April 24, 2001

Why Microsoft is a dinosaur

Author: JT Smith

- By Tony Stanco-

With the arrival of the Internet in the 1990s, the world has
entered the Intellectual Age. The Intellectual Age will be
substantially different from the Industrial Age, because many of the
old assumptions will no longer apply. For the software industry,
the biggest change will be that traditional corporations will no
longer control software development.

Microsoft is the current undisputed fierce reigning king of
the dinosaur world, and it makes the most noise as it throws its
considerable weight around to the horror of all the rest. It is
without question the Tyrannosaurus Rex of corporate software
development.

But that streaking light in the sky during the mid-1990s, which caused everyone to look up in stunned amazement, has not yet had its full impact. When it does, the
world will be a very different place, littered with dead and dying
corporate software dinosaurs.

Corporate DNA was best suited to the Industrial Age

Most people find it surprising to learn that the corporate
form was invented. But it was. It was created by legislative action
to solve a particular problem that became apparent at the beginning
of the Industrial Age. The problem was how to finance huge
capital projects that were then becoming increasingly common.

Prior to the development of the corporate form, families or
groups of families financed most commercial enterprises. With the
arrival of the Industrial Age, however, the financial ability to
provide the required capital assets (for things such as railway
companies somewhat later) was beyond the means of even the
wealthiest families. The solution to this problem was not difficult
to see, and it was not long before people began to bring in more
investors to the enterprise, each individually shouldering a smaller
and more manageable burden.

While this first-level thinking solved one problem, it
originally created another, because everyone who invested early in
the era was personally liable for the whole company, even though
the managing group made all the decisions alone. To solve this
second-level problem, the concept of limited liability was created.
This concept changed the prevailing law, and permitted outside
investors to be liable only to the extent of their initial investment.
With this novel legal change, the basic structure of the corporate
form was born, and has been extremely successful ever since.

What is important to remember about the corporate form,
however, is that it was invented for a very specific purpose -- the
financing of the huge capital projects that defined the Industrial
Age.

Intellectual Age doesn't have huge capital requirements

Unlike the Industrial Age, the Intellectual Age is not
marked by huge capital projects. Instead, the Intellectual Age is
characterized by the use of a person's intellect. It is essentially
about brain power. As such, the Intellectual Age promises to be an
incredible period, based fundamentally on the inalienable rights of
people, rather than revolving around inanimate property rights,
because people power will be the central economic focus of the
new age.

As a quick check to realize that the Intellectual Age is quite
different from the Industrial Age, ask yourself when was the last
time that Boeing, for example, had to worry that a fully functional,
competitive airplane would appear out of nowhere from a rebel
band of workers without any capital? Now, ask yourself the same
question but replace Boeing with Microsoft and airplane with
operating system.

GNU/Linux and the international free software community
are solid proof that the old industrial rules no longer apply. They
reveal that a decentralized team of developers from around the
world working over the Internet and without access to a
corporation's capital resources can perform at a higher level of
proficiency than the corporate software leader with $25 billion
in the bank.

New commercial form is needed

It is not really surprising to witness the huge success of free
software development, because the activities of the Intellectual Age
are fundamentally different from the old Industrial Age. So, there is
no rational reason to believe that the specifically tailored
organizational form of that time was ever really required for this
one. In fact, the corporate form has already shown itself to be quite
harmful to the Intellectual Age, because it creates malformations in
efficiency.

These inefficient malformations are familiar topics to
everyone in the free software community, and revolve around the
question of "intellectual property."

What is property?

In the Industrial Age, property rights were a necessary
requirement, because they were the foundation of the financing function
of the corporate form. It is not very surprising that entities born in
the Industrial Age see everything as property by analogy, even
when the thing in question does not really have the true
characteristics of property.

The defining characteristics of physical property are
scarcity and exclusion. As such, the use of a particular piece of
property by one person excludes the use of that property by
another. In a world of scarcity, efficiency requires that the person
with the highest and best use for the property should be given the
exclusive use of it. Such social ordering is a very rational way to
maximize output in a world constrained by physical scarcity. In
fact, organizing the physical world in that manner has been so
wildly successful that it has provided all of the physical
infrastructure and material wealth of the last 300 years. It has,
therefore, created the foundation to support the Intellectual Age
that we are now entering, and so, it clearly had its proper place in
history.

But for all its past success, it is still logically flawed to
extend the principles that work for physical things to intellectual
ones. This is because the distinguishing characteristics of physical
things (scarcity and exclusion) are not present in intellectual ones,
and, therefore, the underlying rationale that support the old
industrial principles are no longer present.

The true nature of intellectual products

Intellectual products by nature are different, because they
are inclusionary, not exclusionary -- everyone can use them at the
same time. One person possessing knowledge does not preclude
another from having and using that same knowledge. In fact,
efficiency in intellectual pursuits is maximized by inclusion,
because the interaction of human minds (now greatly facilitated by
the Internet) yields more and better intellectual products. This is
why, in the scientific community, they publish their work and
subject it to peer review. This sharing of ideas refines intellectual
products and creates the additional efficiencies.

So, this essential communitarian characteristic of
intellectual products is diametrically opposite to the fundamental
characteristics of physical products. While sharing creates
efficiencies in intellectual pursuits, sharing of physical property
creates the "tragedy of the commons" and the non-best use
inefficiencies observed in the communists countries in the last
century. Therefore, physical products and intellectual ones should
be treated very differently, because of these differences in their
essential nature.

So how did we end up here?

So how is it then that if software is more efficiently
developed through the inclusionary paradigm that the exclusionary
paradigm of physical property has taken hold? The reason is that
the legal, business and investment infrastructures supported the
exclusionary, intellectual-products-as-property paradigm that they
were all familiar with. The world arrived at this place
fundamentally because of intellectual inertia on the part of people
in power when they didn't realize that the true path had taken a
sharp turn.

Lawyers, politicians, investors and corporations convinced
themselves and others that if code is shared, then no one would be
able to make any money from it (e.g., the infamous Bill Gates'
Open Letter to Hobbyists). As such, they supported and promoted
the idea that software is like any traditional physical product and,
therefore, should be organized, owned and sold as such.

To get the acquiescence of the developer community,
whose support they ultimately needed because developers actually
do all the coding, they proposed a Faustian bargain: "Join us, keep
the code you develop secret from your colleagues, and we will pay
you."

This is the exact bargain that Richard Stallman opposed in
the early 1980s, when he refused, and instead began the
counter-revolution with the GNU project and the GPL.

It was this basic corporate-developer bargain, which most
developers accepted, that sowed the seeds for the division,
subjugation and inefficiency of the software industry ever since.
Because software corporations could not have enslaved the developer
community without developer obedience, if developers had stood
together and resisted more resolutely at the time, the fruits of
developers' minds would not be, in essence, corporate property,
now.

Once the legal, business and investment infrastructures
began to support this false software development paradigm, it
would be a long time before they were forced to confront the
fundamental inconsistencies, and ultimate inefficiencies, of the
proprietary paradigm again.

As fate would have it, the Internet, GNU/Linux and the
Microsoft antitrust trial would all converge at the same time to
spotlight both the problems of the proprietary model and the
solutions available from free software. The antitrust trial revealed
how innovation suffered when one corporation accumulated too
much power from the exclusive ownership of key portions of secret
code. And the sudden and unexpected success of GNU/Linux
showed how effective and efficient free software development is,
even without money or corporate sponsorship. It thereby raised the
obvious question, "If free software could do all that without
money, what is it capable of when it is generally supported and
paid for?"

New paradigm seeks to break free

So the world is once more confronted with the question that
it could have and should have resolved 25 years ago before Bill
Gates sent it off in the wrong direction with his Open Letter to
Hobbyists. The question again is, "How do you pay developers to
develop free software given its superior development
methodology?"

The solution, obviously, has to be consistent with the
principles of the Intellectual Age and to support the general
inclusionary paradigm implicit in all intellectual pursuits. As such,
it cannot include the traditional corporate structure, which relies
too heavily on traditional notions of property. Just as the corporate
form solved the pressing problems of its day, a new commercial
form, therefore, is required to provide the new organizational
infrastructure for our new age.

FreeDevelopers created the "Community is the Company"
(CommCo) structure as a democratic, international,
community-wide solution. It is fundamentally
constructed to be consistent with the inclusionary paradigm of the
Intellectual Age. Is this the complete answer? Probably not, but it
is at least a beginning.

With the world again looking for a proper solution, it will
eventually find it. And when it does, Microsoft and all the rest of
the corporate proprietary software dinosaurs will be mentioned
only in history books as a folly at the end of the 20th century that
slowed down the world's technological progress for 25 years.

For information on why software also needs a new commercial
organization for reasons of morality and justice, see the
Declaration of Software Freedom and the
Explanation of Why FreeDevelopers Used the Declaration of
Independence as a Model: Is Software Law or Literature
.

Tony Stanco is a former securities attorney from the Securities and
Exchange Commission, Internet and software group. He left the
commission to found FreeDevelopers.net, because proprietary
software must be defeated before it puts all of us in cyberchains.
FreeDevelopers.net is an international, professional organization of
GPL software developers. All software developers are invited to
join FreeDevelopers.net.

Copyright 2001 Tony Stanco
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