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I am not an accountant. I don't want to venture definitive statements. However, if I understand the charts correctly, the insider trading is running at the rate of something like 100,000 shares per day of net throughput from options exercised by officers to shares sold by officers to the public. The officers exercise options at two to five dollars per share, and sell them at thirty dollars per share. That works out to about three million dollars per day, or a billion dollars per year. By contrast, the revenue is only about two hundred and fifty million dollars per year. In short, if one were to draw up a set of accounts which included the officers' personal finances, the dominant economic activity of Red Hat would be selling shares to the public. The shares are trading at a price-earnings ratio of more than seventy.
I should hasten to add that Red Hat is not especially atypical. The whole software/internet industry is organized around share-selling at price-earnings ratios so high as to be extremely risky. Under this regime, most firms are, first and foremost, in the business of advertising their own shares. The name of the game is to do things which generate favorable publicity, to "create buzz." A byproduct of "generating buzz" is that a certain number of naive buyers go out and buy boxed Linux sets, even though they could get the software for free. These copies of Linux tend never to be installed, and certainly not in a critical production environment, such as an e-commerce website. Therefore, they do not create a need for support. What these customers are buying, in the last analysis, is a cardboard box with a penguin on it, to visibly set on their office shelf.
Then there is what is known as the "scapegoat logic," otherwise known as "no one ever got fired for buying IBM." If a purchasing agent has bought a support contract from vendor with a sufficiently strong aura of officialdom, he is off the hook, even if the vendor should renege. For this market, it is still a very sensitive point that Richard M. Stallman does not wear a suit and tie. He doesn't look like a company man.
A lot of big Linux users, the kind who resell complete package services (Google, Amazon, etc.), are unhappy about the idea of paying for Linux support on a per-user or per computer basis. They take the view that they have their own experts, who can handle all the more common problems, and who would make a positive contribution to solving the few really difficult problems. So the idea of coughing up a few million dollars a year is something of a non-starter. That is not to say they are stinges; it's just that they insist on the money going to the right place. Google has something called the Google Summer of Code, a system of summer fellowships for undergraduates to write open-source software under the supervision of their professors. The emphasis is on the duller sort of projects, which are needed, but might not get done spontaneously, typically "connectors" which hook one existing open source program up to another existing open source program.
Summing up, what we are really talking about is something like the institution of patronage, as practiced in the seventeenth and eighteenth centuries.
Michele Boldrin -
2/15/2007
That's all quite fine, and I am happy economists are catching up with the engineers. That's better than always staying behind, no? Such is life, some people are ahead all the times and know better, the engineers, other just strive to learn and catch up, the economists. That is why we have education and all that stuff.
As for the fact that technical support is a bug or a defect. Again, I am not going to argue with that, definitions are what they are, and if we want to call technical support a bug, that is ok with me. Point is, that it is there, at least until now, and that some people earn their living by providing it. Which is an interesting fact.
Andrew D. Todd -
2/14/2007
I see that Boldrin and Levine's article is now available on-line. It is obvious that they have not read Eric S. Raymond's _The Cathedral and the Bazaar_, nor Sam Williams' _Free as in Freedom_. Boldrin and Levine seem to repeatedly miss the point.
The generally acknowledged spiritual center of the open source movement is the Free Software Foundation, which means Richard M. Stallman. Richard Stallman is a poor man in about the same sense that Ralph Nader is a poor man, or that a Franciscan Friar is poor. Debian is a vastly more ascendant Linux distribution than Red Hat, and the Debian Project is actively fussy about not having more money in the bank than it strictly has to have. Debian was an early promoter of "mirror servers," and small business disk copying firms (eg. CheapBytes). The idea was that by cultivating such operations, Debian could avoid the "worldliness" inherent in setting up the logistics necessary to distribute millions of copies. A lot of the "buzz" in Linux is coming out of Ubuntu, a "daughter distribution" of Debian. Debian tends to function as Red Hat's moral preceptor, dragging it back from dubious alliances and practices.
I should add, parenthetically, that Novell's SUSE Linux distribution is now being considered as an apostate, in the light of the Novell/Microsoft deal. A number of key employees have walked out, complete with published manifestos explaining why, a la the ninety-five theses.
The need for technical support is itself a bug, a defect. If a program were sufficiently well designed, and the documentation sufficiently well written, taking account of how the program was actually to be used, technical support would be unnecessary. That is, of course, a counsel of perfection, but it represents the goal towards which software developers strive. Technical support is an opportunity to find out how the software actually works in the field, and to correct the false assumptions which result in technical support being required. Confining technical support to paying customers is a step on the road to decline. People I have talked to who are running OpenOffice on Windows have been favorably impressed by the OpenOffice organization's responsiveness to questions, even though they are not running the commercial version, StarOffice.
Boldrin and Levine's paper is not yet up on the Freeman website. However, going by the title, it seems that more or less orthodox economists (?) have caught up to the point where the engineers were some time ago. Here is the present position. At the risk of oversimplification, these people, Tucson Amateur Packet Radio, are high-tech ham radio operator types, with ambitions to eventually supplant the telephone companies. Something along the lines of an automatic radio repeater on every rooftop, owned by the householder, all automatically synchronizing with each other to provide a national telecommunications system.
