Subject: The four stages of value production, software and free software

From: Shlomi Fish <[email-masked]>
Date: Sun, 11 Feb 2001 19:23:28 +0200 (IST)

In the past couple of years I became interested in an idea system called
Neo-Tech which is mainly based on Objectivism. One of the main concepts
that caught my mind was the four stages of (mainly tangible) value
production. Here is is according to my memory. (sorry, but I could not
find the exact table online):

Stage:                       Effort            Value to society

The Idea Stage               1                 1

The Development Stage        10                10

The Mass-Production Stage    100               100

The Mass-Distribution Stage  1000              1000

Now, one thing that catches the thought is that most people seem to think
the idea stage is the most hard, while in fact it is not. Plus, the
mass-distribution stage which is the most important and the most
productive, seems to have been criminalized.

But back to our subject: how does this model relates to software and free
software in particular?

The first thing which we notice is that mass-production of software is
very easy. In the case of shareware/freeware/OSS practically zero. The
second thing is that in OSS mass-distribution is fairly easy. Usually,
putting constant announcements to it on Freshmeat, is enough to get some
attention, and eventually links. (Just try searching for "freecell solver"
on google and see what you get).

So does the model still holds. Here are some of my hypothesa:

1. This model is good for tangible Capitalism, but not to computerized or
open-sourced one. For computerized Capitalism we need a different one
like:

Idea stage  -  1 - 1
Development stage - 10 - 10
Maintainance stage - 100 - 100
Support stage - 1000 - 1000

Just a thought.

2. The model still holds, but we need to redefine the boundaries between
the levels. There is still the same total effort, it is just divided
differently. The question is - how?

3. The model is flawed altogether. This is just something someone may say,
not something I agree with.

BTW, the neo-tech model has a fifth stage which is called "The Neo-Think
stage", and is roughly equivalent to the world domination stage Linus
Torvalds has in mind. In that stage the relative effort is 10,000 and so
is the value to society.

But in any case, I think it would make an interesting discussion.

Regards,

	Shlomi Fish

----------------------------------------------------------------------
Shlomi Fish        [email-masked] 
Home Page:         http://t2.technion.ac.il/~shlomif/
Home E-mail:       [email-masked]

The prefix "God Said" has the extraordinary logical property of 
converting any statement that follows it into a true one.

---

From: "Nadav Har'El" <[email-masked]>
Date: Mon, 12 Feb 2001 00:26:26 +0200

> Neo-Tech which is mainly based on Objectivism. One of the main concepts

I have no idea what you're talking about :) Neo-Tech? Objectivism? I guess
I'm not up-to-date...

> productive, seems to have been criminalized.

It depends what you consider "hard". If by hard you mean something requiring
more money or more people, then the above table is probably right. But if
you consider something to be "hard" if you have a high chance of failing
at it (like you call a test "hard" if you are more likly to fail it, not if
you are going to use up a lot of pencil and effort during the test), then
the mass-production and distribution isn't really hard: once you have a
good product (by good I mean something that people really want, not something
that *you* think is good) then how to sell it properly is common knowledge.

What you say below about software means that mass-production of, say, shoes
in china is more difficult than mass-production of software by a CD printing-
press. Is that really so? I running 1000 chinese kids in a sweat-shop much
harder than running 100 CD printing machines? In both cases 5 people in a
suit sitting in an air-conditioned US office can run the operation without
really doing anything themselves. The only difference I see between these
cases is a moral difference of viewing people's labor as "hard" or "expensive"
and computer or robot labor as virtually free. In the real, cruel, world,
this isn't always true...

> differently. The question is - how?

In many cases in the software, but not just software - also a lot of other
high-tech stuff, you'll see the right column, "value to society", grow more
quickly than the left column, the amount of required work.
Why is that so? Because consider an "old" item like shoes. If someone
manufactured 1000 shoes, he helped 1000 people (500, actually :)), and if he
manufactured 10,000 shoes he helped 10000 people. It's a simple linear
connection between the distribution and the social value.

But consider an item like the "ICQ" program. If 1000 people around the world
used ICQ, its value would be very low to each of its users (because hardly any
of their friends use it, and they can barely find anyone to talk to). When
the number of users increases hundred-fold, not only do a hundred times as
many people enjoy ICQ, but also each of them enjoys it more, because now he
has more friends using ICQ. So the increase of value to society increases
more than a hundred-fold.
This is not just true for software. Look also at DVD players, for example. The
first 1000 people to buy a DVD player couldn't fully enjoy it - there were
very few movies on DVD, few video rental stores carried DVD, and few of their
friends had DVD they could share. As the number of DVD-player buyers increased,
so did the utility that each of them could make of their player.

So it has been suggested (I don't remember where I read it) that altough
in the high-tech world many times the cost of mass-production is very small
per item, companies should actually *increase* the price of their products
as more and more people use them, not decrease them as was common practice
in the business world since the industrial revolution.

Most people would probably jump here and say - but hey! that isn't happening!
Well, it's happening more than you think. For example, as every year passes,
Microsoft products are used by more and more people, and yet the price of
Windows doesn't go down (as far as I know). The DoJ wrote that Microsoft
could half the price of Windows and still make a large profit. So why don't
they? Because the "value" in Windows to a typical person is the fact that
many other people use it (just like I said about ICQ and DVD), and as the
"value" of Windows increases every year, they can also charge more and more
each year and people would still buy their product.

Another example is Orange's pricing of SMS messages between phones (the same
is probably true for other companies, I don't know). When Orange started,
they were free. Nobody was willing to pay anything for something that he
didn't know was useful, and that none of his friends was using. As more and
more people started using SMS messaging, the users started finding them
valuable, and about 6 months after Orange started, they started charging
a small amount for every message. After more people got an Orange phone, and
got "hooked" on sending one-another SMS messages, and the "value" of SMS
became even greater (because every Orange user now has several friends that
send him messages), Orange doubled the per-message price. Surely, the real
cost of sending a message hasn't change a bit since Orange announced this
service - but Orange capitalized on the fact the customers now value this
service more, so are willing to pay for it more.

> Torvalds has in mind. In that stage the relative effort is 10,000 and so

When you reach "world domination" type of distribution, it becomes interesting
just what exactly this "value to society" really means. Sure, if 1 billion
people use a piece of software, rather than 1 million, then the value to
society increased 1000-fold. But if in the same time this means that many
other competing products are driven out of the market, then maybe half of
those billion would have prefered a different product but were never offered
it?
Also is the "value to society" really the value percieved by an individual
multipled by the number of users, or do we need to invoke more "moral" and
"ecological" global arguments? An extreme example is drug dealers. They sell
a product which (let's face it) their customers want to buy, and the customers
hold value the product very much (they are sometimes even willing to kill to
get the product! Not even Microsoft enjoys such enthusiasm!). So is the value
to society really the number of drug users multiplied by the value each
users gives to the drugs?  Will the value to society be maximized by getting
everyone on the planet hooked on drugs? I don't think so ;)

-- 
Nadav Har'El                        |      Sunday, Feb 11 2001, 19 Shevat 5761
[email-masked]             |-----------------------------------------
Phone: +972-53-245868, ICQ 13349191 |A city is a large community where people
http://nadav.harel.org.il           |are lonesome together.

---

From: Shlomi Fish <[email-masked]>
Date: Mon, 12 Feb 2001 15:27:08 +0200 (IST)

> I have no idea what you're talking about :) Neo-Tech? Objectivism? I guess

Hmmm. For information about Neo-Tech consult its homepage:

http://www.neo-tech.com/

Their search engine was broken last time I check, but everything else is
in order.

As for Objectivism - that's the name of the philosophy set forth by Ayn
Rand and others. This scope is too small to explain about it in detail,
but you can go to Yahoo's branch and get going from there.
 
> that *you* think is good) then how to sell it properly is common knowledge.

First of all, I never used the word "hard" but rather the word "effort".
Somethings may require a lot of effort and concentration but many people
will find them easy and natural. And the opposite.

However, I totally disagree that selling an item that was just developed
is common knowledge and effortless. In order to produce a car, for
example, you'll have to make sure everything in it integrates with
everything else; you will have to prepare a specification that describes
it in detail, you'll need to sign contract with the factory, adapt their
machinery to the task, etc. etc. Much harder than developing it. 

Perhaps you said it out of a more software-centric view, but, IMO, in the
real world the manufacturing part requires much more effort than the
developing part.

> this isn't always true...

I don't quite understand you. My point was that duplicating a piece of
computer code is a very effortless task. There are numerous way to do so:
from copying a CD with a CD-burner, to distributing the archive on the
Internet.

And what I meant was that the length of time and the amount of effort from
the time you have a working product to the time it is mass-manufactured,
is much smaller. Of course, in the software world we might define
alpha-testing, beta-testing and Q&A as part of the Mass-Production stage,
which might help to even things out.

> so did the utility that each of them could make of their player.

There's a difference between the number of copies that were sold or
downloaded to the amount of work that was required by it. I'm not sure
that if I want to make a piece of software that will be used by 10000
instead of 1000 people I'll have to work exactly 10 times as hard. One
should differentiate between effort and number of copies.

ICQ for example is a very nice program (even though I don't use it), but
it was relatively easy to develop. On the other hand, such word processing
programs as MS-Word, WordPerfect or TeX/LaTeX were anything but easy to
develop. And naturally the ratio between the number of people using word
processors to the number of people using ICQ does not approximate the
ration between the amount of work that was put into them.

Then there's the GIMP which is used by far less people than ICQ, but also 
took much more work on the part of much more people than Mirabilis could
ever hope to have. That's life in the capitalistic world in which some
ideas generate more "revenue" than others.

> service more, so are willing to pay for it more.

That's basically the law of supply and demand. If the demand is greater
than the supply, the price will become higher. Of course, if other
providers supply similar products, then the supply become higher, and the
price will become lower.

And naturally this model does not apply only to High-Tech. A well-known
fact is that J. D. Rockfeller distributed Kerosene Lamps for free so
people will buy his oil. But then the mass-usage of Electricity came,
which made revenues out of Kerosene Lamps look like a kid's allowance.

> those billion would have prefered a different product but were never offered

"world domination" is not a type of distribution. Oh well, let me
paraphrase: the Neo-Think stage is not a type of distribution. The
Neo-Think stage is a stage you reach after you have say distributed a
powerful product which was sold to say 100 million people who are happy
and content with it. Afterwards, one reaches a state of mind, when he is
capable of doing much more than he was before he started working on this
product. Neo-Tech claims to give you a shortcut to this state of mind, but
whether or not this claim is correct, you'll have to judge for yourself.

But you probably agree that a man who just distributed a product to 100
million people is in a better starting point to dominate the world, than
somebody who didn't. Those who read "Atlas Shrugged" (by Ayn Rand) know
how much power the value producers hold in their hand, and what could
potentially happen had they gone on "strike".

Naturally, "Atlas Shrugged" is an alegory and should not be taken
literily. But assuming Linux will be used on 80% of the desktop computers,
then the free software world will be able to (benevolently) dictate some
terms to the world of users. IMO at least, it would put "us" in a better
starting point.

> everyone on the planet hooked on drugs? I don't think so ;)

The Neo-Tech model refers to moral beneficial products, not to cigarettes,
or Alcholic beverages, much less drugs, which are all harmful products. I
hope you agree that the vast majority of software can be classified as a
moral beneficial product.
 
> To unsubscribe from this group, send an email to:
> [email-masked]
> 
> 
> 
>

---

From: "Nadav Har'El" <[email-masked]>
Date: Mon, 12 Feb 2001 23:48:37 +0200

> from copying a CD with a CD-burner, to distributing the archive on the

My point is how do you define effort? You seem to consider an effort of
people an "effort", but the effort of a computer (which runs a program at
full steam, writes a CD, or whatever) a non-effort. But I pointed out that
in reality, a layer of mangement or businessmen sit in their cozy offices,
and tell other people to either control the computers or control the workers
in the sweatshops. To the management, I'm not even sure it makes a different
(maybe a moral difference - but you don't see much morals in the business-
world ;)). All they care is how much it costs them.

If a third-world sweatshop worker earns $30 a month, then "running" a thousand
of them costs $30,000 a month (forget the overhead for a moment). If running
a computer farm (for pressing CDs or serving FTP files) costs the same amount,
then I'm not sure the management appreciates the difference between the
amount of effort both things require.

But if you consider human-effort only, or in other words "wasting human
resources", than you are probably right.

> should differentiate between effort and number of copies.

Actually, when you consider high numbers (not 10 vs. 100 copies), it probably
does cost 10 times as more! For example, if to serve ICQ downloads to 10,000
people a day you need 2 servers, a 1 Mbps bandwidth, then to serve 100,000
you will need 20 servers and a 10 Mbps. Every other expense - from electricity
to manpower around the servers also grows, and at large enough numbers
the cost grows almost linearly, I think.

> which made revenues out of Kerosene Lamps look like a kid's allowance.

But my point was that customers place a value on a product, which is the
value they will be willing to pay. If you sell something at a price above
the value people view for it, less people will buy it. It doesn't matter
if there is more or less supply, or other competition. If an SMS cost
10 shekels to send, people will not be sending it. At least now. But the
goal of the cellphone providers is making it very valuable to users, such
that they will eventually be willing to pay 10 shekels per message (e.g.,
for critical stock-market data).

-- 
Nadav Har'El                        |      Monday, Feb 12 2001, 20 Shevat 5761
[email-masked]             |-----------------------------------------
Phone: +972-53-245868, ICQ 13349191 |What's the greatest world-wide use of
http://nadav.harel.org.il           |cowhide? To hold cows together.