Palladiated Huber: "Software's Cash Register", Forbes, 10/18/93
R. A. Hettinga
rah at shipwright.com
Wed Aug 7 16:12:16 PDT 2002
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...
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
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
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
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 at 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'
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