a ton of money up front to develop a software product, and then the marginal cost of producing each one is very small, but if you sell a lot of them, you make back your investment and then plow profits back into developing the next generation. But when you insist that you cannot charge for software, you can only give it away, you take the software business away from being a scale economic business.”
Added Bill Gates, “You need capitalism [to drive innovation.] To have [a movement] that says innovation does not deserve an economic reward is contrary to where the world is going. When I talk to the Chinese, they dream of starting a company. They are not thinking, 'I will be a barber during the day and do free software at night.'... When you have a security crisis in your [software] system, you don't want to say, 'Where is the guy at the barbershop?'”
As we move into this flat world, and you have this massive Web-enabled global workforce, with all these collaborative tools, there will be no project too small for some members of this workforce to take on, or copy, or modify-for free. Someone out there will be trying to produce the free versions of every kind of software or drug or music. “So how will products retain their value?” asked Mundie. “And if companies cannot derive fair value from their products, will innovation move forward in this area, or others, at the speed that it could or should?” Can we always count on a self-organizing open-source movement to come together to drive things forward for free?
It seems to me that we are too early in the history of the flattening of the world to answer these questions. But they will need answers, and not just for Microsoft. So far-and maybe this is part of the long-term answer-Microsoft has been able to count on the fact that the only thing more expensive than commercial software is free software. Few big companies can simply download Linux off the Web and expect it to work for all their tasks. A lot of design and systems engineering needs to go around it and on top of it to tailor it to a company's specific needs, especially for sophisticated, large-scale, mission-critical operations. So when you add up all the costs of adapting the Linux operating system to the needs of your company and its specific hardware platform and applications, Microsoft argues, it can end up costing as much as or more than Windows.
The second issue Microsoft raises about this whole open-source movement has to do with how we keep track of who owns which piece of any innovation in a flat world, where some is generated for free and others build on it for profit. Will Chinese programmers really respect the rules of the Free Software Foundation? Who will govern all this?
“Once you start to socialize the global population on the idea that software or any other innovation is supposed to be free, a lot of people will not distinguish between free software, free pharmaceuticals, free music, or free patents on car designs,” argued Mundie. There is some truth to this. I work for a newspaper, that is where my paycheck comes from. But I believe that all online newspapers should be free, and on principle I refuse to pay for an online subscription to The Wall Street Journal. I have not read the paper copy of The New York Times regularly for two years. I read it only online. But what if my daughters' generation, which is being raised to think that newspapers are something to be accessed online for free, grows up and refuses to pay for the paper editions? Hmmm. I loved Amazon.com until it started providing a global platform that wasn't selling only my new books but also used versions. And I am still not sure how I feel about Amazon offering sections of this book to be browsed online for free.
Mundie noted that a major American auto company recently discovered that some Chinese firms were using new digital-scanning technology to scan an entire car and churn out computer-aided design models of every part within a very short period of time. They can then feed those designs to industrial robots and in short order produce a perfect copy of a GM car-without having to spend any money on R & D. American automakers never thought they had anything to worry about from wholesale cloning of their cars, but in the flat world, given the technologies that are out there, that is no longer the case.
My bottom line is this: Open-source is an important flattener because it makes available for free many tools, from software to encyclopedias, that millions of people around the world would have had to buy in order to use, and because open-source network associations-with their open borders and come-one-come-all approach-can challenge hierarchical structures with a horizontal model of innovation that is clearly working in a growing number of areas. Apache and Linux have each helped to drive down costs of computing and Internet usage in ways that are profoundly flattening. This movement is not going away. Indeed, it may just be getting started-with a huge, growing appetite that could apply to many industries. As The Economist mused (June 10, 2004), “some zealots even argue that the open-source approach represents a new, post-capitalist model of production.”
That may prove true. But if it does, then we have some huge global governance issues to sort out over who owns what and how individuals and companies will profit from their creations.
India has had its ups and down since it achieved independence on August 15, 1947, but in some ways it might be remembered as the luckiest country in the history of the late twentieth century.
Until recently, India was what is known in the banking world as “the second buyer.” You always want to be the second buyer in business-the person who buys the hotel or the golf course or the shopping mall after the first owner has gone bankrupt and its assets are being sold by the bank at ten cents on the dollar. Well, the first buyers of all the cable laid by all those fiber-optic cable companies-which thought they were going to get endlessly rich in an endlessly expanding digital universe-were their American shareholders. When the bubble burst, they were left holding either worthless or much diminished stock. The Indians, in effect, got to be the second buyers of the fiber- optics companies.
They didn't actually purchase the shares, they just benefited from the overcapacity in fiber optics, which meant that they and their American clients got to use all that cable practically for free. This was a huge stroke of luck for India (and to a lesser degree for China, the former Soviet Union, and Eastern Europe), because what is the history of modern India? In short, India is a country with virtually no natural resources that got very good at doing one thing-mining the brains of its own people by educating a relatively large slice of its elites in the sciences, engineering, and medicine. In 1951, to his enduring credit, Jawaharlal Nehru, India's first prime minister, set up the first of India's seven Indian Institutes of Technology (IIT) in the eastern city of Kharagpur. In the fifty years since then, hundreds of thousands of Indians have competed to gain entry and then graduate from these IITs and their private-sector equivalents (as well as the six Indian Institutes of Management, which teach business administration). Given India's 1 billion-plus population, this competition produces a phenomenal knowledge meritocracy. It's like a factory, churning out and exporting some of the most gifted engineering, computer science, and software talent on the globe.
This, alas, was one of the few things India did right. Because its often dysfunctional political system, coupled with Nehru's preference for pro-Soviet, Socialist economics, ensured that up until the mid-1990s India could not provide good jobs for most of those talented engineers. So America got to be the second buyer of India's brainpower! If you were a smart, educated Indian, the only way you could fulfill your potential was by leaving the country and, ideally, going to America, where some twenty-five thousand graduates of India's top engineering schools have settled since 1953, greatly enriching America's knowledge pool thanks to their education, which was subsidized by Indian taxpayers.
