MICE Economic Research Studies

Andreas K. Foerster list at akfoerster.de
Fri Jan 9 19:02:45 UTC 2004

A comment to a study, published by the
Muenster Institute for Computational Economics (MICE) 

The cites are taken from the published abstract of the study.

| MICE Economic Research Studies ­ Vol. 4:
| Open-Source Software: An Economic Assessment
| Ph. D. Stefan Kooths, Ph. D. Markus Langenfurth, Nadine Kalwey

| 1. No Market at the Core ­ Open-Source Development
|    Open-source software is developed outside of market mechanisms,
|    as the main purpose of making the source code freely available is
|    to prevent a price-controlled market from evolving in the first
|    place.

That is absolutely wrong!
OpenSource and Free Software IS developed according to the rules of 
market mechanisms:
They take part in the "price-controlled market" with THEIR prices.
They try to compete against their competitors with THEIR prices 
and, most important, by "making the source code freely available".
And that's exactly what the term "market" is about: competition.

So, it is absolutely wrong to say, that "Open-source software is 
developed outside of market mechanisms".

Nearly the whole study is based on this false assumption.

|    As such, the open-source model (dominated by restrictive
|    licenses such as the GPL) has a nonmarket core.

1. As shown above, the market core of OpenSource and Free Software 
is to compete with other software industries.

2. The GPL only restricts to restrict. It is only restrictive to 
someone, who tries to restrict the access to software. To those it 
is really restrictive, but only to those!

Well, please keep in mind, that software companies are not the only 
ones who use computers; they are not the only economic entities in the 

|    There are commercial business models based on open-source software, 
|    but they impact OSS development indirectly, if at all.

Do they talk about software producing businesses? 
Of course they have an "impact" on their own product.

It is true, that they cannot restrict it like other software houses 
can. But that is inherent: Free Software has to be independent, 
ie. free. Free from interests of one single company for the benefit of 
all other computer users (customers).

Or do they talk about commercial business models using software of 
Well, they have a choice. And this once again proves, that market 
mechanisms do have a strong impact on OSS and FS development.

|    In any economy
|    based on the division of labor, the market fulfills important
|    coordination functions. However, when software is distributed
|    free of consideration, it lacks a key coordination component ­
|    the information medium of price ­ and, as a result, suffers from
|    economic and functional deficits.

Price as "information medium"???
Well, probably they could gain that back by labeling their software 
like this: "If this software wouldn't cost you nothing, it would cost 
you 100000,12 EUR". ;-)

In fact the price of priceless software IS an information medium. 
It says: "Our price is 0,- EUR, and that is cheaper than any of 
our competitors. So take our product if money matters to you at all!" 
In my opinion that kind of argumentation is fully inside the field of 
economy and not outside of it. But who am I to teach an institute for 
economics about economy.

Please notice: In this section the study doesn't talk about 
OpenSource or Free Software anymore, but about software "distributed 
free of consideration". But as the study itself stated before: 
"There are commercial business models based on open-source software", 
OpenSource and Free Software is most often not distributed free of 
consideration. And so they are talking about something different here.

For more information read this: 

| 2. Developer Orientation is Not Customer Orientation
|    At the nonmarket core, volunteer open-source developers work
|    on projects that suit their own preferences. Their motivation
|    stems from an individual interest in solving a problem,
|    the technological challenge or the hope of establishing a
|    reputation. However, software supply should be determined by
|    users' actual wants. If there is no market, then there is no
|    mechanism to steer the interests of developers towards the wants
|    of customers, either.

"Reputation" is as good a motivation for customer orientation as 
money is. Even for customers, who are not able or willing to pay 
extra! And believe me, especially "users' actual wants" often are 
a real "technological challenge".

Well, let's leave this decision to the market.
If OpenSource and Free Software really were so bad, then nobody would 
use it. Nobody is forced to be free.

| 3. Weak Commercial Software Does Not Mean Strong Open-Source Software
|    The open-source model is poorly suited to be the only alternative
|    form of software development. Open-source software development
|    requires a strong commercial software market. A commercial market
|    acts as a wellspring of resources for jobs, income and product
|    ideas for open-source development.

Could anybody explain that to me?
Does that mean, that OpenSource developers are so stupid, that they have 
no ideas on their own?
Does that mean, they have no job or income, when they don't work for a 
software company? Are they too stupid to work for another company 
inside or even outside of the IT-sector?

Well, most of OpenSource and Free Software is developed in spare time, 
while there are some, who have a job and income as Free Software 

| 4. Open-Source Software Does Not Aid SMEs in the IT Sector
|    Far from offering extra business opportunities, open-source
|    software offers only some of the opportunities already available
|    in the commercial market. Nor is promoting open source a suitable
|    local-policy tool for supporting SMEs in the IT sector. If
|    software is available free of charge, its development does not
|    generate proceeds, income, jobs or taxes. This inability to add
|    value cannot be compensated for by using complementary strategies.

Not all SMEs in the IT sector are software companies. 

Of course a new competitor is a threat to companies. That is the basis 
of economy. But OpenSource, Free Software and software free of charge 
only compete with software companies. All other companies in the IT 
sector benefit from them, especially the SMEs.

| 5. Promotion of Open Source ­ Not a Competition-Policy Tool
|    State support and subsidization of competitors in
|    highly concentrated markets is not a competition-policy
|    tool. 

Please note: Here they themselves talk about "competitors in 
[...] markets", while the rest of the study is based on the 
assumption, that "Open-source is developed outside of market 
mechanisms" (sec. 1)!

|    Furthermore, such interventions require a level of
|    information that government authorities simply cannot have. 

A very keen statement, indeed. ;-)

|    As an IT demander, the state should therefore ­ as stipulated in
|    budgetary laws ­ be guided strictly by economic considerations.

That's one point I fully agree with. ;-)


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