Didn't get a chance to reply at the time:
MyEmail {l Wrote}:An outdated video with poor-graphics is hardly an example of success. Perhaps you could come up with something meaningful, say a videogame with 250k+ sales?
I like how you don't even address the evidence, its accuracy, nor the fundamental fact that a film producer using a CC-BY-SA license has made significant money from her work even as it's distributed widely for free. You instead dismiss it based on being "outdated" with no reasons as to why, or how people who have looked into the issue more than you have still somehow understand it less than someone who won't even recognise the basic concept of the difference between value and price recognised by practically every economist out there. Not only do you ignore direct research into markets that explicitly operate without copyright and patent protection, along with evidence from experienced economists and researchers who have gone far more in-depth into the topic than you have, you then simply set up an arbitrary goal post. There are other factors that stop a FOSS game existing with 250k sales, one of those being social, like people such as yourself saying rather matter of factly (and without evidence to support your view) that FOSS cannot be a business, others being as already noted that many games simply aren't trying to make money, other factors being alternative business models, like the fact that a FOSS game business model does not have to rely on selling the software itself anyway, making the 250k sales goal irrelevant, amongst others.
Though I do wander how you'll dismiss and ignore Jason Rohrer(
http://hcsoftware.sourceforge.net/jason-rohrer/), a successful game developer who puts his work into the public domain, not only earning pretty hefty sales (enough to pay his living costs), but likely doing even better by now with the publicity and fame he and his recent games are getting. Inside A Star Filled Sky alone has gotten plenty of attention, likely enough to gain significant sales, whilst employing no DRM, providing source code and placing his work in the public domain. Not forgetting the fact that the game
is available on the biggest digital distribution service in gaming. I wouldn''t be surprised if he had, in fact, reached 250k+ sales.
The most basic common sense should illustrate to yourself how a product's licensing affects its value.
The most basic common sense and knowledge in economics should tell you price and value are 2 different things. Licensing is an act of using the monopoly granted by copyright law to enforce a certain agreement, typically mostly to the sellers advantage. Basic common sense tells you an individual with a monopoly will always earn more than an individual without through having no competition, and thus being able to set a price above what might normally be tolerated in the market and being able to chase other suppliers out of the market. This says nothing about the value of a product, nor the ability for business to make money without that monopoly, only the distorting effect that a monopoly has on a market. Not only that, your model of value ignores measures of utility of a product that cannot be captured by price alone, and the equally important measure of how much money a product may save a consumer regardless of its price, much in the way Linux is significantly valuable to Google in providing them a free platform to builds off of, lowering their development costs with Android and ChromeOS, in itself making their business easier to maintain. A product cannot have value without having a productive function, regardless of its price or licensing agreement, and its price does not affect that value, only the decision by a consumer as to whether they'll buy it or can afford it.
Marketing Cygnus Support
Cygnus Support was a small company founded to support and improve free software. We started with three people -- Michael Tiemann, David Vinayak Wallace, and John Gilmore. (David's nickname from MIT was "Gumby", and many people know him that way. After David married Silke Henkel, he became David Henkel-Wallace.) It grew to employ more than 120 people, with annual revenues over $20,000,000, ten years later. It was merged into Red Hat Software as Red Hat's second acquisition, in a time when Red Hat's revenues were much smaller, but its market capitalization was much greater (due to the tech and Linux stock market bubbles). The company was sold for about $600 million, making all of its early employees into millionaires.
[...]
We had the grandiose idea that major computer companies like Sun, SGI, and DEC would fire their compiler departments and use our free compilers and debuggers instead, paying us a million dollars a year for support and development. That wasn't quite right, but before we starved, we stumbled into the embedded systems market, doing jobs for Intel (the i960, a now-forgotten RISC chip), AMD (their now-forgotten but nice 29000 RISC), and various companies like 3Com and Adobe who had to port major pieces of code to these chips. In that market, once we fixed the tools to support cross-compiling, we had major advantages over the existing competitors, and we swarmed right through the market for 32-bit embedded system programming tools. And ultimately, we did get million-dollar contracts, such as one from Sony for building Playstation compilers and emulators. This allowed game developers to start working a year before the Playstation hardware was available. This enabled the Playstation to come to market sooner, with more and better games.
[...]
Our marketing message was "Freedom". Freedom from restrictive software licenses, and technological license managers that would make your compiler refuse to run. (Yes, "DRM" was alive and well in the early 1990s, but only on expensive commercial software, not on music, movies, and books.) Freedom from lock-in to a specific vendor. Freedom from the constraints of currently available products: we were happy to modify them for you, for a price, and if you didn't like our price or our work, you could do it yourself, or hire anybody else to modify them for you.
[...]
Our pricing was initially created by our inexperience. We were good businessmen, but not good marketers. We started by estimating what it would cost us to do a given development job, or provide a year's support to a particular company or department. Then we'd add a percentage for our overhead and profit, and that would be the price we'd quote them. (We aimed to grow the company using only revenues from customers, and turn a small profit every year -- and we largely succeeded at both.) This formula priced us well below much of the competition, and we were still making money. It appeared to us that the embedded system compiler market was full of "fat and lazy" little companies. We blew through it pretty well, and much of the time were getting as much business as we could handle. Many of those companies, such as Green Hills, died, or were bought and brought in-house by one of their big customers.
Later, after hiring more experienced executives, we discovered that our pricing was "leaving money on the table". We still needed to estimate our own costs and overheads and profits -- but we also needed to estimate how much money our work would SAVE our customer, or MAKE FOR our customer. When there was a big discrepancy in those two numbers, we could raise our price significantly, and the customer would still be happy. For example, the Sony PlayStation contract enabled Sony to ship the PlayStation months earlier (with working third party game software). Even a single month earlier of shipments would result in hundreds of millions of dollars of income for Sony. Similarly, big networking vendors like Cisco had tens or hundreds of millions of dollars riding on the introduction dates of their new products. We were selling them "insurance": if any big problems came up in the development software as they worked on the product, we'd fix them rapidly so their engineers would be able to deliver the product on time. Chip vendors, for whom we built many compilers, were betting big money on getting at least one large customer for their latest chip. Early availability of our tools allowed their customers to reliably prototype large, complex products with the chip. Our pricing gradually grew to include a percentage of the value that our work was creating out in the world, for our customers.
Seriously, please actually read up on economics 101.
Since I obviously have to spell it out for you: Lets say you create a videogame. It took an invested 5mil (which is rather low) to create. In scenario A you release it proprietary and sell it in stores, and make 20mil over the next five years. In scenario B you release it as FOSS and still sell it in stores, but everyone just downloads it for free (because you have licensed it saying that was Ok to do) and you make $0, zip, null. The only thing that changed in these two scenarios is the licensing, hence the licensing is directly related to the value of the software.
Once again you conveniently ignore the existence of piracy in the proprietary market which provides exactly the same effect as you describe in your FOSS example, in which much software is widely available for free, where DRM is regularly ineffective, and threats of legal action are ignored as major publishers regularly shouting about how piracy is supposedly destroying their business.
Your entire argument is built on an unrealistic hypothetical.
Like I was telling Knitter it is possible to make money through secondary sources that are completely separate from the software itself. But the monetary value of the actual software is still nill. This is where you are getting confused. Consider Android and cellphones. Anyone can get the Android OS for free, without price. The Android OS's monetary value is nothing. HOWEVER, money can be made through a secondary source by selling cellphones with Android pre-installed. Its the cellphone that produces income, not the FOSS/FREE Android OS.
That has nothing to do with the value of the software, it is entirely to do with Googles business model that relies on advertising. Google wants its Android OS to be free to gain wider adoption, as a means to spread its advertising reach and data on customers to improve its services. Google's business choices are not a function of software value, considering they also give away proprietary software (in fact, most of the software they effectively give away is proprietary), they're business choices are a function of their core business model and strengths, which from the beginning has been search and the advertising business it feeds into. Google does not make money from a "secondary source" of selling Android phones, though phone manufacturers obviously feel Android is a valuable product to have on their phones to help sell them to consumers who themselves must obviously feel Android is valuable enough to want to buy a phone with Android specifically. Google makes its money through advertising, it deliberately gives away software both FOSS and proprietary to increase its search and advertising business with eyeballs and data on what users like (to feed them with more relevant ads).
And as far as piracy goes companies have found a simple solution that works very well: The game does not work unless you have a active internet connection and can login to their server with your account. The only way you get an account is by purchasing it from them (if you purchase the game you automatically purchase an account too). With this it is entirely futile to pirate a game--in order to play you still have to purchase the account. If you pirate you still end up paying.
And back in reality land, that simple solution has regularly failed to work, with unsurprisingly no evidence on your side that it has worked. Try looking at a torrent site recently, or reading the evidence like the SSRC's 440 page report on piracy that regularly finds enforcement ineffective in reducing piracy.
http://piracy.ssrc.orgDespite the stream of lawsuits and site closures, we see no evidence—and indeed very few claims—that these efforts have had any measurable impact on online piracy. The costs and technical requirements of running a torrent tracker or indexing site are modest, and new sites have quickly emerged to replace old ones. P2P continues to account for a high percentage of total bandwidth utilization in most parts of the world, and infringing files represent, by most accounts, a very high percentage of P2P content (Felton 2010; IFPI 2006). ISP-traffic-monitoring firm ipoque put P2P use in 2009 at roughly 70% of total bandwidth in Eastern Europe, 60% in South America, and slightly lower percentages in northern and southern Europe (Schulze and Mochalski 2009).27 US rates are generally estimated at 25%–30%, reflecting not so much lower utilization of P2P as higher utilization of streaming video services such as YouTube and Hulu. Rates of use of cyberlocker sites like RapidShare have grown rapidly, leading to pressure on those companies to monitor file uploads and sign deals with content providers.
MPEE, P. 44, Sec2:30
By most industry accounts, video-game piracy is concentrated within the traditional stand-alone PC-game market, resulting in pressure on developers to abandon the PC in favour of console-only titles. PC games with cracked serial numbers or activation codes are widely available online and in pirate optical disc markets. Unlike record companies or film studios, PC-game developers and publishers have a variety of ways of estimating the prevalence of pirated copies of their games, such as tracking the percentage of calls to technical support from gamers playing with pirated copies (Ghazi 2009). For popular games, reported ratios of ten pirated copies for every purchased copy are routine.
MPEE, P. 63, Sec2:49
Despite the prominence of modding in enforcement conversations, we are aware of no research on the prevalence of mod chips or modded systems and cannot find a credible estimate of how far the practice goes beyond tech-hobbyist communities. In 2007, Nintendo claimed that some seven million DS handhelds had been modded via a widely available Chinese-produced chip, contributing what Nintendo characterized as losses of $975 million across platforms (Nintendo 2009). Nintendo’s USTR submission for 2009 singled out Mexico, Brazil, China, Paraguay, and South Korea as hot spots for game piracy. The major US enforcement action against modding in recent years—Operation Tangled Web in 2007—netted just 61,000 mod chips, however, suggesting a problem on a much smaller scale, at least in the United States (Associated Press 2007a).45 The ESA, for its part, indicates that its analysis of online distribution finds comparable numbers of pirated console and PC games—challenging conventional wisdom on this point and pointing to a mass-market phenomenon. Clearly, this is a subject requiring more detailed study.
MPEE, P. 63, Sec2:49
Let's also ignore the example of the music industry, which abandoned DRM long ago and piracy is immensely prevalent, yet the music business as a whole doing better than ever, including subscription services like Spotify that have been very successful (and are only being killed by unreasonably high royalty demands from labels). By your logic, Spotify should't even be a viable business, seeing as people can easily get their music for free without pirates even having to work around any authentication software. How precisely does your model of economics and behaviour account for that anomaly? Or the anomaly of Netflix competing with rampant free competition from pirates (again, slowly being pushed and killed off only by royalty rates demanded by studios, not seemingly by piracy)?
Even Valve with Steam (a service which offers DRM) say it's effectively pointless, and instead you should focus on building a good service that gives a reason for people to pay, like automatic updates, achievements, ease of use, voice chat, ability to chat with steam friends in-game (along with web browsing), their recently announced Steam TV service, etc..
“Having a connected platform on the PC is raising everything. Raising retail sales.”
Digital sales do NOT harm retail sales say Valve. When they have a free weekend, in this example with Day of Defeat, both types of sales – Steam and retail – spiked. In fact, 28% more unites were sold at retail than sold through Steam. “Startling” says Holtman. “We were just inviting people to play.”
14.38. “Rampant piracy is just unserved customers,” says Jason Holtman.
He then goes on to discuss the advantage of real-time sales data. It makes you “really smart” about what you can do with your game.
14.32. Steamworks, of course, is free. And this Holtman states, is essential. Anything else that would put a barrier in would take it away from the advantages of the PC.
http://www.rockpapershotgun.com/2008/05 ... alve-live/
Does the fact they give you complete cross platform access to a game regardless of whether you bought it on Windows, Mac or PS3 mean the other versions effectively have zero value? After all, they give you versions that traditionally would have be bought separately, so surely they're just killing their own business and reducing money they can extract out of people, and to hold you logically consistent, that would be valuing the other versions given to the customer at - in your words - absolutely 0. Various games on Steam do not employ DRM, and many indies simply do not have the financial means to pay for the legal services to make legality of sharing their software any significant risk for pirates. What about the high profile examples of the Humble Indie Bundle's who have expressly chosen to "fight" easy, free distribution of their games (with no DRM or authentication required to stop them) by not doing anything about it other than offering their games at reasonable prices (whatever you want to pay, including 1p, which effectively gives $0 for them) and in a way that it's easy and convenient to get them? Are you honestly going to say the HiB success was solely due to being proprietary, considering Wolfire explicitly stated that source code and non-commercial free availability of their game (including being on getdeb.net) has not affected sales of Lugaru at all?
Even if you take into account a true subscription service, the analysis leaves us nowhere near jumping to the conclusion that FOSS is dead in this area. In fact, we end up no worse off than a proprietary game publisher dealing with piracy and alternative game servers (which do exist for games like World of Warcraft, in fact), which by all reputable accounts you do so on the basis of:
1. Authenticity - Being the creator, originator, and someone you generally want to reward, both out of valuing the work they put into it and wanting to guarantee future development and content updates (hopefully of a similar quality).
2. Guaranteeing a good, reliable service that people will want to pay for e.g. long uptimes, low maintenance times, large player capacity, etc..
Your notion of the selfish consumer is fundamentally one dimensional, in that he evaluates things solely on price and thus will flock immediately to the provider who gives him the lowest. Nowhere n your account is there someone who considers even the 2 above basic things that any other consumer accounts for in their purchasing choices. This is the narrative pushed by every other major proprietary software producer/publisher, the major labels in music and the major studios in film, but it's one that has been regularly debunked time and time again by research into the effects of piracy and consumer reasoning for when they pirate and when they buy, It is also one debunked similarly in research into the behaviour of consumers of counterfeit goods and areas that don't benefit from strong or even any copyright and patent protection like food and fashion industries.
With FOSS however it is so vulnerable to competition even this isn't plausible. Even if you where to make income from a secondary source, there is nothing to stop someone else from doing the same, or even offering the same for free. While this is definitely Ok at a corporate scale for things like Android, it is nowhere near acceptable for a small (<10 devs) FOSS project. Consider a mmo-game that is FOSS and makes money from the online service they provide. While they can make money and the software is FOSS, anyone who didn't invest a dime can do the same. I could copy the mmo-game, setup a new server, and charge $5 less than the original developers. Heck, I could even offer the service for free. Either way it ruins their income. Either way the software's value is nil, and its the service provided that produces the income.
The simple fact is your analysis fails to consider that running an MMO service is nowhere near as simple as simply downloading the software. There are plenty of other barriers that forbid someone from doing so, not least of which the server and ISP costs, the continual maintenance required to keep the service running which takes up personal time, the ability for someone running a server to increase their capacity to deal with more simultaneous players amongst others, all of which are perfectly compelling reasons for a user to pay to have a well run, enjoyable experience. Half the reason you simply don't (in the real world) see < 10 man teams even attempt to take on an MMO is precisely because of high barriers to entry in the market for services that want to compete with WoW or even become remotely significant in the MMO market. Even with plenty public, free servers to choose from in many games (like FPS games for example), there are still servers that charge for access or privileges with little advantage (certainly little software advantage) over any other server operator, and still attract people to pay without even being creators or contributors to the game itself.