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Strategy Letter V

Ah-ha,

It's all just a dig at Sun then! :) Still Joel makes valid points - at times one wonders what Sun is really planning (and I did enjoy the line about Mozilla volunteers submitting code from Internet cafes in New Zealand).

However, I would argue that Sun aren't aiming to commodotize "all" software, but to commodotize, for want of a better word "desktop" software (e.g. office suites, windowing frameworks, web browsers).

If Sun can provide a suite of desktop software that works on any hardware platform and distract purchasers with the price (not cost) differential between their offering and Microsoft's, then they can sell their server software to run on those same platforms and/or generate revenue through the likes of BEA and IBM who pay Sun $$$ to certify their products J2EE-compliant.

As hardware gets more powerful the rest of the market is engaging in commodotizing hardware, so Sun will have/is having trouble justifying the pricing of it's server hardware and have a hell of a time making money from it.

They're hoping to make money from the enterprise market and so, it seems, are Microsoft with their acquisition of companies like Great Plains. It comes down to simple Darwinism I guess, and Sun have to be careful that they don't cut themselves off on all fronts as Joel is suggesting they are.

Walter Rumsby
Monday, June 17, 2002

(For those who didn't spot the reference)

There is a Mozilla contributor who works in an Internet cafe in New Zealand: Matthew Thomas. His website is at http://mpt.phrasewise.com - he wrote the article about "Why Free Software usability tends to suck" that Joel linked to a short while ago.

Charles Miller
Monday, June 17, 2002

What about apple's strategy to provide 'free software' like iTunes, iPhoto to sell their hardware. Apple aren't commoditising the software since you can only access it if you buy a mac. They are trying to make those applications so easy and useful that it's another reason why you would want to buy a mac.

But there are open/free source iTunes & iPhoto type applications so why haven't those types of applications been successful? Is it something to do with 'easy to use'. I know that a constant criticism of opensource and free software is that they are not easy to use.

parv
Monday, June 17, 2002

Joel is just fucking stupid.
he must be the most ignorant person who sounds right.

mike
Monday, June 17, 2002

I loved Strategy Letter V!!!!  It gave a more formal spin based on economics on what Charles Ferguson said in his book, "High Stakes, No Prisoners," especially in Chapter 10, regarding Netscape, Sun, and others in their efforts to commoditize platforms.  http://www.amazon.com/exec/obidos/ASIN/0812931432/qid=1024302643/sr=1-1/ref=sr_1_1/104-0010073-7768701

That reminds me, could Joel have sneaked in a small mention about owning several mass-market industry standards with proprietary lock-in that reinforce one another (e.g. Windows and Office), as to another reason why Microsoft, and Intel to a  lesser extent, succeeded?  Or did he pretty much cover that?

Diego
Monday, June 17, 2002

----------------------------------------------------------------------
What about apple's strategy to provide 'free software.'
---------------------------------------------------------------- parv

Apple are playing a different economic game.  Luxury goods do not obey basic economic principles.  Watches were commoditised a long time ago, but Rolex can still charge thousands.

Apple are carving a hige value niche at the 'Stylish' end of the market.  They need software that is not only easy to use, but also beautiful to behald and exclusive to Mac users.

As far as I can see they have succeeded.  I know of people who have switched to a Mac as a status symbol.  It sits on full display but they still have a workhorse PC hidden in the back room.

Ged Byrne
Monday, June 17, 2002

I see your point, but can't help wondering where that analogy breaks down. People generally don't expect to have to buy a new Rolex every few years. And prices of luxury goods and non-luxury goods can vary by several orders of magnitude -- which is not the case when comparing PCs and Macs.

On the other hand, I'd certainly describe the Mac as more of a "luxury" computer than a PC.

Adrian

Adrian Gilby
Monday, June 17, 2002

I think there is another myth in the letter:

>>Myth: They're doing this because Lou Gerstner read the >>GNU Manifesto and decided he doesn't actually like capitalism.

Is there anyone who ever thought that? (I mean, except for mythical folk) Is it really a secret that IBM supports open source to sell hardware and consulting services?, same with HP and Sun supporting Gnome, why  bother spending millions developing CDE when they could get a better desktop for less money.

>>Myth: They're doing this to get free source code
>>contributions from people in cybercafes in New Zealand.

>>When Netscape released Mozilla as Open Source, it was
>>because they saw an opportunity to lower the cost of
>>developing the browser. So they could get the commodity
>>benefits at a lower cost.

So, what is the difference between the 'myth' and the 'reality'?

Anyway, if I don't remember it wrong, it was Netscape's management that decided to open source Mozilla, programmers are not likely to ever have that kind of influence.

And the final myth:

'Internet Explorer is free'

I have never undertood this, maybe when it was first released you could download it for free, but now it is included in Windows and therefore you have to pay for it, for example, Windows 98 was little more than the latest Win95 with the latest IE and many people paid to upgrade.

Andres
Monday, June 17, 2002

'Internet Explorer is free' - Andres

You might have any flavor of windows, it really doesn't matter. The fact is you can download it for free. So it really depends on the OS you purchased and when.

Prakash S
Monday, June 17, 2002

Apples are not luxury devices.  1) They're not at all immune to price or feature competition from PCs.  2)  They are made with greater craft.  This can be done because they control the hardware, OS and many programming tools.  3) They provide more "computing benefit" in many circumstances. 

I'm not a Mac fanatic, and never owned one because of the lock-in issue.  It's just that the old views about Macs must be changed.

> But there are open/free source iTunes & iPhoto type
> applications so why haven't those types of applications
> been successful?"

Apple has been robbing the developer cradle for some of these things.  I recall iChat screwed some developers by folding chat into their OS.  Whatever the case is, Apple adds extra stuff, like sending you a photo album through iPhoto, or linking your iPod with iTunes.

Greg Neumann
Monday, June 17, 2002

    Nice supplement to the "Chapter 9, Indirect sale values", of Raymond's third classic paper, "The Magic Cauldron", but confusing open source and free software strategies. My understanding is that these terms should not be used interchangeably, at least in the meaning their respective foundations (OSF and FSF) put into. Open source need not be free, and free software does not necessarily mean open source. In fact, OSF and FSF strongly object to each other, and they have different manifestoes. One tries to show how it fits with business ("The Magic Cauldron"), the other (Stallman's) is more, say, postulational.

    Another remark: hardware and software may be complements, but not necessarily for companies that try to hide the price of an OS within the price of the computer, tying two products together. When the latter lowers too much, another pricing scheme must be invented.

Andrzej Kocon
Monday, June 17, 2002

I doubt Bill Gates could buy Sweden. It's an incredibly wealthy country.

Beka Pantone
Monday, June 17, 2002

Several years ago I had a professor that used to be on the marketing team for Java at it's inception.

She told us that at the time Sun's strategy was to have common programming languages compile down to Java bytecode and run on any machine.

Presumeably Sun's strategy was to reduce the cost of code ownership for porting to other platforms to sell more hardware.

As we know, Java now is both a language and a bytecode layer but the goal is still the same. Reduce the cost of porting to make Sun hardware a substitute. Hell of an end run though.

WORA is a difficult thing to get working on a desktop because of interfaces, but for server development, which is Sun's bread and butter, it works quite well.

It's also interesting that Sun's original Java bytecode strategy was similar to Microsoft's current .Net strategy.

Michael Glenn
Monday, June 17, 2002

Interesting article.  I liked the point about IBM trying to standardize the PC. 

I laughed at the aspect of anyone at IBM actually thinking.  Then there was MicroChannel and OS/2.

It's been said that economists whine about their "perfect" theories - they would be perfect if it wasn't for the fickle people that mess them up.  The point of luxury items is a good case.

Joe AA.
Monday, June 17, 2002

Joel
Alt-D kils me too.  I'm getting use to f8 for opera, but it doesnt feel natural yet.

Michael Glenn-
IRC, back whem MS used to make JVMs they were the fastest available for x86. I remeber Sun playing some benchmarking games to look faster.  So back then, why port to SUN hardware when cheaper x86 was faster.  Course they fixed that by going back to their contract... 
So whats up with MS and the portable .NET runtime?

SR

SR
Monday, June 17, 2002

If it were true that "Luxury goods do not obey basic economic principles," I'd be a damned fool to be in any other business.  The seller charges as much as he can, teh buyer pays as little as he can.  Yes, the buyer has to pay whatever Apple's asking price is if he wants an Apple system.  But that's a big "if," and that "if" determines how much Apple can charge.

What is interesting is that Apple has done an excellent job of preventing their hardware from becoming commoditized, but their move to OS X/Darwin is obviously meant to commoditize software.  While Mac users aren't suddenly going to start running EMACS, I'd think a lot of things that will be easier to port to that environment based on its Unix heritage.

Interesting article.  And interesting compared to the Ferguson book, which covers a lot of the same software strategy considerations from a similar angle. (quickie review... High Stakes, No Prisoners is worth a read, since Ferguson is pretty smart and his take on the industry seemed absolutely on target.  He also writes in the most obnoxious, self-serving first-person style you can imagine.)

bobk
Monday, June 17, 2002

It is unfortunate that everything has to be thought of with regard to economics. Wars are declared sometimes with economics being a major factor, doctors in the US make decisions based on economics, lawyers ...
But they are a lot of people in professional fields that make decisions based on ethical values and I wish the field of computer science and engineering would do that because we as programmers have a chance to make a difference in people's life and if everything is about money we can't do that. We shouldn't just write the software that would make us richer but the software that would make a difference.
There is much more to open source- you have to be part of a large community to understand the emotional rewards that open source gives you.
It can be frustrating at time, but the number of people that have wrote me to thank me for all the work that I have done, people sending me gifts from my amazon's wish list without me ever asking for anything. These things don't have any prive value.

Going back to economics, on the long run open source is the best economic choice forgetting about all the political views. Joel chose to copy Bruce Perens from HP ideas, you guys might find Joel smart but he just copy everything from everywhere. Bruce Perens who is an open source advocate basically wrote the same thing in his paper.
Why is it the best economic choice?
In non open source software, the client often experience vendor lock-ins and capitalism at it's best doesn't apply because the client doesn't have the choice to make a shift to a different vendors, but if the client was using open source software he could switch to the best consultant that can either change the software to make it work the way he/she wants or just switch software.
I am asking any software engineer to please use their brain before just believing everything stupid joel writes.
If open source companies do not make money now, it is becasue they didn't find the right business plan yet and 10 years from now I would bet that won't be the case.

nb
Monday, June 17, 2002

NB:  You should have a look at "Human Action" by Ludwig von Mises if you'd like to understand why it is desirable that "everything has to be thought of with regard to economics." 

LaissezFaireForever
Monday, June 17, 2002

Interesting article, but *why* does everyone equate Open Source software with anti-capitalism?  They have it absolutely backwards.  Open Source ideas (think science, electricity, television, radio modulation, etc) have driven this economy.

Newton
Monday, June 17, 2002

---------------------------------------------------------------------
If it were true that "Luxury goods do not obey basic economic principles," I'd be a damned fool to be in any other business
----------------------------------------------------------------BobK

It isn't that they do not obey basic economic principles.  For luxery items the utility obtained is different.  They tend to fulfil needs higher on the pyramid, such as social status.

Ged Byrne
Monday, June 17, 2002

Social status is a higher level need.  I'll try to remember that.

Cosmetics.  Higher prices equals more demand. 

Diamonds.  Supply is regulated below demand to keep prices higher.

I guess it can look like the economic law takes precedence over the fickle needs of people.

Joe AA.
Monday, June 17, 2002

Sun's strategy appears to be to comoditise the whole PC as a cheap interface to its server boxes.  Mhz aren't everything.  Your standard PC or even over powered PC still does not come close in real (not benchmark) performance to real workstation or server performance.

By the way some of us in New Zealand do occasionally contribute to open source software.

michael chester
Monday, June 17, 2002

Great article. Summed up a lot of my thoughts (and experiences) of how hardware companies treat software (ie try to commoditize it).  Just take a look at Nokia's software strategy. Their CEO has gone on record saying that they would never allow themselves to be commoditised or dominated by a software company. Its certainly apparent in the way they are treating their OS vendor (a company they own a stake in), and the fact they are also doing their own platform development and evangelism. 

Software and Hardware companies are destined to try and commoditise each other. As a software engineer I know exactly which side of the divide my interests lie.

Kenshi
Monday, June 17, 2002

>>>NB: You should have a look at "Human Action"<<<

That's a rather massive piece of reading isn't it?  I'd recommend David Friedman's "Hidden Order: The Economics of Everyday Life."

mackinac
Monday, June 17, 2002

>>>Interesting article, but *why* does everyone equate Open Source software with anti-capitalism?<<<

A lot of people (not "everyone") just don't understand economics or the idea of a free market.  Free software development, as it is currently practiced, is pretty much a free market phenomenon.  That is, individual's (or sometimes companies) deciding for themselves what to spend their time writing, what kind of license (GPL, BSD,...) to use for their creation, and how much to charge for it ($0).

I have the impression that certain prominent individuals would like to eliminate some of that freedom and require that people give away their creations.

mackinac
Monday, June 17, 2002

The nicest explanation I've seen of Apple's value proposition is that their marketing conveys the message: "I'm special; you're special."

Re Open Source, Bertrand Meyer has an essay where he points out that a lot of open source is not free at all. It's just that the payment came from a non-obvious budget. Where an academic wrote the product, he or she was receiving payment from the university for his or her time.

Where a student wrote the product, he or she was probably being subsidised by his or her parents, and probably the university too, in terms of equipment.

Hugh Wells
Tuesday, June 18, 2002

"Human Action" is the greatest economic treatise ever written but it might be intimidating in its size and depth.  Other authors have done an excellent job of making the theories of the Austrian school more accessible.  Most notable is Henry Hazlitt's "Economics in One Lesson."  You might also want to read various works at the excellent Mises Institute web site http://www.mises.org

David Cordeiro
Tuesday, June 18, 2002

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