Originally Published: Tuesday, 24 August 1999 Author: Sydney Weidman
Published to: featured_articles/Featured Articles Page: 1/1 - [Printable]

A Broader Notion Afoot

The launch of Red Hat into public trading last week heralded a new age in the software industry. Without a doubt, Red Hat's flashy entry onto the Nasdaq exchange represents a paradigm shift. Free Software will drive down the premiums charged for intellectual property. Vendors that continue to rely on the property paradigm of computer software will be hard-pressed to maintain the same levels of profitability from the sale of software in the future. Even Microsoft, it is said, is weaning its partners off of the engorged breast of intellectual property and onto a leaner diet of services and support....

   Page 1 of 1  

The launch of Red Hat into public trading last week heralded a new age in the software industry. Without a doubt, Red Hat's flashy entry onto the Nasdaq exchange represents a paradigm shift. Free Software will drive down the premiums charged for intellectual property. Vendors that continue to rely on the property paradigm of computer software will be hard-pressed to maintain the same levels of profitability from the sale of software in the future. Even Microsoft, it is said, is weaning its partners off of the engorged breast of intellectual property and onto a leaner diet of services and support.

Understandably, people are having trouble grasping -- or coping with -- Red Hat's business model. Many industry analysts have been conditioned to believe that intellectual property is a manufactured good. Software, according to catechism, is a "technology" and not a form of expression or a culture. Those who are most immersed in the current paradigm--business analysts from brokerage houses, for instance--have the greatest difficulty shifting their worldview to accommodate the new landscape.

Accordingly, those "old guard" (one could call them "Apres Garde" as opposed to "Avant Garde") apologists were caught with their pants down. Last week, Red Hat was all over the news, owing to its stellar IPO. The mainstream press went to their stock (as in standard, off-the-shelf) analysts for comment and found them clinging desperately to the old model. One example that stood out in the coverage was this quote:

"It's a completely different business model (from other software companies)," said [Paul] Bard at Renaissance Capital. "You really can't compare it on a valuation basis. This is open source code. They don't own the code."

This comment seems to skirt the positive economic consequences of using an open source development model. Not owning the Linux source code could easily prove to be a competitive advantage for Red Hat, since the cost of development will be shared by a large pool of developers. Besides, if Red Hat can deliver the same value to customers without owning source code, then what does it matter whether they own the code or not? The "value" of the code is a myth perpetuated by the mistaken view of software development as manufacturing -- "pushing bits out the door" to use Eric Raymond's metaphor. (For a more elegant treatment of this topic please see ESR's "The Magic Cauldron.") Ironically, the often shoddy development work by some closed-source vendors has itself driven up demand for Red Hat's services and stock. Apparently, others see standards of value that Mr. Bard has failed to recognize.

I don't mean to pick on one individual. There were others who failed to see the start of the revolution. Another comment went something like this: "Red Hat could never challenge Microsoft because the profit margin in services and support is one fifth what it is in software. It's not a sustainable business model." This is typical inevitability thinking. The analyst states some rule or other and assures you that nobody is going to break it. Yet this is just what Red Hat is setting out to do. Red Hat's strategy is to lower the profit margins in software and (perhaps) to raise those of service and support. Furthermore, one might argue that the profit margin averages in the shrink-wrapped software business are skewed by Microsoft. If there were more competition, perhaps the profit levels on software products would be closer to those of the service and support sections of the industry. Just as Microsoft's business model has pushed profit margins higher, Red Hat promises to lower the profit margins.

Now I will grant that it is far from certain whether Red Hat will succeed in this strategy, but to simply assert that it will fail because its profit levels are lower than Microsoft's is foolhardy and narrow-minded. In fact, even if it does fail, I'm willing to bet that it has already changed the industry for good (in at least two senses of "for good").

But the changes that are taking place seem much larger than just one company's success or failure. There is a bona fide grassroots political movement taking shape. To limit the scope of concern to just software seems almost to miss the point. Calling the movement "Open Source" doesn't really do it justice. It's not just about being open and sharing knowledge. And of course most ordinary people don't know what the "source" in Open Source means, in spite of Eric Raymond's considerable efforts. Even "Free Software", to which I am more inured, falls short of capturing the promise which Linux represents. The movement involves all forms of information -- music, writing, visual arts, theater, scientific and social research -- and almost the entire knowledge-based economy could be swept up in this tide. This is not just about software anymore. There is a broader notion afoot -- a notion that copyright and patents and other forms of information privilege may pose a subtle but insidious threat to many aspects of civilization and that conversely, that a measure of freedom from such restraints would enrich human life.

The idea of openness and collective effort is being rekindled in the arts, in politics, in community development, in science, as well as in other areas of commerce besides information technology. At least some of this activity has been inspired by Linux. The article "Exquisite Source" in the Atlantic Unbound magazine (Aug. 12, 1999) teases out some interesting parallels between the Free Software movement and the Avant Garde (this is how an artist says "Bleeding Edge") art community. The article discusses cross-fertilization between programming and art that has grown with the development of GNU/Linux. The kind of mutual admiration that is developing between the two communities is demonstrated by the fact that Linux was awarded a Golden Nica at the Prix Ars Electronica -- first prize in the ".net" category.

So while we are busy laughing about how little the mainstream press understands Red Hat, we would do well to recognize the limits of our own understanding, and to appreciate the larger forces at work.

Sydney Weidman is a writer and agent provocateur living in Winnipeg, Canada who is studying Business Computing and Philosophy at the University of Winnipeg.





   Page 1 of 1