[clug] Excellent article on GPL and IP

Kim Holburn kim.holburn at anu.edu.au
Wed Sep 10 12:16:15 EST 2003


To Quote:
The artificial scarcity model of value creation doesn't work well in the digital universe. In the world of tangible goods, if I make TVs, then I have TVs, and if you need one, it will suit you to buy one. The relative scarcity of free TVs means that supply/demand will work to both our benefits. I have an incentive to make them, and you have a source to obtain them. If I could pick up a decent TV on any street corner for free, however, it would be a different story. But where would a large supply of free TVs come from? It costs money to make each unit. That cost may decline with greater volumes of production, but it never reaches zero. TVs are also difficult to make, I can't realistically turn them out in my basement. 

With software or digitally encoded content (e.g. MP3 and DVIX), the incremental cost of producing a new unit is zero. In addition, technology like broadband and desktop PCs have given the power of creation to almost everyone. Therefore, in the long run an efficient market will crowd out middlemen that do not add value. To protect some scarcity, and therefore value, companies have relied on various means to thwart market efficiency. They rely on copy-protection, licensing agreements, copyright law, and other means to keep the effective cost of incremental units high and to keep end-users from unauthorized creation. Otherwise, there would be no scarcity and thus no value to their roles as creators or distributors. 

The GPL is based on a world-view that transcends the scarcity model for economic value. It recognizes that content cannot be kept scarce. All schemes to artificially protect pricing that are based on scarcity must ultimately fail, not because people are greedy and want something for nothing, but because market efficiency will eventually prevail. This is precisely what we are now seeing in the music business. Music companies do not offer value sufficient to protect their pricing models. They are now desperately trying to prevent the collapse of those models by raising the cost of incremental reproduction -- meaning that the cost to me of reproducing their content might include a ruinous lawsuit. There is probably a Nobel Prize in Economics for the first researcher to properly explain this. 

The GPL places value not on scarcity, but on ubiquity. The more useful something is, the more used it becomes and therefore the more valuable -- the so-called network effect. Economic value is derived from the content, not inherent in it. Consider the example of Bell Canada, which expanded the number of pay phones dramatically in the 1980s. Their ubiquity probably held up the penetration of cell phones by many years. It was cheaper and easier to use a pay phone than to have a cell phone. That remained true as long as cell phones were expensive and pay phones were everywhere one wanted to make a call. 

This model of value is inherently more efficient for some kinds of goods than the scarcity model. It's particularly true in software where there are no barriers to entry. The GPL ensures that anyone who wants to use that software can do so with great flexibility. But most importantly, it prevents anyone from creating artificial (and inefficient) scarcity. Nobody can take my software and erect a fence around it for their own economic gain. I can't be exploited. 

This does not mean money can't be made. There is widespread confusion about the GPL and economic value. That confusion is based on the word free. The GPL addresses free-as-in-speech, and it has nothing to say about free-as-in-beer. Anyone can sell GPLed software for money if they want to. Red Hat does every day. However, the requirement to publish the source code effectively removes artificial scarcity from the value chain. To successfully charge people for GPLed code, a business must add some tangible value for the customer. That can be as simple as burning some RPMs on a disk for those without broadband, or as complex as providing turnkey clusters. The GPL does not demand that anyone give their work away for free. This fundamental misunderstanding has been willingly perpetuated by those whose businesses depend on the scarcity model. 

Kim Holburn  
Network Consultant - Telecommunications Engineering
Research School of Information Sciences and Engineering
Australian National University - Ph: +61 2 61258620 M: +61 0417820641
Email: kim.holburn at anu.edu.au  - PGP Public Key on request

Life is complex - It has real and imaginary parts.
     Andrea Leistra (rec.arts.sf.written.Robert-jordan)

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