July 2007

"Of every tree of the garden thou mayest freely eat; but of the tree of the knowledge of good and evil, thou shalt not eat of it."

Genesis 2:16-17

In the Garden of Eden, God made His statement on prohibiting the consumption of the fruit of knowledge. Maybe this is the first ever known License! And, we all know the story of denial of this statement by Adam and Eve.

In the social mechanism of exchange, goods are characterized by rivalry in consumption and excludability from consumption. Rivalry in consumption arises when a person's consumption of a good obstructs the consumption of the same good by another person. Excludability is the ability of sellers to force consumers to become buyers, and thus to pay for whatever goods and services they use. These characteristics can either exist or not exist in a good.

Software, in simple words, is a set of instructions for performing a task automatically through computerized devices. Software, as an expression of ideas comprises the guidelines for a computer to complete the given task. Software can be thought of as being a good. Assume that a person consumes a software good. This does not affect the consumption of the same software by other consumers as, theoretically, software neither wears nor tears.

Moreover, the consumption of software by a consumer does not cause any detritions to the software. Being a digital expression, software can be copied infinitely with out any loss of quality.

The general assumption of software being non-rival can be revisited as rivalry if software is made for the possession and ownership of a particular business organization solely. In this case, the software becomes rival goods kept or made nonexclusive.

Assume that a software producer has possession of a particular software. It is economically feasible for the producer to exclude consumers from consuming the good while having no rivalry in consumption among consumers. Thus, the software can be viewed as a club good with possible exclusion and no rivalry in consumption.

In an alternate environment, the producer distributing the software over the Internet completely looses control over the software. Any one on the Internet can make the distributed software beneficial to others, thus making the software as non-excludable from consumption. Being non-rival and non-excludable, software can also be viewed as pure public good.

We can not make a decision on software as a good and adopt the principles of distribution of goods to the distribution of software. Software has its own several dimensions which also affect the distribution of software.

Commercial Dimensions:

  • The value of software is not quantifiable without consumption. The greater the surplus of users for a particular software, the greater the value of the software.
  • Commercial exploitation of the developed software should occur as quickly as possible, reducing the time to market.

Economical Dimensions:

  • The cost of producing the first unit of software is always high.
  • Software as a finished product superimposes no restrictions for the developer to reproduction.
  • The costs of software production have an atypical anatomy differing from the economies of scale.
  • Software has a high cost of production but an extremely low marginal cost of reproduction.
  • The cost of storing and accessing software is low.

Legal Dimensions:

  • The behavior of software represents the internals of a business process. Thus, the behavior becomes valuable in the software market. Knowing the implementation of behavior can not be a big issue.
  • Software is an intangible asset and may be protected by copyright.

Sociological Dimensions:

  • Software being a digital work can be vulnerable to perfect copying, and unlimited copies identical to the original can be made.
  • The producer/consumer relationship is significant when developing software.

Technological Dimensions:

  • Software does not deteriorate physically with wear and tear.
  • Software can malfunction due to the negligence of a user or can be affected by virus attacks.
  • Different implementations of the given software can be available for different platforms.
  • New software can arise by merging of various software elements.
  • The intangible nature of software makes it concurrently available to many consumers.

A software producer can make a decision on how the software can be consumed by users and what rights to provide users.

A consumer has the right to know how he/she can use the software. A license expresses these rights.

Recommended Reading

  1. Kaul, I., and Mendoza, R., Advancing the Concept of Public Goods, in the book Providing Global Public Goods: Managing Globalization (Editors: Kaul, I., Conceicao, P., Le Goulven, K., and Mendoza, R.) Oxford University Press, New York (2003)
  2. Kooths, S., Langenfurth, M., and Kalwey, N., Open Source Software: An Economic Assessment, Technical Report ISSN 1612- 9032, Muenster Institute for Computational Economics (2003)
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