day 102

alice in wired world 6: non-keynesian principles

Yesterday we thought about John Maynard Keynes (briefly). In case you haven't noticed, the software economy is distinctly non-linear (chaotic), non-Newtonian (what goes up does not always come down), and, particularly, non-Keynesian (supply has little to do with demand and vice verse). FutureBusinesses that subscribe to the non-Keynesian theory quickly rise to positions of leadership within their market segments. Netscape Navigator freeware propelled the company to 70% market share. Eudora, Qualcomm's e-mail client, is arguably the most popular freeware package in existence. Within microseconds, companies will be giving away Java compilers and Java components. Even Microsoft, the symbol of electronic greed, is handing out free copies of their web server. Not only is this out of the box, but some people think these guys are out of their heads. However, the reality is that these are the FutureBusinesses that really understand software economics. One of the principles is called inverse economics. But first, let's pin down the idea of a non-Keynesian software economy. In the software economy, success is determined by how much of the food chain you can live off. The food chain is called the value chain in software marketing. This chain extends from the basic technology companies like Intel and Motorola to the consumer. The steps in between are called links -- each link multiplies value along the chain. The value chain consists of value-add stages. For example, the PC has a value chain that starts with the semiconductor manufacturers, goes to the box builders, the system software merchants like Microsoft, then the distributors, application development software houses like Adobe and Netscape, and finally to the retail outlet. Consumers pay for all stages in this long chain. The value chain funnels revenues to the links in the chain. But, here is where the software economy differs from classical economics. Instead of balancing supply and demand, the value chain stokes a frictionless capitalism that rewards infinite supply, infinite shelf space, and near-zero commodity pricing. That is, software economics is non-Keynesian, because it has no stable states. It has only chaotic, inherently unstable behavior. Lets take a look at these forces.

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