Rent v innovation: software leads the charge

Software companies’ behaviour over licensing epitomises the problematic emergence of extractive capitalism, with trust becoming a growing problem for business.

In the early days of the current phase of personal computing, there was some legal clarity about what kind of “thing” software was: it was like a book. You could buy a copy, and use it as you wanted, reselling it without complication when you’d finished with it. Owning a book gives you no rights over the content, and there are limits as to how much of a book’s text you can reproduce for other purposes (typically for something like teaching), but the physical object is yours to do as you will with it. The book analogy seemed to cover the bases for software ownership.

This analogy wasn’t troubled until people realised it was very easy to share digital files, and they were tempted to do so because the prices charged for most software had not reflected the shift from niche purchase, probably for business, to a mass market product. For a while the big software companies (Microsoft and Adobe being the most obvious examples) became rich on their huge margins.

But they weren’t happy about “piracy” (as they chose to call software copying, though there were no parrots or cannons involved). The immediate solution was to develop online activation, depending on the fact that the internet was also fast becoming a mass market phenomenon (automated telephone activation was available for those who didn’t have a modem). This could be irritating for users, particularly if you’d had to reinstall a program (probably because some other piece of software wasn’t working as it should have been). You could call this the beginning of software as a service, though the service unusually was dedicated to inconveniencing your customers, defaulting to an assumption of those customers’ dishonesty.

(I’m well aware that strictly speaking the term software-as-a-service denotes a true service, where an application is hosted and maintained remotely, but I’m talking here about a marketing wheeze that deliberately blurs the lines.)

Licence to print money?
Emerging behind all this was a very different concept of what software is. Suddenly when you bought a piece of software you didn’t own it; you’d acquired a “licence” to use it. We’ve accepted this so widely that we rarely seem to ask how strange it is. It’s hard to think of another sphere of activity where a producer can so completely redefine the commercial relationship in its own favour. Another analogy for software is that it’s a tool, and you have to imagine what would happen if a powertool manufacturer suddenly started claiming that when you’d bought one of their drills you’d only acquired a licence to use it, and you weren’t allowed to lend it to anyone, with limited reselling rights. Bear in mind too that at this point software still tended to be delivered in a physical format: you bought a packaged disk.

A licence is defensible if you’re actually buying a service, but the scope for “service” with mass market software is very questionable. A service should not be confused with software maintenance, which with any normal consumer good must be built into the original sale. It’s true that software is usually complex and it’s difficult to release something totally free of bugs. This means buyers must accept a level of incompleteness in a piece of software that would not be tolerated in other products. The trade off is that the supplier must put those bugs right. This kind of maintenance release cannot be treated as a chargeable service.

The real force behind much of the shift to software rental is actually product maturity. For a good while it was relatively easy to maintain an income stream by offering desirable new versions every year or so. As software applications have matured the scope for improvement has shrunk, depriving developers of an assured continuing income stream. The “rental” pill is mostly sweetened by the promise of regular upgrades, but the reality is that by and large any improvements have been tiny, and would hardly motivate a paid-for upgrade if left to fend for itself on the open market.

Innnovation goes incremental
Microsoft Office is a case in point, though in this instance it’s complicated. Microsoft wants to move everyone away from its one-off payment options (they’re still in place, for the moment) to its annual 365 subscription. For a standalone user the “improvements” in the last five years have been trivial, and even for those who need collaboration less than exciting. You can still choose to buy a “permanent licence” product, though for the major applications in the suite (Word, Excel, Outlook and perhaps Powerpoint) there are better options (see part 2 of this blog). Microsoft has however given a genuine service reason to use an annual plan: a generous allowance for its OneDrive cloud storage. Since Windows 10 really works at its best when linked to OneDrive and since the standalone OneDrive service is poor value compared to the Office 365 version it makes limited sense not to pay for the suite subscription, even if you don’t make much use of any of the applications. (To add insult to injury the installer doesn’t allow you to choose which apps you might actually want, bloating the installation size.)

You could say that this is all fair play, and Microsoft is still giving us options. The trouble is that it’s had a baleful influence on the rest of the market. Now every tinpot utility or minor application wants you to pay annually, even though there is literally no benefit to the user in this switch.

Business will always try to maximise its revenues, but to do so through a unilateral undermining of consumer rights, with the apparent complicity of the courts, is simply predatory behaviour.

There are honourable exceptions (again see part two of this blog) but there is a bigger point here. The problem with extractive capitalism is that it pushes us into stagnant economics, and increasing wealth disparity, a vicious circle. Capital investment is pushed towards non-productive rentier assets, and there’s every incentive to build defences around those assets rather than innovate better ways of doing things.

The trend towards the acquisition and defence of dubious intellectual property is part of this shift, where a concept originally developed to protect innovation is arguably now being used to stifle it. (Click here for US philosophy professor Samir Chopra’s demolition of the prevailing arguments around IP.)

It is astonishing in particular (at least to a lay person) that the concept of a patent, theoretically developed to protect real invention, seems to have been hijacked to defend the slightest ideas, and in the worst instances to protect the simple transfer of a real world concept to the digital world.

Undermining trust
There is consumer harm in this stifling of innovation, but there’s arguably even greater (two way) harm in the broader negative perceptions of business this behaviour is fuelling.

This is not an anti-business rant; far from it, because in many ways business can and should be a force for good in society, and is (up to a point) the most powerful way of distributing wealth (that point might be shifting because of increasing automation, but then we have big political decisions to make about how that shift can be managed). It is really to note the destructive absurdity of business claims to love the customer, which in itself has become only annoying and ever more alienating.

Marketing people obsess over brands, and brand is routinely valued on the corporate balance sheet, and it’s certainly true that familiarity will motivate behaviour in sometimes irrational ways. But familiarity is not exactly the same as trust, and there’s little doubt that the stature of business in wider society has become diminished, not least because of its often predatory behaviour, and apparently reckless boardroom greed.

And yet it has never been so fashionable for business leaders to talk about broader social purpose, while the need to respond to looming environmental catastrophe has escaped only the most foolish. This is in part a recognition that business does have a trust problem, and it’s only going to get worse if things don’t change. There will, eventually be consequences, some of them financial. Business after all does not exist in some divinely-ordained social space; it is a cultural and political construct, operating by consent and through legal frameworks that at least until recently assumed reciprocal responsibilities in exchange for fiscal privileges.

Until the last quarter of the 20th century modern business had seemed to be evolving away from its more rapacious origins in the industrial revolution. There are too many countervailing pressures building in society for the deviation of the last 40 years to be sustainable.

Software licensing may be at the smaller end of the bad business scale, but it is on that scale and a sign of things going wrong. The software business needs to find a better way forward. Part two of this blog will look more closely at Office 365 and its alternatives, so has a more practical focus, though in doing so perhaps it could point the way for developers to create long term customer relationships that endure through choice rather than exploitation.

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