Why Microsoft is a Dinosaur

Tony Stanco¹

Apr 24, 2022

With the arrival of the Internet in the 1990s, the world has entered the Intellectual Age. The Intellectual Age will be substantially different from the Industrial Age, because many of the old assumptions will no longer apply. For the software industry, the biggest change will be that traditional corporations will no longer control software development.

Microsoft is the current undisputed fierce reigning king of the dinosaur world, and it makes the most noise as it throws its considerable weight around to the horror of all the rest. It is without question the Tyrannosaurus Rex of corporate software development.

But that streaking light in the sky during the mid nineteen-nineties, which caused everyone to look up in stunned amazement, has not yet had its full impact. When it does, the world will be a very different place, littered with dead and dying corporate software dinosaurs.

Corporate DNA was best suited to the Industrial Age

Most people find it surprising to learn that the corporate form was invented. But it was. It was created by legislative action to solve a particular problem that became apparent at the beginning of the Industrial Age. The problem was how to finance huge capital projects that were then becoming increasingly common.

Prior to the development of the corporate form, families, or groups of families financed most commercial enterprises. With the arrival of the Industrial Age, however, the financial ability to provide the required capital assets (such as, for things like railway companies) was beyond the means of even the wealthiest families. The solution to this problem was not difficult to see, and it was not long before people began to bring in more investors to the enterprise, each individually shouldering a smaller and more manageable burden.

While this first level thinking solved one problem, it originally created another, because everyone who invested early in the era was personally liable for the whole company, even though the managing group made all the decisions alone. To solve this second level problem, the concept of limited liability was created. This concept changed the prevailing law, and permitted outside investors to be liable only to the extent of their initial investment. With this novel legal change, the basic structure of the corporate form was born, and has been extremely successful ever since.

What is important to remember about the corporate form, however, is that it was invented for a very specific purpose - the financing of the huge capital projects that defined the Industrial Age.

Intellectual Age doesn't have huge capital requirements

Unlike the Industrial Age, the Intellectual Age is not marked by huge capital projects. Instead, the Intellectual Age is characterized by the use of a person's intellect. It is essentially about brain power. As such, the Intellectual Age promises to be an incredible period, based fundamentally on the inalienable rights of people, rather than revolving around inanimate property rights, because people power will be the central economic focus of the new age.

As a quick check to realize that the Intellectual Age is quite different from the Industrial Age, ask yourself when was the last time that Boeing, for example, had to worry that a fully functional, competitive airplane would appear out of nowhere from a rebel band of workers without any capital? Now, ask yourself the same question but replace Boeing with Microsoft and airplane with operating system.

GNU/Linux and the international free software community are solid proof that the old industrial rules no longer apply. They reveal that a decentralized team of developers from around the world working over the Internet and without access to a corporation's capital resources can perform at a higher level of proficiency than the corporate software leader with 25 billion dollars in the bank.

New Commercial Form is needed

It is not really surprising to witness the huge success of free software development, because the activities of the Intellectual Age are fundamentally different from the old Industrial Age. So, there is no rational reason to believe that the specifically tailored organizational form of that time was ever really required for this one. In fact, the corporate form has already shown itself to be quite harmful to the Intellectual Age, because it creates malformations in efficiency.

These inefficient malformations are familiar topics to everyone in the free software community, and revolve around the question of "intellectual property."

What is `property'?

In the Industrial Age, property rights were a necessary requirement, for they were the foundation of the financing function of the corporate form. It is not very surprising that entities born in the Industrial Age see everything as property by analogy, even when the thing in question does not really have the true characteristics of property.

The defining characteristics of physical property are scarcity and exclusion. As such, the use of a particular piece of property by one person excludes the use of that property by another. In a world of scarcity, efficiency requires that the person with the highest and best use for the property should be given the exclusive use of it. Such social ordering is a very rational way to maximize output in a world constrained by physical scarcity. In fact, organizing the physical world in that manner has been so wildly successful that it has provided all of the physical infrastructure and material wealth of the last 300 years. It has, therefore, created the foundation to support the Intellectual Age that we are now entering, and so, it clearly had its proper place in history.

But for all its past success, it is still logically flawed to extend the principles that work for physical things to intellectual ones. This is because the distinguishing characteristics of physical things (scarcity and exclusion) are not present in intellectual ones, and, therefore, the underlying rationale that support the old industrial principles are no longer present.

The true nature of Intellectual Products

Intellectual products by nature are different, because they are inclusionary, not exclusionary - everyone can use them at the same time. One person possessing knowledge does not preclude another from having and using that same knowledge. In fact, efficiency in intellectual pursuits is maximized by inclusion, because the interaction of human minds (now greatly facilitated by the Internet) yields more and better intellectual products. This is why, in the scientific community, they publish their work and subject it to peer review. This sharing of ideas refines intellectual products and creates the additional efficiencies.

So, this essential communitarian characteristic of intellectual products is diametrically opposite to the fundamental characteristics of physical products. While sharing creates efficiencies in intellectual pursuits, sharing of physical property creates the "tragedy of the commons" and the non-best use inefficiencies observed in the communists countries in the last century. Therefore, physical products and intellectual ones should be treated very differently, because of these differences in their essential nature.

So how did we end up here?

So how is it then that if software is more efficiently developed through the inclusionary paradigm that the exclusionary paradigm of physical property has taken hold? The reason is that the legal, business and investment infrastructures supported the exclusionary, intellectual-products-as-property paradigm that they were all familiar with. The world arrived at this place fundamentally because of intellectual inertia on the part of people in power when they didn't realize that the true path had taken a sharp turn.

Lawyers, politicians, investors and corporations convinced themselves and others that if code is shared, then no one would be able to make any money from it (e.g., the infamous Bill Gates' Open Letter to Hobbyists). As such, they supported and promoted the idea that software is like any traditional physical product and, therefore, should be organized, owned and sold as such.

To get the acquiescence of the developer community, whose support they ultimately needed because developers actually do all the coding, they proposed a Faustian bargain: "join us, keep the code you develop secret from your colleagues, and we will pay you."

This is the exact bargain that Richard Stallman opposed in the early 1980's, when he refused, and instead began the counter-revolution with the GNU project and the GPL.

It was this basic corporate-developer bargain, which most developers accepted, that sowed the seeds for the division, subjugation and inefficiency of the software industry ever since. Since software corporations could not have enslaved the developer community without developer obedience, if developers had stood together and resisted more resolutely at the time, the fruits of developers' minds would not be, in essence, corporate property, now.

Once the legal, business and investment infrastructures began to support this false software development paradigm, it would be a long time before they were forced to confront the fundamental inconsistencies, and ultimate inefficiencies, of the proprietary paradigm again.

As fate would have it, the Internet, GNU/Linux and the Microsoft antitrust trial would all converge at the same time to spotlight both the problems of the proprietary model and the solutions available from free software. The antitrust trial revealed how innovation suffered when one corporation accumulated too much power from the exclusive ownership of key portions of secret code. And the sudden and unexpected success of GNU/Linux showed how effective and efficient free software development is, even without money or corporate sponsorship. It thereby raised the obvious question, "If free software could do all that without money, what is it capable of when it is generally supported and paid for?"

New paradigm seeks to break free

So the world is once more confronted with the question that it could have and should have resolved 25 years ago before Bill Gates sent it off in the wrong direction with his Open Letter to Hobbyists. The question again is, "How do you pay developers to develop free software given its superior development methodology?"

The solution, obviously, has to be consistent with the principles of the Intellectual Age and to support the general inclusionary paradigm implicit in all intellectual pursuits. As such, it cannot include the traditional corporate structure, which relies too heavily on traditional notions of property. Just as the corporate form solved the pressing problems of its day, a new commercial form, therefore, is required to provide the new organizational infrastructure for our new age.

FreeDevelopers created the `Community is the Company' (CommCo) structure as a democratic, international, community-wide solution. It is fundamentally constructed to be consistent with the inclusionary paradigm of the Intellectual Age. Is this the complete answer? Probably not, but it is at least a beginning. With the world again looking for a proper solution, it will eventually find it. And when it does, Microsoft and all the rest of the corporate proprietary software dinosaurs will be mentioned only in history books as a folly at the end of the 20th century that slowed down the world's technological progress for 25 years.

For information on why software also needs a new commercial organization for reasons of morality and justice, see the Declaration of Software Freedom and the Explanation of Why FreeDevelopers Used the Declaration of Independence as a Model: Is Software Law or Literature?.

Tony Stanco is a former securities attorney from the Securities and Exchange Commission, Internet and software group. He left the Commission to found FreeDevelopers.Net, because proprietary software must be defeated before it puts all of us in cyberchains. FreeDevelopers.Net is an international, professional organization of GPL software developers.
All software developers are invited to join FreeDevelopers.Net.

COPYRIGHT (©) 2001 Tony Stanco
Verbatim copying and distribution of this entire article are permitted in any medium without royalty provided this copyright notice is preserved.

Footnotes

... Stanco¹

Tony Stanco is a Senior Policy Analyst at the Cyberspace Policy Institute at the School of Engineering and Applied Sciences at George Washington University. He was previously a securities attorney at the Securities and Exchange Commission, Internet and software group. He has an LL.M. from Georgetown University Law Center.