Analysis

From Linux to Mozilla: donations mean that open-source isn't really free

Written by Gavin Chait

The video image flickers in the conference hall. "Even if you took our computer away, we would save and buy another. For it has opened our world and increased our profits," says a peasant farmer, in a shed housing a battered desktop PC, surrounded by other nodding farmers.

ITC, one of India's largest diversified companies, has re-engineered their soya procurement and processing chain by supplying Internet-connected computers to rural villagers. ITC felt that, if farmers had greater access to information, they would be able to supply ITC with a better quality of product at a better range of prices. Intermediaries under-paid farmers, mixed the soya beans together in a jumble of low and high value beans, then charged ITC at the higher-value price. It was an inefficient and inherently unfair process.

The ITC E-Choupal Project has been an unbounded success with farmers getting significantly better prices and ITC spending much less time and effort on grading and processing their beans. A development project with a commercial edge has not only introduced the farmers to technology, but given them the financial where-withal to maintain their technical advantage.

CK Prahalad talks over the video, "The poor are prepared to pay for services and products. They want to. Real poverty is relying on permanent donations and handouts."

A world away, across Europe and America, lives the open-source movement; built on the premise that software and information should be free. GNU likes to make the point that "free" means, "free as in speech, not as in beer," however software is a product, not a point of view.

A protected employee, with a few free hours a day to spend time coding and developing software, can choose to release it for free. But it isn't really free, is it?

On every page – from Wikipedia, to Ubuntu Linux, to Mozilla, to Creative Commons – there is that little logo that gives voice to the lie that anything can truly be free: "donate".

It is a little plea, "Please, we really want to keep this software free, but we need your money to do so." Then it isn't free, is it? And donations have none of the certainty of a commercial product. With proprietary software I know the price and companies are governed by laws that dictate what I can do if the product I bought doesn't perform as advertised. With open-source the price is vague, "give whatever you can afford, please," and quality open to interpretation.

Discussion forums across the open-source movement are filled with nasty, spiteful remarks like, "You promised the update would be out last month and it still isn't. When are you going to bring out the new version?" Even the users of free software behave as if they have a right to treat the producers as if they are full-time professionals.

The open-source movement considers itself an off-shoot of the whole NGO / development establishment that thinks that donations don't count as earnings because the product was given away. Donations are earnings. Get over it.

Open-source is a novel and exciting way of creating new products for the commercial market. All that is happening with open-source is that customers are directly involved in product development and are sharing in the financial risk of that development. Any entrepreneur knows that they have to spend the time and money up front to bring their product to market before they can charge for it. People will only pay for it once it's perfect. Consider this new form of venture capital Crowd Finance or Crowd Development.

Many open-source products are getting to the point of commercial viability. And I, for one, won't object to paying for them. The people who developed such awesome software as Joomla! and Firefox deserve to be financially compensated for the time and effort they put into creating it.

That way, others will see their success and be stimulated to better it. For financial reward.

The US$ 5 trillion market at the bottom of the pyramid

Written by Gavin Chait “If you’re not prepared to eat your own lunch, someone else will,” is a fine sentiment.  And, if all you’re prepared to offer others to eat is boiled potatoes and dried-out steak, beware the day that someone else comes along and offers seared tuna, marinated in soy-sauce, on a bed of grilled veggies.

A warning to company strategists:  be prepared to challenge yourself, ignore past successes and re-invent the future.  If you’re not going to then don’t be surprised if some other upstart comes along and does so, taking your market out from under you in the process.

Limitations are often the source of fertile and profitable new ideas.  Who would have thought that people would ignore the convenience of conversation for preference in sending more expensive short-messages on their cell phones?  Who would have thought that this would stimulate a multi-billion Dollar industry?

C K Prahalad, speaking in Johannesburg at a conference organised by Global Leaders, declares that, “the essence of entrepreneurship is that aspirations overcome resource limitations.”  And aspirations drive innovations.

The challenge is in seeing the aspirant poor as a potential market and not as a bottomless pit requiring donations and hand-outs.  The aggregated wealth of the poor is US$ 5 trillion, according to a study conducted on behalf of the World Bank.  “Children are told, ‘Eat your veggies, there are starving people in Ethiopia!’ and so they grow up associating poverty with starvation and impossible despair,” says Prahalad.  “It is very difficult to transform that type of thinking into ideals around investment; that the aggregated wealth of the poor is significant.”

It is possible, though.  Companies are reinventing themselves and their products to take advantage of opportunities presented by the poor.  Prahalad gives the example of Gujarat Cooperative Milk Marketing Federation (GCMMF), now the biggest milk producer in the world.

GCMMF buys their milk directly from individual village subsistence farmers – more than 2.5 million of them across India.  The milk is valued according to fat content and volume.  They collect an average of 6.3 million litres per day, supply 2 340 million tons of animal feed per day back to the farmers, and earn $ 840 m annually in revenue with $ 30 m exported.  Clearly there is wealth at the bottom of the pyramid, both in earning and sales potential.

Much of this requires a significant change in the way in which a company is prepared to work: a highly decentralised approach; partitioning of the task (on site / off site, decentralised payments and services); world class centralised facilities to aggregate and control the products as they arrive.

More impressively, though, is the way in which expensive services and products can be reinvented to serve the poor.  Aravind Eye Care in Madurai, India, is a pure example of what is possible.  Cataract surgery in the developed world costs around $ 2 – 3 000 depending on the nature of the intervention.  A comparison between the Royal College of Ophthalmology and Aravind Hospital by the UK National Survey in 2001 declared that Aravind was superior on virtually every level.  Aravind Eye Care charges between $ 50 and $ 300 per operation.

“It’s easy to get a 5 – 10% cost reduction,” says Prahalad, “but you have to completely rethink your strategy to get a 50x reduction in price.”

It is essential to build new strategic capital and disruptive business models.  Set the price you want to charge, set your profit margin and then, whatever is left, you have the cost price that you must meet in order to offer your product.  Aravind has been profitable since they started.

The most startling result, though, is this:  products developed to be used by the poor rapidly become innovations that can be used by the rich.  Cheap ophthalmic surgery, hotels or cell phone charges rapidly get disseminated.  Companies that are able to produce this much of a strategic advantage have no problems convincing customers around the world to shift their allegiance.  If a new upstart is offering you a 5% price change you may not be interested; but 50 times less for the same quality?

Says Prahalad:  “We need to create inclusive capitalism.  If we exclude the poorest we will get social unrest and outrage – the poor will become so agitated that the rich are targeted.  The informal economy is essentially a local monopoly; inefficient and abusive of an asymmetry of information.”

There are profits to be made by developing products that are aimed at the poor.  If we improve consumption at the bottom of the pyramid we also improve livelihoods.

“Ultimately,” says Prahalad, “Every person must be seen as a consumer who can afford world class products and services.  Even the poorest must be allowed to shape their own experiences, act as a producer and have access to global markets.”

By allowing the poorest to co-create products and services you also create opportunities in every market around the world.

Unions, the leverage of the highly skilled, and the future of work

Written by Gavin Chait The labour union movement is more than 100 years old.  At its outset it sought to improve the lot of employees relative to the rights automatically accorded to the owners of businesses.

The power of the unions coincided with a period of rapid industrial transition.  Workers were required to have a certain degree of skill.  As machines became more complex to use, and more dangerous for the unskilled, it was harder for business owners simply to fire their staff.  Self organisation gave employees an equal say in the business.

Over the last 50 years the structure and organisation of businesses has changed.  Companies are now widely owned and answerable to shareholders and various independent control bodies, in addition to their staff.  The increasing complexity of products, distribution and marketing has also resulted in a wider distribution of labour.  Unions now represent “blue collar” workers, while managers and owners are lumped together as “white collar” workers.  Yet even that is an over-simplification.

Pure manufacturing is no longer the core part of a large company; their brand is.  The management of that brand, the creation of innovative new products and managing their distribution and uptake into markets is the subject of daily operations.  This is sophisticated work and the level of skill in the average office has risen rapidly.  Multiple degrees and MBAs are ever more common.  The actual manufacturing of the product is now akin to the type of manual labour seen on a large farm in the 18th century.

Unions used to represent virtually everyone at a company who wasn’t a shareholder.  Now they represent an ever-shrinking component of the business supply chain; and that, the least skilled.  It is not that Unions have deliberately chosen the least skilled members, but it is that the mindset inherent in Unions has not changed since they were first started.  They have always represented people who – as they see it – do the actual work of manufacturing the product.  Even 50 years ago that person was someone on a factory floor.  

Nowadays a shoe-designer may not get anywhere near a shoe.  They work in an office on a team with people who discuss fashion trends around the world, fabric designers and marketing teams who discuss everything about the way in which the product will be seen.  Then they go back to a computer and design the product in tandem with others using sophisticated algorithmic software.  None of these people is unionised.  Most of them will be on short-term contracts working on this project to get the product to market.  The purchasing department who are responsible for getting the product made will be considering bids from factories around the world who wish to produce the item for them.  A company manufacturing millions of shoes may not have that many direct employees.

In other words, Unions are representing people further and further away from the design process and, therefore, with less and less power over the brand they work for.  If an entire factory hates the conditions of their work and decides to go on strike then that factory will suffer.  A well-organised company simply moves the manufacturing order to another factory as quickly as it takes to send the design specifications by email.

The rise of just-in-time manufacturing means that companies have set up infrastructure to ensure that, if there is a problem, then they can still get the work done somewhere else with only a limited impact on their timelines.

The result, though, is that the nature of power in the workplace is changing.  Unskilled workers may be able to shut down a plant – but all they achieve is destroying their own jobs.  

Talent has always been critical to businesses.  Talent used to be essential on the factory and so, when Unions represented that talent, they had power.  Now talent is footloose and selling itself to the highest bidder.  Companies use farms of coders to do the slogging of getting basic algorithms to work around the overall design created for them by a highly talented programmer working for them only on that project.  In all patterns of work talented people are unrepresented and, frequently, not gaining as much as they should from their gifts and hard work.

The future of talent and work is already starting to take shape.  Social networking software is gradually coalescing around specific interests.  Soon talented professionals will start comparing notes about how they are treated, what payment standards should be.

And, next time, when a company tries to play one talented youngster off against another, they’ll be talking to each other and will negotiate from strength.

Pity the Unions, they represent only the past.

Cricket, corruption and the match-fixing that leads to murder

Written by Gavin Chait Two teams - one ranked fourth in the world, the other simply there to make up the numbers - compete in an early-stage world-cup match.  The unexpected happens: one of the weakest teams in the event beats a titan.

The coach, in horror, staggers back to his hotel.  He confronts the captain of his squad and a few of the other players.  He accuses them of deliberately throwing the match in order to get a cut of the bets.  Heated words fly.  In a fit of passion, the coach is strangled and left for dead.

Cricket is unusual in the world of big-league sports.  It is still essentially nationalised.  Unlike football, baseball, or rugby, players are not traded between privately-owned teams.  And, unlike cycling or golf, players don’t gain tremendously by creating individual successes for themselves.  Cricket is still, in style if not reality, an amateur construct where players work their way up through school and regional teams to their national side.  Once there they are at the apex and can go no further.

There will always be a national team, no matter how badly it performs, and they are protected from the consequences of their actions.  Coaches, frequently outsiders, are more likely to be sacrificed and fired for a team’s poor performance than are any of the players to be held to account.  Like a national airline, having a national cricket side is more important than having a good national cricket side.

Where businesses are treated in similar fashion, similar corruption, misrule and incompetence prevails.  There is one electricity provider in South Africa, the state-protected Eskom. With no real competition to focus business strategy, most daily attention is aimed at internal politics, scheming to increase profits while allowing the underlying infrastructure to rot, and blaming poor performance (like the current rolling power-outages) on mysterious third-forces.

The same is true of numerous state-monopolies; from Gazprom in Russia, to Airbus in Europe.

CEOs may come and go, but the central philosophy that causes the incompetence, inefficiency and all-round uselessness in the first place, are left firmly untouched.

Cricket lends itself to match-fixing.  It is a slow, high-scoring game.  Decisions do not need to be made on a hair’s-breath.  If one player should play unusually well, or unusually badly, the result can still be tweaked through subtle changes in field placement, slowing down, or speeding up play.

I remember watching Hansie Cronje placing his fielders in international matches and being confused at some of the obvious holes he was leaving.  When fours were duly struck through those holes I was annoyed, but it never occurred to me that he was doing it deliberately.  More fool me when Cronje was caught out in a match fixing scandal and then, conveniently, died without ever naming any high-level accomplices.

This column focuses on economic development.  Frequently we point out that, where the underlying framework of an economy is wrong, you cannot get economic growth, job creation and prosperity.  Cricket highlights the signal failures in economic policy.

Across the subcontinent, from Pakistan to India to Bangladesh to Sri Lanka, more than a billion people live and breathe this sport as their national game.  The players are heroes but without the financial glamour of footballers.  Billions of Dollars are bet on matches and bookies like to skew the odds in their favour.  Nothing can be simpler than to have a quiet chat with a few key players in a team; throw them some cash and ensure a result.

Steven Levitt, in his wry Freakonomics, convincingly demonstrated – using nothing but economics – how sumo matches are regularly rigged.  Horse-racing, where horses are more important than the faceless jockeys, is no less corrupt.

For cricket to regain a level of professionalism requires that the underlying problems be resolved.  National teams must be privatised.  Players should go where-ever they are paid the most.  Cricket should be modelled after the European football system.  

Otherwise cricket will come to look like another sport, long-since amusing and choreographed: professional wrestling.