Linux, pricing and progress (or the lack thereof)

[h2sammo]

I have become a Linux fan for about 4 months and i cant have enough of it. A chemist by trade, it is often difficult for me to grasp, apply and implement the universe of linux (but i love it too much to go back to windows). My other hobby (beside computing) is economics (austrian economics to be more precise: www.mises.org) and i have been having quite some linux related thoughts and questions which i feel the need to share here with you.

i recognize linux as being more versatile, and given above average training even more productive than the "elephants in the room" (windows or apple's os). this is no doubt due to the brilliance and innovation of the people working on creating it. it has however major drawbacks when it comes to user friendliness and compatibility, etc. while i recognize current IP laws, regulations and limitations as a major stagnation force, hindering progress in general and especially in the universe of computing, i see linux being "free" as similarly detrimental.

how can the developers know the wishes of potential consumers and plan their development accordingly if there is no price/loss/profit indicator? prices (and the effect of loss and profit) are very important tools in doing any sort of economic calculation. they relay the wishes of the consumer to the entrepreneur who is trying to make profit by satisfying those wishes. this is the same idea behind the inefficiency of a centralized govt run economy and a free capitalist market. the former ussr and similar "top-down" initiatives in more capitalist societies are doomed to fail because they distort (or completely shut down) markets, pricing indicators and hence promote malinvestment of scarce resources.

to put it more bluntly, how would the linux developers know whether they should spend more time on rendering kernel 2.6.29 compatible with ati-drivers or whether they should work on releasing kernel 2.6.30. while i am convinced there are good arguments on both sides, without a feedback mechanism from the people all this stuff is created for (the consumer) in the form of pricing/profits/losses, any sort of decision about any course of action is completely arbitrary.

ps: about IP laws - i don't subscribe to the idea of intellectual property (along with that of copyrights) because property is directly defined by a scarcity of the good being possessed. there is no scarcity of thoughts and ideas. the fact that someone had some idea first should not stop other people from having the same idea (which is impossible to enforce anyway) - and using it with (or won) their own property.

IP laws are hindering progress. as an example, just think about the effect IP laws would have had on humans when they moved out of caves and started building dwellings. if the first one (or group) to do it would have had the means (by govt. legislation) to stop everyone else from doing it progress would have been severely restricted.
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[widremann]

I don't buy that pricing makes a big difference in the complex world of software. Software companies regularly sell shit that people don't really want, but it's "good enough". The real information comes from communication with users, especially the big ones. Same in the OSS world. Users are very vocal about what they think is important. Take VirtualBox, for example. So many users have complained about the lack of 3d acceleration that it has become a top priority. Nobody is changing their buying strategy based on whether or not VB has 3d acceleration, and that's not how they would find out anyways. It's only via feedback and contributions that they find out.

[BoneKracker]

[h2sammo]

well what purpose does pricing serve in a market in your opinion?

i have to clarify that those ideas i put forward are not mine personally. i basically applied free market principles to the world of linux and tried to explain its shortcomings. i have done this in the light of free market theorists like Frédéric Bastiat, Eugen von Boehm-Bawerk, F.A. Hayek, Ludwig von Mises, Murray Rothbard, Robert Murphy and Tom Woods (to name a few) who have carefully defined the principles of capital, interest, money and prices.

if you would like to explain how pricing is NOT indispensable for any economic calculation i would be glad to hear from it and i am sure it would be a very interesting (even though already performed) debate.

you mention "feedback" from consumers, and this is exactly what prices offer: indispensible feedback, and much more than that, it offers a quantitative description of demand. it tells the entrepreneur exactly how much consumers desire product A when compared to product B (no ambiguities here, no "we really want 3d acceleration", but an exact number associated to that consumer need).

why else would markets arise than in the first place? why wouldn't societies evolved in just supplying goods and services for free? the Austrian answer is that it is precisely because there would have been no way to calculate the most productive way of resource allocation, something that free markets (through the employment of prices) offer naturally and efficiently.

even when markets are being shut down (in the ussr for example markets didn't exist for a long time, goods and services were simply rationed by decree from a respective industry "czar"), black markets emerge. historically an economy with a lack (or distorted) markets has always imploded.

personally i like the diversity of linux and its evolution without the limitations created through IP laws. i think however that its development might be hampered by it not being operated for profit. is it a very nice, useful and cool product? of course! could it be much more so given the feedback of prices and the tests of profit/failure? reason tells me - of course!
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[Sir Link]

Those arguments can't really be applied to Linux; Linux's strategy is something along the lines of "if you build it they will come, and if they want more, they should give us a blueprint". Especially the kernel developers really don't care that much about what the end user wants. Linux development isn't a business, so there is no need for the developers to "go with the flow". They develop because they want to, not because they have to.

On the other hand, Linux is a community instead of a business, and there is a considerable amount of communication between developers and end users. If the end user wants something, the developer will know, because the end user will tell them. It's actually a more direct way of getting the information to the developer than having to analyse market statistics.

One thing that really sets Linux apart is that the developers don't care about market share, or at least don't have to. If the user wants something, they can ask politely, or they can program it themselves. No need for middle men.
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Allahu snackbar!

[widremann]

[h2sammo]

thx for the replies.

linux (open source anything) is fascinating to me and i wold like to hear more (educated) ideas about how/why it works.

i would have to ask though, if the linux developers dont care about consumer needs, then the usefulness of Linux (the degree with which it satisfies consumer needs or with which it improves productivity) is only incidental. if that is the case, then how can the improvement of Linux be measured? (one answer would be that it can be measured by how much it satisfies its developers - which minimizes Linux to a hobby)
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[BoneKracker]

http://en.wikipedia.org/wiki/The_Cathedral_and_the_Bazaar

http://catb.org/~esr/writings/homesteading/homesteading/
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[zixnub]

Open source is perfect competition. IP is monopoly.
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[sts]

[BoneKracker]

There are similar economics to it, but price is not a factor.

Adoption rates drive any given product's rate of improvement, and the rate of improvement in turn drives adoption rates. Demand is still there, even if the purchase price is zero.

Also, purchase price does not equal cost. Purchase price is only a small part of the life-cycle costs of a product (or the total cost of ownership).

A company that uses an open-source product is banking on participating in a collaborative effort to improve the product over time. Every improvement a company invests in making increases the probability that someone else will invest in improving it. This not only reduces cost, it results in a sharing of good practices, knowledge capital, and organizational learning.

The Linux kernel is somewhat unique as an open-source product. You should also examine some others. Look at some utilities (e.g. gnu tools), some commodity applications (e.g. web server, database) and business applications (e.g. accounting or CRM).
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[h2sammo]

it is precisely because people are not automatons that prices are the ultimate metric of consumer wants. prices rate one's wants in order of importance, where one will use his money to exchange for his most urgent need based on the principle of marginal utility(http://mises.org/story/3100).

a (free) marketplace is a place of exchange based on the laws of human action (http://en.wikipedia.org/wiki/Human_Action, http://mises.org/resources/3250). there is no substituent for it (according to austrian economists).

i can observe the degree of implementation and elegance of linux to some extent. it does NOT evolve, however, based on consumer needs. it seems to me its applicability is just a side effect to the brilliance of the open source developer model, but it (applicability) does NOT steer its development. that is why i made the analogy of linux to a hobby, rather than to a consumer/capital product.

i am a bit cautious at proclaiming the open source model as pure competition, because it does NOT pass the profit/loss test. linux can never go bankrupt or driven out of the market because it does not make any profit to begin with. without pricing, there also is NO way to measure the market share of linux so one can calculate its growth or demise. it will go on forever as long as it has a community which finds developing it a pleasant use of their own time. its contribution to the consumer is however coincidental by definition, as the consumer cannot reward or punish linux with his wallet.

while i acknowledge that the open source model solves the "choke hold" of IP laws, i find its weakness in its ability to measure/please consumer wants and hence benefit from higher orders of economic calculation.
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[BoneKracker]

[atrus123]

[sts]

[h2sammo]

very interesting.

questions: if linux were to be sold, (i dont know in what form, kernel, distribution, etc) what would is sell for, what market share would it control? what price would gentoo for example go for? would people pay 200 dollars for it, maybe 50, or maybe 30? would it sell at all? would anyone be willing to pay money for gentoo? in other words, how many people would consider Gentoo a more immediate need than other OS on the market? what if no one would pay money for gentoo? or what if people paid 3 dollars for it? or what if they paid 400 for it?

i am convinced Gentoo is a good OS, but how does it fare with other OS on the market, IE what is its value? the fact the Gentoo is a good OS doesnt mean that its productivity benefit satisfy the consumer.

Chrysler makes very good vehicles, but they are cost prohibitive for the company, gas guzzling and high maintenance when compared to vehicles manufactured by Toyota. consumers value Toyota vehicles as a more immediate need than vehicles offered by Chrysler. because of prices, competition, profit and bankruptcy (loss), resources will be diverged towards Toyota more than Chrysler because the latter goes bankrupt while the latter gains market share. keeping Chrysler in business misalocates resources towards areas which do not increase the standard of living of the consumer. this creates the high(er) value of toyoata vehicles.

having said that, could i make the argument that linux might potentially be a misalocation of resources? it is not a given because linux is not in competition (not traded on a market) but since there is no way to accurately calculate its satisfying consumer demands, then there is a possibility that linux is a waste of time and the many brilliant minds spending countless hours on it would be more productive working on a different project. how can this question be settled without a pricing system and with a lack of economic calculation in the linux universe?
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[h2sammo]

[BoneKracker]

No, you won't die and be weeded out. Here is why:

1. Having slightly less money does not equal dying. So people will exhibit frivolous buying behavior very frequently with their disposable income, less frequently where it would interfere with their standard of living, and infrequently where it reduces them to poverty.

2. Being reduced to poverty also does not equal dying. We live in socialist societies that provide for the very basic needs for everybody. Even people exhibiting completely irrational buying behavior survive and breed. The behavior is not selected out.

3. Irrational buying behavior is extremely common in consumer markets (less common in industrial markets). For example, one very common behavior is the use of price as in indicator of quality. Extensive studies have been done on this. It is nearly universal; in the absence of a deep understanding of the product, consumers use price as an indicator of quality. Wine is an obvious example most people can grasp, but it is pervasive. Consumers are heavily influenced by advertising and often buy products completely unrelated to the need they have (they buy Axe body spray because they want sex; they buy Pepsi because they want happiness; they buy Coke because they want esteem). And then you've got addiction (gambling, nicotine, alcohol, etc.)

I know you're excited about your newfound knowledge of the Austrian School of economics. Keep in mind that such models and principles are merely building blocks that you must synthesize with others in order to accurately understand the dynamics of a complex system.
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[h2sammo]

my knowledge of austrian economics is not quite "newfound". i have been excited about it ever since i discovered it so you are half right. linux is new for me indeed.

this is somewhat diverting from my original intent for this thread. social programs do indeed mask the problems in a economy and interventionist policies do aid in the misalocation of resources. history shows that, on a larger timescale however, socialist (and any centrally run economy for that matter) fail eventually, subdued by the laws of economics. so, the irrational actions of the consumer cannot be encouraged by the state for eternity. as that interventionist state fails, so do bad habits. bad habits cannot linger in a uninhibited market due to competition and failure.

economics has laws after all, and they cannot be bent just like the laws of physical sciences cannot be bent.

i would like to redirect the discussion towards linux and pricing if possible.
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[BoneKracker]

The price of Linux is $0. End of discussion.
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[sts]

[aidanjt]

So-called 'bounties' are also commonplace in the opensource world, where if an individual or organisation wishes to have more development effort placed on a particular bug (fixing something, adding a new feature, etc) they can put a price on how much they're willing to pay to have that particular bug fixed. Support contracts sometimes include a variation of this theme, too.
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[Eduard Munteanu]

I replied to you on mises.org as well. The main points are:
- Price is mainly a resource distribution mechanism. Information and feedback only comes second to that.
- Linux and other open source software have zero price because once they are produced, they are duplicated at almost zero cost. Considering there's a finite demand and almost infinite supply, the $0 price is easily explained (price is a function of supply and demand).

So you don't pay for Linux itself. You may only pay people to work on it. The fact that a good can be infinitely obtained/duplicated with zero cost is not a bad thing at all.

[h2sammo]

very ture, not a bad thing at all.

i cant exaplain the large supply given a low demand. given there is no price, it will never correct (the supply wont come down). in this case the supply/demand curve is not in terms of price. the supply at least has moret to do with personal interest (on the part of the developers).

very interesting, thx for replies

see what the mises.org crowd thinks here: http://mises.org/Community/forums/p/8779/226247.aspx#226247.

my favorite:

"Linux isn't a business. It's more like a co-op. In the open-source world, the producers are the consumers. The producer knows exactly what the consumer needs, because he is the consumer."
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[sundialsvc4]

Linux is what one might call an enabling technology. Only geeks use it "just to use it." Others use Linux simply "to get done." To run servers and such, so they can, you know, "sell things."

There is tremendous business value in the fact that Linux (and the GNU tools suite) does "enable" so many things, on so many different types of hardware. It is a rising tide that lifts all boats, which gives a great many people and companies (including, very quietly, Microsoft...) a powerful incentive to contribute to its ongoing development. The more that Linux can do, the more you can do with it. The more architectures are efficiently supported by GNU, the more efficiently you can use those architectures in your designs.

These are indirect benefits, which you receive "in full" even if you contribute to the projects "in part" or even "not at all." It is plain to see how the computer industry "really took off" when it let go of the notion that core tools and technologies had to be paid-for unto themselves.