Software - Different Traits for Manufacturing vs Service?

tachin asks: "We've all been hearing about software as a service industry as opposed to manufacturing, there are some differences that favour that view, but I wonder if the type of industry affects the fundamental design of a software system. Considering the differences between those two types, are there some software constructs that are appropriate for one type of industry but would be undesirable for the other? As economies everywhere are becoming more service-oriented, what are the main characteristics a software system must provide to work well in such environments?"

"Information Wants to Be Free" is a myth?

[mandalayx]

The original linked article is really long, so I read the next page. Luckily, it was shorter yet interesting.

The website claims that "Information Wants to be Free" is a myth:

The ``Information Wants to be Free'' Myth

There is another myth, equal and opposite to the factory-model delusion, which often confuses peoples' thinking about the economics of open-source software. It is that ``information wants to be free''. This usually unpacks to a claim that the zero marginal cost of reproducing digital information implies that its clearing price ought to be zero (or that a market full of duplicators will force it to zero).

Some kinds of information really do want to be free, in the weak sense that their value goes up as more people have access to them--a technical standards document is a good example. But the myth that all information wants to be free is readily exploded by considering the value of information that constitutes a privileged pointer to a rivalrous good--a treasure map, say, or a Swiss bank account number, or a claim on services such as a computer account password. Even though the claiming information can be duplicated at zero cost, the item being claimed cannot be. Hence, the non-zero marginal cost for the item can be inherited by the claiming information.

We mention this myth mainly to assert that it is almost unrelated to the economic-utility arguments for open source; as we'll see later, those would generally hold up well even under the assumption that software actually does have the (nonzero) value structure of a manufactured good. We therefore have no need to tackle the question of whether software `should' be free or not.

Interesting. I guess the point is that even if the cost of replicating code/software/information is very close to zero, the marginal utility can certainly be greater than zero. (high school economics, pull me through!)

Counterarguments to the article

[G4from128k]

The two top arguments in the article for why software is a service were erroneous.

1. 19/20 jobs are for in-house programmers This ratio may be true, but the conclusion that most software is written at the point of use as a service is false. If that one-in-20 commercial software company programmer writes commercial code that that sells even one thousand copies, then commercial code becomes 1000/(1000+19) = 98.1% of the code instances in use.

Another way to look at this is to examine the code inside the average company server for the ratio of in-house versus chimerical code. You will find maybe 10 million lines of code in a commercial OS, millions of lines of code in commercial enterprise applications (e.g., SAP, Oracle, Exchange Server, etc.), and a comparative fraction of that in code written in-house (config files, business rule scripts, report generators, PERL scripts, custom applications, etc.). Look inside the average desktop and the ratio of in-house to commercial code is even more extreme.

2. Remainder bin software: This argument is partially tautological. People (and retailers) devalue discontinued items or items from defunct makers because of the often valid perception that the item (or maker) was discontinued for good cause. If something did not sell on the shelves and the maker goes bankrupt, there is probably a reason. I will grant that future value plays a role in buying software, but part of the discount for remaindered goods reflects the low present use value.



Enterprise Does Have a Service Component: I think part of the difference lies in the distinction between enterprise software and consumer software. Clearly, enterprise software requires much more configuration, maintenance, and support -- its much more service oriented. The Accentures, EDSs, and IBMs of the world have made a ton of money on service related to software and IT.

Consumer Won't/Don't Pay for Service: In contrast, consumer software is much more manufacturing driven. There is simply no way that a $49 retail piece of software can come with any service. Nor, judging by the income statements of software makers, do these makers provide much service. There is simply no room in a $49 price point to cover the costs of real on-going tech support. Even upgrades are hardly a service -- the upgrade price is software half or 2-3rds the full retail price and given that the software maker gets to keep a bigger cut by selling upgrades direct, upgrades are a massive profitable product sales.

I doubt consumers will move to a subscription model for software (see Microsoft's attempts to do this) and I doubt they would like a pay-as-you-go model either. Most people bitch anytime that have to buy service (fixing a car, hiring a plumber, etc.) because most people place a less-than-salary value on their own time while the cost of service is always a more-than-salary amount (to cover benefits, employers taxes, support costs, profit, etc.) Do-it-yourself retailers like Home Depot and AutoZone have gotten very rich on consumer's asymmetric valuation of service labor. Consumers only want free service and that means bundling service into the retail price of a saleable manufactured asset.

Rising Ease-of-Use == Less Service:But I even wonder about the service model in all kinds of software. I would further argue that as ease-of-use improves, the need for service drops. The more a piece of software "just works" the more it acts like a manufactured good.

Even in configuration-heavy enterprise software systems, better interfaces could reduce the amount of coding-labor required to configure, maintain , and support big enterprise systems. The move from all-in-house applications to commercial enterprise apps also reflects a move to manufactured software. And as the enterprise apps accumulate functionality (SAP has 27 different inventory management algorithms), it becomes harder to justify paying in-house programmers to write one-off application. Now I'm sure that enterprise system will continue to need lots of service, but I wonder if the amount of service (per function point) won't decline as the systems become more plug-n-play, point-n-click.

Re:"Information Wants to Be Free" is a myth?

[Anonymous Coward]

It's a pity that English doesn't offer different words for the different meanings of "free". Information wants to be free (as in free speech), but not necessarily free (as in free beer). Lack of freedom in the former sense places a restriction on those who have the information, lack of freedom in the latter sense places a restriction on those who want the information.
"Information wants to be free" expresses the observed characteristics of information, mainly that it tends to diffuse into the open, even when there are active countermeasures to prevent leaks. It's a consequence of the fact that most of the time you have to duplicate/pass on information to use it. Material things do not have this tendency.

Making Money Off Services

[DaRat]

One of the dangers of buying software as a service is that the vendor company may be tempted to forgo quality or ease of installation/changes if the contract specifies that installation, changes, or bug fix services are conducted under a time and materials contract. In that case, the service company has an incentive to provide as much "service" as possible since that means more money.

I once worked for a consulting company that was a partner to compensation software company. I got this feeling that the compensation software company didn't feel the need to make their products easy to implement or of high quality (bug wise) because all contracts were essentially time and materials contracts. Thus, the harder the packages were to implement, the more money that the software company (and my employer) made. Thankfully, I only stayed with the consulting company for 9 months before moving on.

Re:Making Money Off Services

[Rick the Red]

Even if what you say is not true (if the company produces the best software they can, with no attempt to make it bad just so you'll pay for more service down the road), there's a danger here. I call it the Ma Bell syndrome. Ma Bell used to own all the telephones; in fact, it was illegal in some areas for the customer to own their equipment, the theory being that if their equipment damaged the network then public safety could be affected -- only The Phone Company's equipment was known-good.

Software is similar in that the customer does not own the product they bought, they simply own a license to use that product. To me, that makes software more like the old telephone system. It's clearly not like a manufacturing industry, but it's not really a service industry if there's no service. Softwear is not either/or. It can be a service industry (virus scaners where you subscribe to the updates) or manufacturing (open software where you're free to do with it what you like). It's really up to the author (copyright holder) to decide what business model to follow.

If software was like manufacturing, then once you bought the software you would own it and be free to do whatever you wanted with it. As it is now, if you buy Windows with a Dell computer, you not only may only run that copy of Windows on a Dell, you may only run it on that particular Dell -- talk about not free to do what you want with it! If you load Linux on that Dell you cannot legally use the Windows that came with it on any other computer; to do so violates copyright law. And I'm not picking on Microsoft, either. My wife and I bought otherwise identical Dells, but we bought them a few months apart. They came with different bundled softwear (different picture viewing softwear, for example), and we cannot swap them unless we swap computers. Think of all the "free" softwear out there, such as Real, that you cannot give to a friend even though you got it for free. Your friends have to download it themselves. This is not a manufacturing model of softwear, even if it's also not a service model.

I think if more people understood this they'd be more inclined to support Open and Free software.