Business

It is common for software, photos, and other creative works to be free for noncommercial use. I appreciate the generosity of those who want to give away their creations, and I appreciate the business savvy of those who see giving some things away as a way to make more money elsewhere. But “noncommercial” is a fuzzy term.

What exactly is noncommercial use? If I include a photo in software that I’m give away, is that noncommercial use? What if someone includes the photo in  iTunes? That’s software that is freely given away, although it’s clearly a distribution channel for Apple music sales. What about Internet Explorer? Microsoft gives away IE, and it’s not an obvious distribution channel for Microsoft, but most people would call IE commercial software. Is it the nature of the organization rather than the nature of the product that determines whether something is non-commercial?

Sometimes “noncommercial” is used as an opposite of “professional.” But what about employees of charitable organizations such as the American Red Cross? Is a Red Cross relief worker in Haiti doing noncommercial work? What about a lawyer working at Red Cross headquarters? Would it change anything if the lawyer were a volunteer?

Sometimes “educational” is used as a synonym for noncommercial. But if your profession is education, is your work professional or educational? Does it matter whether a school is public or private? Most people would agree that a student doing a homework assignment is engaged in noncommercial activity. What if the student is a teaching assistant receiving a small salary? In that case is it noncommercial use when the student is doing his own homework but commercial use when he’s preparing to teach a class? Isn’t education almost always a commercial activity? After all, why are students in school? They’re preparing to make a living at something. They may have blatant commercial motives for doing their homework.

Not only can you argue that educational use is commercial, you can argue that commercial use is educational. If an accountant looks up a tax regulation, they’re trying to learn something. Isn’t that educational? Is it educational use when a student looks up a tax regulation but commercial use when an accountant looks up the same regulation?

Individuals and organizations are free to define “commercial” or “noncommercial” use however they please. Personally, I’d rather either sell something or give it away without regard for how it’s going to be used.

In his podcast Roberts on Smith, Ricardo, and Trade, Russ Roberts states that self-sufficiency is the road to poverty. Roberts elaborates on the economic theories of Adam Smith and David Ricardo to explain how specialization and trade create wealth and how how radical self-sufficiency leads to poverty.

Suppose you decide to grow your own food. Are you going to buy your gardening tools from Ace Hardware? If you really want to be self-reliant, you should make your own tools. Are you going to take your chances with what water happens to fall on your property, or are you going to rely on municipal water? Are you going to forgo fertilizer or rely on someone else to sell it to you? Carried to extremes, self-reliance ends in a Robinson Crusoe-like existence.

People in poor countries are often poor because they are self-reliant in the sense that they must do many things for themselves. They do not have the opportunities for specialization and trade that are available to those who live in more prosperous countries.

Some degree of self-reliance makes economic sense. Transaction costs, for example, make it impractical to outsource small tasks. It also makes sense to do some things that are not economically feasible. For example, an orthodontist may choose to make some of her own clothing or keep a garden for the pleasure of doing so, not because these activities are worth her time. In general, however, specialization and large trading communities are the road to prosperity. Without a large economic community, no one can become an orthodontist (or an accountant, barrista, electrician, …)

Why do we so often value self-sufficiency more than specialization and trade? Here are a three reasons that come to mind.

1. In America, self-sufficiency is deeply rooted in our culture. We admire the pioneer spirit, and this leads to seeing as virtues actions that were once a necessity.
2. Self-sufficient people are generally well liked, especially if they’re not too prosperous.  Conversely, those who create wealth by leveraging the labor of others are often treated with suspicion and jealously.
3. Our school system encourages “well roundedness” rather than excellence. The way to succeed is to be moderately good at everything, even if you’re not outstanding at anything. (More on this idea here.)

Update: After writing this post, I read Russ Robert’s book The Choice: A Fable of Free Trade and Protectionism. I discovered one of the later chapters is entitled “Self-Sufficiency Is the Road to Poverty.” Excellent book.

Related posts:

Evaluate people at their best or at their worst?
Make something and sell it
Do something dull
Transaction costs

The debate between economists John Maynard Keynes and F. A. Hayek set to rap.

Related post:

The one thing to remember in economics

I’ve run across a couple podcasts this week promoting the radical idea that you should sell what you make.

The latest Entrepreneurial Thought Leaders podcast features David Heineimeier Hansson’s talk Unlearn Your MBA which he gave to a room full of MBA students.

The latest Tech Nation podcast from IT Conversations is an interview with Jaron Lanier. Lanier is a virtual reality pioneer and the author of You Are Not A Gadget.

Both Hansson and Lanier have contributed to the “free” culture but both are also critical of it. Hansson says he has benefited greatly from open source software and make his Ruby on Rails framework open source as a way to contribute back to the open source community. But he is also scathingly critical of businesses that think they can make money by giving everything away.

Lanier was an early critic of intellectual property rights but has reversed his original position. He says he’s an empiricist and that data have convinced him he was dead wrong. He now says that the idea of giving away intellectual property as advertising bait is unsustainable and will have dire consequences.

Giving away content to make money indirectly works for some businesses. But it’s alarming that so many people believe that is the only rational or moral way to make money if you create intellectual property. Many people are saying things such as the following.

• Musicians should give away their music and make money off concerts and T-shirts.
• Authors should give away their books and make money on the lecture circuit.
• Programmers should give away their software and make money from consulting.

There’s an anti-intellectual thread running through these arguments. It’s a materialistic way of thinking, valuing only tangible artifacts and not ideas. It’s OK for a potter to sell pots, but a musician should not sell music. It’s OK for teachers to make money by the hour for teaching, but they should not make money from writing books. It’s OK for programmers to sell their time as consultants, and maybe even to sell their time as a programmers, but they should not sell the products of their labor. It’s OK to sell physical objects or to sell time, but not to sell intellectual property.

Related post:

Software profitability in the middle
Emily Dickinson versus Paris Hilton
How to avoid being outsourced or open sourced

Here’s a short video from Tom Peters on starting an exciting business in a dull industry.

Tom Peter’s video reminds me of one of my favorite quotes from Richard Feynman:

… nearly everything is really interesting if you go into it deeply enough …

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Too much time on their hands?
Six quotes on digging deep
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The most productive programmers are orders of magnitude more productive than average programmers. But salaries usually fall within a fairly small range in any company. Even across the entire profession, salaries don’t vary that much. If some programmers are 10x more productive than others, why aren’t they paid 10x as much?

Joel Spolsky gave a couple answers to this question in his most recent podcast. First, programmer productivity varies tremendously across the profession, but it may not vary so much within a given company. Someone who is 10x more productive than his colleagues is likely to leave, either to work with other very talented programmers or to start his own business. Second, extreme productivity may not be obvious. This post elaborates on this second reason.

How can someone be 10x more productive than his peers without being noticed? In some professions such a difference would be obvious. A salesman who sells 10x as much as his peers will be noticed, and compensated accordingly. Sales are easy to measure, and some salesmen make orders of magnitude more money than others. If a bricklayer were 10x more productive than his peers this would be obvious too, but it doesn’t happen: the best bricklayers cannot lay 10x as much brick as average bricklayers. Software output cannot be measured as easily as dollars or bricks. The best programmers do not write 10x as many lines of code and they certainly do not work 10x longer hours.

Programmers are most effective when they avoid writing code. They may realize the problem they’re being asked to solve doesn’t need to be solved, that the client doesn’t actually want what they’re asking for. They may know where to find reusable or re-editable code that solves their problem. They may cheat. But just when they are being their most productive, nobody says “Wow! You were just 100x more productive than if you’d done this the hard way. You deserve a raise.” At best they say “Good idea!” and go on.  It may take a while to realize that someone routinely comes up with such time-saving insights. Or to put it negatively, it may take a long time to realize that others are programming with sound and fury but producing nothing.

The romantic image of an über-programmer is someone who fires up Emacs, types like a machine gun, and delivers a flawless final product from scratch. A more accurate image would be someone who stares quietly into space for a few minutes and then says “Hmm. I think I’ve seen something like this before.”

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Writes large correct programs
Experienced programmers and lines of code

This weekend I ran across a post by Shaun Boyd called Ten reasons it doesn’t pay to be the computer guy. He begins with the observation that if you’re “the computer guy,” most of your accomplishments are invisible. Nobody consciously notices things working smoothly. In fact, if you do a great job of preventing problems, people will assume you’re not needed. After discussing being unappreciated, Boyd goes on to complain about unreasonably high expectations people have of  “the computer guy.”

These are valid complaints. However, they somewhat offset each other. Yes, much computer support work is invisible, but the firefighting aspects of the job are very visible and often appreciated. Other computer careers are less visible than desktop support and do not have the same potential for positive client interaction. Security may be the worst. Nobody ever notices the lack of security problems. The only potential visibility is negative.

I think the problem is not so much a lack of visibility but a natural incentive to concentrate on the more visible aspects of the job. It’s natural to do more of what is rewarded and less of what is ignored. Troubleshooting is often immediately rewarded by the gratitude of clients. (”My computer was all messed up and you saved me. Thank you, computer guy!”) Preventative maintenance and infrastructure improvements are appreciated only in the long term, if ever.

These challenges are not unique to computer careers; cure is usually more appreciated than prevention. The other problems Boyd lists are not unique to computer careers either. For example, he mentions the lack of appreciation for specialization.

There is no common understanding that there are smaller divisions within the computer industry, and that the computer guy cannot be an expert in all areas.

Every industry has its specializations, though specializations within the computer industry may be less widely known. Maybe specializations are harder to appreciate in newer industries; not long ago the computer guy could be an expert in more areas. Another difficulty is that computers are mysterious to most people. They find it easier to imagine why there are different kinds of doctors for eyes and ears than why there are different kinds of computer guys for desktops and servers.

Boyd makes one point that is almost unique to the computer industry: rapid change devalues skills. Every industry experiences change, but few change at the same rate as the computer industry.

Thanks to the constantly declining price of new computers, the computer guy cannot charge labor sums without a dispute. … desktop computers are always getting smaller, faster, and cheaper. It’s possible to purchase a new desktop computer for under $400. If the computer guy spends five hours fixing a computer and wants $100/hour for his time, his customer will be outraged, exclaiming “I didn’t even spend this much to BUY the computer, why should I pay this much just to FIX it?”

When people in other professions complain about how their jobs are changing, they’re usually complaining directly or indirectly about the impact of computer technology. But the rate of change for those who use a technology is usually less than the rate of change for those who produce and support it.

Related posts:

Rules for computing happiness
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Why there will always be programmers

The tragedy of the commons is the name economists use to describe the abuse of common property. For example, overfishing in international waters. Someone who owns a lake will not over fish his own lake because he knows he will benefit in the future from restraining his fishing now. But in international waters, no individual has an incentive to restrain fishing. Mankind as a whole certainly benefits from restraint, but single fishermen do not.

Michael Heller discusses an opposite effect, the tragedy of the anti-commons, on the EconTalk podcast. The tragedy of the commons describes the over-use of a resource nobody owns. The tragedy of the anti-commons describes the under-use of resources with many owners. For example, suppose an acre of land belongs to 43,560 individuals who each own one square foot. The land will never be used for anything as long as thousands of people have to agree on what to do.

The example of land being divided into tiny plots is a artificial. A more realistic example is the ownership of patents. Building a DVD player requires using hundreds of patented inventions. No company could ever build a DVD player if it had to negotiate with all patent holders and obtain their unanimous consent. These patents would be worthless due to gridlock. Fortunately, the owners of the patents used in building DVD players have formed a single entity authorized to negotiate on their behalf. But if you’re creating something new that does not have an organized group of patent holders, there are real problems.

According to Michael Heller, it is simply impossible to create a high-tech product these days without infringing on patents. A new drug or a new electronic device may use thousands of patents. It may not be practical even to discover all the possible patents involved, and it is certainly not possible to negotiate with thousands of patent holders individually.

Small companies can get away with patent violations because the companies may not be worth suing. But companies with deep pockets such as Microsoft are worth suing. These companies develop their own arsenal of patents so they can threaten counter suits against potential attackers. This keeps the big companies from suing each other, but it doesn’t prevent law suits from tiny companies that may only have one product.

Listen to the EconTalk interview for some ideas of how to get around the tragedy of the anti-commons, particularly in regard to patents.

“If you make $30 per hour, you should outsource everything you do that you could hire someone else to do for less than $30.”  Rubbish. I don’t know how many times I’ve heard this advice. It sounds good, for about two seconds. But it doesn’t work because it ignores transaction costs.

Suppose you’re an accountant making $60,000 per year, an hourly rate of $30. If someone is standing in front of you and says “Hey, I’ll do your yard work for the next hour for $20. Why don’t you go inside and do an hour of accounting?” In that case, it makes sense to take the yard worker up on his offer (unless you want to work outside for non-monetary reasons). But reality is seldom so simple. First of all, if you are a salaried employee, you probably don’t have the option of putting in an extra hour’s work for an extra hour’s pay. But even if you do freelance accounting, you may not be able to find an hour’s work when you want it.

Say you have some freelance accounting to do, and you’d like to get out of your yard work. You’ve got to find someone to do the work unless there happens to be landscaper standing outside your door. You might ask friends for recommendations, search the web, make a few phone calls, etc. Finding a landscaper is easier than finding accounting work, but it still takes effort.

The effort necessary to find work or to find workers is called a transaction cost. So is negotiating compensation, drawing up contracts, etc. If you have a steady stream of accounting work, you might think “I’m going to need to free up some time to do this extra work. I’ll outsource some of my chores, like my yard work.” And that makes sense. But unless you have enough work at hand, it’s worthwhile to do many things for yourself that in theory you could pay someone else to do.

Transaction costs are not all bad. They give life stability and variety. Salaried jobs exist because transaction costs make it expensive to put every task out for bid. And we develop a variety of skills because it is impractical to ask someone else to do everything for us outside of our narrow professional specialization.

Related posts:

Parkinson’s law
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Organizational scar tissue

Most books on project management are written for someone managing one project at a time, working with a team of people who only work on that project.  Some companies work that way, but certainly not all do. I’ve seldom worked that way. At one point I “managed” so many projects that I could not tell you the exact number without looking at my list.

Johanna Rothman’s new book Manage Your Project Portfolio addresses the challenges of managing not just one project but a portfolio of projects. The book does not tell you how to work multiple simultaneous projects but rather how to get away from working on multiple projects  by prioritizing them and working on one at a time.

Here are a couple quotes from the beginning of the book.

Quite often I have the chance to visit a team to help management figure out why they’re not making much progress. When I get there, I find a small team working on more projects than they have people.

Multitasking occurs when managers don’t make decisions about which projects to do first, second, third, last, and even more important, never.

I wish I could have read Johanna Rothman’s book a decade ago. On the other hand, I would not have appreciated the book as much a decade ago. Still, it might have helped me prevent some of the errors I made. I hope that many people will read the book before they become overwhelmed and appreciate its wisdom.

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I enjoyed listening to Moira Gunn’s interview with Kevin Maney, author of the new book Trade-Off: Why Some Things Catch On and Others Don’t.

The book was a little disappointing after listening to the interview. I felt I had heard most of what Maney had to say before I read the book.

In a nutshell, the message of the book is that you should either strive for fidelity (exclusivity, quality) or convenience (accessibility, affordability). You can succeed by excelling at fidelity or at convenience. But if you strive for both, you’ll lose to companies that are better at one criteria or the other. Maney gives several interesting examples of companies that have succeeded along the edges of the fidelity/convenience graph but then failed when they started pursuing the diagonal.

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I am not an operating system (how Microsoft and Apple are forced into their respective marketing positions)

In his interview on EconTalk, Paul Graham made a distinction between poverty and squalor. He says that most poor people live like rich people, but with cheap imitations. A rich person might have something made of gold and a poor person might have the same thing except made of plastic. But the creative poor, such as the proverbial starving artist, live differently. They live in poverty but not in squalor. They achieve a pleasant lifestyle by not trying to imitate the rich.

For example, the wealthy have large beautiful houses. The poor have small and usually not-so-beautiful houses. The rich have new expensive cars and the poor have old cheap cars. But the starving artist might not have a house or a car. He or she might live in a converted warehouse with a few nice furnishings and ride a bicycle.

The point of his discussion of poverty was to make an analogy for small software companies. It makes no sense for a tiny start-up to try to be a scaled-down version of Microsoft. They need to have an entirely different strategy. They can be poor without living in squalor.

I don’t know what I think of Graham’s assertion that the poor live cheap imitations of the lifestyles of the rich. There’s probably some truth to it, though I’m not sure how much. And I’m not sure how much truth there is in the romantic image of the bohemian starving artist. But I agree that it makes no sense for a small company to be a miniature version of a huge corporation.

Related posts:

Living within chosen limits
Selective use of technology
Organizational scar tissue
Parkinson’s law
How animals scale up and down

The blog Confessions of a Community College Dean had a post on Monday entitled Cash Cows that talks candidly about the financial operations of a community college.

It’s a commonplace of for-profit management that units can be characterized in one of three ways: rising stars, cash cows, and dogs. The savvy manager is supposed to feed the stars, milk the cows, and shoot the dogs. … We milk the cows precisely so we don’t have to shoot the dogs.

The “cows” are the profitable courses and the “dogs” are the unprofitable courses. Popular belief has it that English classes are cash cows because they require fewer resources than, say, chemistry classes. However, this blog says that English classes only break even because they also have smaller classes. The real cash cows are the social sciences. The biggest dog is nursing. The profit from teaching history, for example, makes it possible to train nurses.

Kent Beck made an interesting observation about the limits of open source software on FLOSS Weekly around one hour into the show. These aren’t his exact words, just my summary.

Big companies like IBM will contribute to big open source projects like Apache because doing so is in their economic interest. And hobbyists will write small applications and give them away. But who is going to write medium-sized software, projects big enough to be useful but not important enough to any one company to fund? That’s where commercial software thrives.

Kent Beck attributes this argument to Paul Davis.

Beck also talked about how he tried but couldn’t pay his bills developing open source software. The hosts were a little defensive and  pointed out that many people have managed to earn money indirectly from open source software. Beck agreed but said that the indirect approach didn’t work for him. He said that he donates about 10% of his time to open source development (i.e. xUnit) but he makes his money by charging for his products and services.

Related post:

How to avoid being outsourced or open sourced