John Dvorak concludes an otherwise sensibleÂ article on the effect of Linux/Office-clone packages combined with netbooks with the following:
If Intel can provide users with powerful little systems for $99 and has been pushing prices lower and lower over the years, why can’t Microsoft? Intel makes elaborate hardware in billion-dollar factories. Microsoft stamps out a disk.
Does Dvorak really think that a disk stamper is all that is needed to create software? This is the argument that Eban Moglen makes. The argument is thatÂ programers, authors,Â musicians, and other developers of “creative content” should be content to work for a salary (a low one) or be paid by performance. All that royalty stuff for copies that can be made with a disk stamper or less is obsolete. Yo Yo Ma and Bill Joy and Sean PennÂ can stop bleeding the consuming public for stuff that Pirates Bay is able to copy for nothing, and should be content to perhaps put out a hat on a street corner or find cubicle to inhabit and a friendly corporate manager who can get them properly identified in the HR department’s pay scale process.Â Because the marginal price of making a copy is the determining factor of the value of a product.Â Well, that’s not really how the argument goes, because we are asked to consider Intel’s plant investment for that “elaborate hardware” too – the marginal production cost of a chip being a whole lot lower than the sales price.
The argument that Mr. Dvorak apparently has not considered is that the value to the end customer of the combined software hardware package depends on the use, not the cost of production. The labor of all those engineers at Microsoft (and Xerox Parc and elsewhere), the creative work of the user interface and the file management software, the search and replace code, the formatting, the typeface management, the design of the typefaces themselves – all of that is considerable. If hardware becomes profitable to sell at a few dollars, the costs and risks of making software don’t change and the value of the software itself is not necessarily reduced.
Whatever the merits or demerits of Microsofts product and pricing strategy for Office, the idea that copy cost determines sales price is, in the end, one which has far reaching implications for the way the economy should work and those implications often are not seen by people making that argument.