Ng asks "I'm a little disturbed by this: If people give the fruits of their labour away and inform others that they value the time and effort involved very lowly, are they not undermining their economic future somehow?"
It's advertising, but only in roughly so. Most advertising is not functional. It gets presented to people as a public bad, by way of overcoming the transaction costs involved in making a public good available. Everywhere you see advertising, it's associated with some other thing which you value, e.g. advertising and publicly presented information goods are very often associated.
That said, it's not at all advertising, because it is in itself the public good. Nor does it serve to advertise itself, because the user already has the item of value. It serves to advertise ancillary things, e.g. services offered by the distributor of the software, or the reputation of the author.
One of the difficulties of purchasing a service is that by the time you have it in your hands, you've already incurred an obligation to pay for it. Much more than products, services are valued based on their reputation. You may know that many insurance companies are based in Hartford, Connecticut. This is because during some disaster centuries ago, the only insurance company which was able to pay out in full was from Hartford. The name became associated in the public eye with sound fiscal sense.
That's why the price of identical services can vary wildly. Only after the service has been performed can you be sure that it's identical. One vendor might do the same work in less time, or poorer work in less time. Another vendor might take longer, be harder to schedule, and charge more, and still produce a service whose value to you exceeds what anyone else can do by a sufficient amount to make it worthwhile. For example, when we had our kitchen cabinets done by a local Amish craftsman, we had to get on his list a year in advance. When he came to measure the cabinets, he told us what cabinets we wanted where. The cabinets were at least a week late. On the other hand, the cabinets were made from solid oak. And when the 12' x 12' J-shaped counter came in, it fit right into the space allotted for it with no more than 1/8th inch error.
Another way an author of free software can monetize the public benefit he has created is by enhancing his reputation. This reputation will make him more valuable to employers. Every book on getting a job tells you to polish your resume. Tell me: if you were hiring a programmer, you would hire one with a polished resume or one with polished software? It's very risky to hire someone, because you might find yourself having to fire him early in the relationship. A portfolio of popular open source software reduces the risk of hiring a programmer. From the programmer's perspective, it means that he can take a greater share of the value produced by his corporate efforts. A programmer of lesser reputation would have a portion of his effort spent to cover the risk that his work may not be up to snuff.
So why is most software proprietary, you might ask? I believe that it is because of an intellectual error made back in the late 70's. Proprietary software is a monopoly, and invariably commands monopoly prices. Monopoly prices are bad for society, and are only tolerated because no alternative is thought to exist. Somehow, during the time I was in college, some number of people became convinced that software was a scarce resource, and would only be produced by being subsidized by granting government monopolies (copyrights first, and later patents).
It's becoming obvious to more and more people that software is not scarce. The scarce good is people's time, and that is what commands the big bucks. Of course, people's time needs no monopoly (aka intellectual property protection) since people are free to withhold their efforts until they are paid.
The days of software as a product are numbered. Software has become more of a service than a product and will in time switch to being fully a service. At that point, all software will be open source software.
posted at: 04:33 | path: /economics | permanent link to this entry