A blast from the past for you Proto-Palladium fans. I remember reading this before I discovered the One True Cypherpunk Religion the following summer and thinking, "yeah, that's cool". Unfortunately, nowdays, for all my admiration for Dr. Huber, it just makes me laugh out loud... Cheers, RAH ------- http://www.phuber.com/huber/forbes/101893.html SOFTWARE'S CASH REGISTER by Peter Huber Forbes, October 18, 1993 at Pg. 314 Copyright 1993 by Peter Huber. ------- People still boast about making money the old-fashioned way, but the new way is faster. Henry Ford, Thomas Edison and Sam Walton moved people and things: factory workers, wire cable, salesclerks, soda. That meant heavy lifting, which is slow. Nowadays you get rich quick moving bits and bytes. A lot more people are going to get rich that way in the coming years, because the software industry has finally perfected a cash register. To understand how important this is, begin with the basics. To get rich selling widgets, you must move a lot of widgets. And wherever else you may move them, you must move them past a cash register. Unfortunately, things that are easy to meter at the checkout counter -- solid things like Doritos, say -- are comparatively hard to move. The easiest thing to move is information. But until now, information has been hard to meter. The entertainment business has already shown us what kind of wealth can be created out of a commodity as fluid as air if you can somehow get people to pay for it. Think of the television set as a retail outlet, and Bill Cosby as a merchant who can peddle JELL-O to 30 million people at the same time. Sure, the people who stuff gelatin into boxes and ship them to stores may prosper, too, but on nowhere near the same scale as Cosby, who can move his goods at the speed of light. Television created only a handful of Cosbys. Personal computers will create thousands. The 60 million or so PCs placed on U.S. desktops are where the next generation of superrich are setting up their cash registers. The retail outlets themselves -- the desktop computers -- aren't necessarily a source of wealth. Remember that the founders of such hardware producers as Apple Computer, Dell Computer, Tandon Corp., Wang Laboratories and Digital Equipment Corp. all appeared among The Forbes Four Hundred in years past, only to fall by the wayside. The key conceptual leaps -- that microprocessors can power PCs, PCs sell, and they sell by mail -- have already been made. The hardware end of the computer industry now depends largely on the silicon equivalent of toting buckets, lifting bales and coordinating armies of salaried gophers who swallow up much of an entrepreneur's revenue. Software is a different story. It's where the future money is. The program creators who sell through these desktop retail outlets don't need heavy lifting and lots of capital to get their businesses off the ground -- so they don't need to give their companies away to venture capitalists to pay for the launch. Thus it is that this year's Forbes Four Hundred includes at least a dozen software vendors, including three from Microsoft (Gates, Allen, Ballmer), two each from Quark (Gill and Ebrahimi) and WordPerfect (Ashton and Bastian), and one each from Novell (Noorda), Oracle (Ellison) and BMC (Moores). Most of these weren't on the list four years ago. To make a mint on software, just think. Think alone, if you can, or at worst with a tiny team of fellow nerds. Write a program that helps other people think better -- a spreadsheet, a database, an electronic checkbook. Run off a million copies on floppy disks, at a cost of a buck or two each. Then sell them at $195 plus tax. None of this is easy, of course, but that's not the point. If you do somehow pull it off, you do it pretty much on the back of your own sweat equity. It's like one of those 1950s ads for making money at home that you used to see in Popular Mechanics: Zero investment. Infinite profit. Instantly. Just add genius. That, in any event, is how it should work. If it doesn't quite yet, the reason lies in the shortcomings of the cash register. We're still no good at metering information in its pure form, so software must be contained on something clumsy like a floppy disk, just to accommodate the bookkeepers. That means getting shelf space at Egghead Discount Software or some other retailer before you can make millions from your musical spreadsheet program. And there is only so much shelf space. Software is as light as electrons, but to make a buck you still have to put it on a truck. Microsoft persuades hardware distributors like Dell to bundle its software into the hardware. But for every Bill Gates there are 10,000 programmers, photographers and cinematographers who never get a chance to present their wares to consumers at all. Many of those wares would sell -- more than a few would sell spectacularly -- if they could be placed smack in front of potential buyers, without the trucks or the shelves. People have been trying to eliminate this physical side of the software industry for years. The disciples of "shareware" have built up a cottage industry giving programs away over electronic bulletin boards. If you like what you get for free, you're invited to contribute $10 or so for a manual and upgrades. Shareware is a wonderful little economy, but the honor system works only for things that are cheap, and it's hard to get really rich on things that are cheap. Enter Peter Sprague, chairman of National Semiconductor, where he makes not too much money the old-fashioned way, and founder of a little company called Wave Systems Corp., where he hopes to help software creators make a ton of money the new way. Wave Systems has developed an information meter. And its product, or one like it, is going to redefine the software industry. Sprague's first basic insight is that we already have in hand ways to distribute software very, very cheaply. Compact disks, for example -- the enormously capacious optical platters that are fast becoming standard features on PCs. These disks are cheap to reproduce, and a handful of them can store every floppy (and the manuals, too) that you see on the shelves of your local Egghead Discount Software store. Internet, cable television or the airwaves can also distribute almost limitless amounts of software. Delivering software from the next Ridgely Evers (developer of Quickbooks for Intuit) to where people want to use it (on their computers) is as easy now as delivering The Three Stooges across cable TV. So, reasoned Sprague, why shouldn't software developers distribute their programs by putting them out on display where the software is most likely to be bought: on the personal computer itself. Throw it onto a compact disk anthology that will go into the box with the computer, or offer it continuously over networks or the airwaves. Sprague's second insight was that no developer will use the information superhighway that already exists until there are toll gates that allow him or her to collect something for the product. Sprague has the toll gate: an electronic meter that can track who's using what program, and can bill the user for it. It's a chip that can be built for less than $30 and installed in any computer. For now, Sprague may license it to computer manufacturers, but in time, I'd guess, he'll get all his revenue from software and database vendors. They stand to benefit the most. The Wave clip's first function is to unwrap software. Example: WordPerfect is broadcast across a wireless network in encrypted form. The Wave chip decodes. The other thing Sprague's chip does is establish credit, in much the same way as a Pitney Bowes postage machine or a French pay phone card. Through your computer modem the chip can call up your credit card company, and make sure that the right people get paid whenever you decide to buy. That will typically mean a big cut for the software vendor, perhaps a smaller cut for the company that manufactured the computer, and a still smaller cut for Wave. Pricing schemes of every imaginable kind can be supported. As I discussed in a recent column (FORBES, Sept. 27), selling software efficiently requires flexible, creative price structures. Sometimes you want to offer a dozen free test drives as a come-on. Sometimes -- with a brand-name program like WordPerfect, maybe -- you then want to charge a single, one-time, all-you-can-eat price. Sometimes -- as with electronic databases, perhaps -- you want to run a by-the-drink tab, so that people get charged only for articles retrieved and read, as a jukebox charges for records played. The cash register on a chip can handle it all. Cash registers and computers have always been kindred industries. Thomas J. Watson Sr. trained as a salesman at National Cash Register before turning IBM into the greatest selling organization around. Recently, AT&T paid a lot of money for NCR in order to expand its computer business. Now the PC is turning into a cash register once again, and it promises to boost many a software creator up the wealth ladder. -- ----------------- R. A. Hettinga <mailto: rah@ibuc.com> The Internet Bearer Underwriting Corporation <http://www.ibuc.com/> 44 Farquhar Street, Boston, MA 02131 USA "... however it may deserve respect for its usefulness and antiquity, [predicting the end of the world] has not been found agreeable to experience." -- Edward Gibbon, 'Decline and Fall of the Roman Empire'