Hal Varian, Chief Economist at Google says it, Chris Anderson says it, too: Digital products like music, news articles or software will be free in the long term. This is because the cost of a digital product drops down to its incremental cost in the interest of competition. And the cost to provide an additional unit of a digital product through the internet is simply zero.
Not a threat to Open-Source companies and certainly not a threat to Palo, but most definitely a lesson still to be learned by many other software vendors in the world.
This weekend we have the parliamentary elections here in Germany. The Internet with its free digital products will create challenges for many vendors in the digital economy, but on Sunday I am most interested to see what challenges our established political parties will face from the new and internet minded Piratenpartei (Pirate Party).
The Pirates talk about reforming the copyright and patent law, ending the excessive surveillance, profiling, tracking and monitoring of innocent people conducted by Government and big businesses and they want to ensure that everyone has true freedom of speech, in the internet as well. Germany’s established parties don’t really have sufficient answers (or even awareness) of this problems. I would not be surprised if the Pirates became a political force in Germany, very much to the surprise of many people.
Dear Kristian,
While movements like The Pirate Party seem rather silly to me, it seems axiomatic that software, as an intellectual product, must eventually move to a no-cost license model. That does not mean “free,” as in beer (the BSD crowd) or anything else. As you say, the marginal cost of the next copy of a software product is zero; but not so in maintenance, fixes and support.
That is where the model needs to change. The distribution model for support, training, and even “value add” marketing, has not changed much since the 1970’s… even with so-called Open Source. This is the challenge and opportunity for software vendors. Come up with new, exciting, accessible and high-quality training models – people will pay for that kind of educational opportunity, and they will see the value in “high-touch” technically oriented marketing and sales efforts.
There is nothing worse than traveling long distance for a training event only to return thinking, “if I just shut myself off for two days with the software and a good manual, I’ll learn far more!” Marketing efforts that encourage people to think and share ideas, even if uncomfortable for the vendor, always provide high-value.
Vendors should stop considering support and training a “necessary evil” and small profit center. Done well and with real value, these activities could represent much of the companies profitability, engender loyalty, and tangibly remind customers that software really is an intellectual property. Best regards, The Old Quant CFA