Open source suppliers and demand

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Valuation

t's an economic fallacy to compare the cost of software to the price of developers. Software's value doesn't derive from the code it derives from the job it does. The more critical the application, the more the supporting developer is worth.

Okay, how does one value the job something does? There simply is NO OBJECTIVE STANDARD of valuation. Valuation is based on whatever people are willing to pay. If they are convinced they should pay a lot, then they pay a lot. If not, they pay less.

Computers are immeasurably important to modern business. That does not mean, however, that businesses MUST pay more for software. Value is due to a number of factors, but I would think that a widespread willingness among developers to create COST-FREE product MUST affect the perception of value held by companies.

Trying to compare a mind share industry to smoke stack manufacturing is going to lead to some erroneous conclusions. And tying the cost of the developer to the cost of the software is one of them.

Why? I've given you a number of examples where it's clear that developer income is linked to the cost of the base product. The manner in which people apply value to something holds in all cases. In the realm of software, though, PERCEPTION is even more important, simply because there is nothing beyond the value of human labor that limits how low a price can go.

You can scream against the wind all you want but that isn't going to stop a hurricane.

Frankly, I'm not worried about open source taking over the software market anytime soon, because software evolves so quickly that the incentives created by proprietary software development will always manage to keep ahead of open source competition. Open source might make it harder dependent on the ardor felt among open source revolutionaries, but I have trouble seeing them matching innovation for innovation.

That doesn't mean, though, that open source might not cause some problems. Religion has a tendency to override common sense. I just don't think that they will prove the end of the proprietary software market so long as customers value features and cutting edge technology.

Oracle DBA's don't necessarily command a higher price because Oracle is expensive but because many companies run their critical accounting applications on Oracle based systems.

That simply isn't how valuation happens. People don't sit down and think about how important a piece of software is and decide to pay in proportion to that.

Posted by: John Carroll   Posted on: 05/19/04 You are currently: a Guest | Members login | Terms of Use

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