inspire Scott McNealy, the chairman of Sun, to tell us with pride, "We’re building communities, we’re sharing"? McNealy is no softy, and Sun is accountable to its shareholders. And yet the company has made its once-proprietary server software, which accounted for $100 million in sales each year, open-source.

McNealy may have philanthropic values, but the decision to give away the software also came from economic necessity. The entire industry has shifted. Once one company offers decentralized open-source software, its competitors must follow suit in order to stay in the game. As with the record labels and eMule, the moment one decentralized force came into play, the rest of the industry quickly began to shift.

Like IBM, Sun has opted to forgo revenues from software sales in favor of making money on auxiliary services and hardware. The price of software is rapidly declining to zero, and the big players are looking for other ways of making money.

As the software industry becomes more decentralized, an entirely new logic system is being adopted. To a casual observer, what’s going on seems like something from Alice in Wonderland. Who would ever have imagined, for example, that companies would race to give away their software for free?

But it gets weirder. McNealy explained that IBM and Sun have both come out with similar software offerings based on the same open-source platform. "If either one of us doesn’t do a good job, you can switch," he said.

Wait a second. Let’s take a step back. McNealy is touting customers’ ability to switch away from Sun? Don’t companies want their customers to be "stuck" using their product? That used to be the case, but the open-source movement has thrown the industry into chaos. The availability of free open-source alternatives means that customers have a lot more freedom to leave.

Because Sun can’t lock its customers in, it has to take a Buddhist approach — a variation on the refrigerator-magnet proverb: "If you love someone, set them free. If they come back, they’re yours; if they don’t, they never were." "Over the last few years," McNealy told us, "we’ve let our customers leave Sun easily if we don’t have price performance. Now I argue they’re going to come back in droves remembering that we didn’t hold them up."

Is this the wave of the future? As industries decentralize, will companies give their customers freedoms that were previously unimaginable? One thing’s for sure: IBM’s and Sun’s hybrid solutions are the only way for them to remain competitive in an increasingly decentralizing industry. The combo special isn’t just a nice option — it’s often necessary for survival.

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