Some say the information revolution happened in the 1970s upon the advent of the personal computer, some say it happened in the 90s when the internet reached critical mass. These were incredibly important events in the history of humanity, but I claim the information revolution has seen only its beginnings.
Consider the case of the automobile. The transportation revolution did not happen overnight in 1897 when Rudolf Diesel built the first combustion engine. Instead, it happened gradually as the world was changed around the people as a result of this new technology. Oldsmobile and Ford refined the process of creating cars, and with that transformation came a new kind of economics based on the assembly line. The transportation revolution came to its apex upon the construction of the interstate highway system, upon which the choice of where a person lived and where he worked became decoupled.
We have seen the analog of the advent of the combustion engine and the beginning of Ford’s innovations. “The Information Superhighway” is superficially related to the creation of the highway system, but I think of that as an echo of the revolution of the highway system, not the revolution of the information age. We are at the creation of the assembly line, before it gained wide adoption. Google is Ford.
The reason is that the information age is about information, which is a totally different kind of beast than traditional commodities, around which our economy is based. As few as five years ago, businessmen tried to charge $50 for ready-made software sitting on a shelf as if it were a television or a bag of rice. But that is an ancient conception that completely fails to reflect the economics of what a software package is.
To see this issue clearly, we have to step back from our personal conceptions of money as a thing which allows us to live and operate in society, and think about it in terms of what it was when it was created: an abstraction for trade, which served to make society as a whole more efficient. Money is about allocating scarce resources to where they will most benefit society. It isn’t perfect at doing that job, but it is pretty damn good all things considered. It works way better than communism, which puts that allocation in the government’s hands.
Back to the television and the software package. A single television requires resources to produce. When you buy a television from the shelf, you are communicating “a television has value to me, please continue to allocate resources to produce televisions”. As society moves beyond the need for new televisions, people stop buying them, money (an abstraction for resources) stops flowing to the manufacturer of the televisions, and the company shrinks or dissolves so that those resources can be allocated somewhere where they can more benefit society.
Try to apply this story to software. Software costs resources to produce initially, but after it is on the shelf, all the resources it will ever consume have already been spent during its development, modulo its useless and wasteful packaging. Now there is a component of continuing to improve the software, but the cost of improving the software is not proportional to the number of users the way the cost of producing televisions is proportional to the number of people that want televisions. While treating software as a commodity does serve to compensate the creator for producing the software, when seen from the perspective of the economy as a whole rather than a single business, it makes no sense. The idea of commodity software is a misallocation resources.
Fortunately, the idea of commodity software is gradually fading away. We have mostly done away with the wasteful practice of putting software — essentially free to reproduce — into boxes, which have a cost to reproduce and are only advertisements until they are thrown away by the purchaser. But the model persists in the App Store, among other places. But note how the great Giants of the age are no longer using this model. Apple is profiting off of others using this model, but they are not using it directly. Google and Facebook will have nothing to do with it. Microsoft is dying a slow, painful death.
While there is a social realization that the old commodity model isn’t working anymore, it is not clear to me that anyone sees where it is headed. Google has hit a sweet spot where they can provide value to everyone without charging consumers any money — by collecting data about people, they make it easier for producers and consumers to connect when they stand to benefit from each other, and they found a nice place to skim compensation off of that arrangement. Google essentially has one very valuable product. Apple’s business model is basically that of a hardware company. But how does a typical software company work in the new age of information?
To explore this idea, I will take the vantage point of looking at society as a whole and follow the scent of efficient resource allocation. Resources are required to produce software in the first place: we need ideas, programmers, testers, and marketers. After the software has been conceived of, written, and tested — that is, at the point when the consumer uses the software — all the resources required for producing the software have already been expended. It is nonsense to charge people at this point; society would benefit more if you simply gave your software away, because the cost of doing so is (almost) zero. We need a way to pay for ideas, programmers, testers, and marketers. The resources required for providing a product are proportional to the difficulty of its creation, not the scale of its distribution.
I picture a combination of Kickstarter and an economic extension of UserVoice due to John De Goes. Allow people to pledge money for the improvement (or creation) of a product or feature, to be paid when that feature is usable. The features that are most valuable to people will have the most money pledged to them, providing incentive for the company to develop those features. We are now allocating resources where they need to be: in improving the product, rather than paying for the vacation of somebody who created valuable software in the past, somebody whose mind and expertise would be more beneficial to society developing or improving their product. This is just one idea, I’m certain there are other models that will accurately reflect information economics as well. In particular, this model compensates those who implement an idea, but not those who came up with the idea in the first place, which is a place for improvement.
Observe how this new type of model has shifted the economic emphasis to one derivative higher. People are compensated for continuously improving their product and creating new products, rather than having one great idea and banking on it. This may frighten innovators: their great innovations now stand to make them less money; we now need to constantly work to create value instead of sitting atop a great idea allocating resources. But look at it from society’s perspective: we are coming up on an age of immense growth, in which every worker in the economy is seeking not just to continue the status quo, but to improve it! Everyone is an innovator or an enabler of an innovator. And this all comes from software being free to copy. When something is free to copy, everyone should have equal access to it. Any other way is short-changing society.
It’s time to stop clinging to software as if it is consumed when it is used. There is an economic boom waiting to happen, if we just let information resources flow the way they want to.