After a long hiatus, and after many requests, we are re-launching the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW newsletter. This newsletter, published by Hellerstein & Associates, www.jhellerstein.com will cover significant industry, marketing, and regulatory developments in the telecommunications and technology industries. Hellerstein & Associates, www.jhellerstein.com is a telecommunications and technology research group which provides its clients with a competitive edge through market research, competitive intelligence, and regulatory analysis of broadband access, competition policy, and wireless issues.

Subscriptions are free so if you know anyone who would like a subscription, forward this newsletter and encourage them to sign up via the online subscription form on the Hellerstein & Associates website, www.jhellerstein.com. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com.

This issue will focus on a recent lecture at the Carnegie Endowment for International Peace by Steve Weber, a Professor of Political Science at both the University of California at Berkeley and at the Berkeley Roundtable on International Economy (BRIE). Steve Weber gave an insightful lecture on open source software and its impact on global economy and e-commerce. Steve Weber opined that open source software would shortly become a transformative tool sweeping across and revolutionizing economic activity across a wide range of sectors in the global economy. In fact, he envisions that open source software will lead to changes in how governments regulate economic activity and how property rights and control are implemented. Weber believes that the impact of the open source process will be an extremely significant factor in the international economy in the coming years.

Software by itself is just a tool for manipulating information. Thus, if this tools is essentially free to anyone to use and to freely modify in any manner they see fit, lots of people will experiment with it. Today the largest numbers of open source programmers live outside the US, with a large number living in Germany. Developers in China, Indonesia, and other developing countries are active contributors to open source software. Moreover, the degree to which they can modify or fix this tool by themselves is only limited by their own intelligence, and not by property rights, prices, or an outside structure imposed on them. Weber believes that the process that allows for the creation of open source software can help countries not only erase the digital divide but also lay the foundations for a better economic and legal infrastructure. He believes that the process behind open source can and will be an extremely useful instrument of development for developing countries, because it illustrates how people can combine community into e-commerce leading directly to higher GDP. Hellerstein & Associates echoes Weber’s opinion. In the US, in the early days of the Internet, we have witnessed the success of community in igniting e-commerce.

Open source refers to a method of software development in which a program’s basic instructions—its source code— is freely available to anyone who wants to improve it. The result not only is better software, but software that is developed faster. The three essential features of open source are that it allows free re-distribution of the software without royalties or licensing fees to the authors; it provides for the source code to be distributed with the software or made available in another fashion; lastly, it allows anyone to modify the software or derive other software from it, and redistribute the modified software under the same licensing terms as the original software. Licenses that are used for open source software are designed to prevent cooperatively developed software from being turned into proprietary software. All contributors to open source software are listed in the credits file and it is this credits file that must be passed on unchanged with the software.

Steve Weber opened his talk by debunking, what he called, the myths and lies being spread by Microsoft about open source. Microsoft, he stated, believes that open source, since it does not require users to pay for new software, stifles innovation and undermines intellectual property rights. Weber stated that in fact the exact opposite was true and used different historical precedents to debunk this misbelief. Moreover, Weber, claimed that, in actuality, open source advocates and programmers are actually fierce defenders of intellectual property, rather than being hostile to it.

Weber believes that it is the use of the word free software has confused people into thinking that open source programmers are hostile to intellectual property rights. This is one of the reasons why the promoters of open source have switched from using the word "free" to using the term "open source". What the original creators of open source meant by the term free was freedom to do whatever they wanted with the software, not that the software had to be given away for nothing.

Weber claimed that Microsoft was using this misunderstanding about the word "free" to create what he called the FUD factor (Fear, Uncertainty, and Deception) among all users hoping to stifle the growth of open source software. Microsoft is on the defensive because their share of the top server software has been falling dramatically over the past five years. According to Weber, as of August 2000, less than 20% of all servers use Microsoft’s server software, while Apache, an open source web server software, is used in over 60% of all web server computers. IBM, whose proprietary software had been used in over 35% of all web servers, switched in late 1999 to open source software because of the inherent advantages of open source software. Furthermore, Linux, an open source operating system, is now the fastest growing operating system for network server computers and has become deeply entrenched into corporate information technology (IT) departments. In 2001 IBM plans to spend $1 billion to help make Linux a standard.

Open source software has a long history going all the way back to the early 1960s. In those times, software was seen not as a revenue generator, but as a hook to get people to buy more computer hardware. Thus, companies encouraged people to freely give ideas back to the software owner, in the form of revised code, which would then be incorporated into future versions of the software. It was only when companies were forced to unbundle the software from the hardware because of antitrust issues that software became viewed as a stand alone product, leading to the creation of proprietary software.

Steve Weber then posed three questions which he stated were at the heart of what makes open source software succeed where others have failed: motivation of individuals, coordination, and complexity. He then discussed why he believes the open source movement has been able to attract highly talented programmers to voluntarily allocate a substantial portion of their time and brain power to a project where they will receive no monetary compensation. He also explored what he thinks motivates programmers to work on this project?

On the coordination issue, he explored how these individual programmers coordinate their contributions, without diverting their efforts and splintering the process. Open source also allows for the dispersion of human talent by allowing programmers to pick and choose the parts of a program they want to work on. Thus programmers only work on areas they are most interested in. A direct result of this action is a substantial reduction in coordination issues. However, just because programmers can pick and choose what they want to work on does not mean there is no hierarchy, it is just a different hierarchy than what people are used to. For example, Apache is run by a committee who set a certain level of rules that must be followed. Moreover, the committee has the ability to sanction and penalize programmers who break these rules.

Another issue of great importance to the coordination success of open source is how open source programmers have managed to solve the problems of complexity and dodged the outcomes predicted by Brooks law. Brooks law states that as you raise the number of programmers on a project, the work performed by these programmers scales linearly, but the efforts needed to manage these extra programmers scales geometrically. Thus the more people you add to a project that is behind schedule, the later the project will fall behind schedule.

Open source has also managed to overcome the economic problem of free riders by turning these people into contributing members of the team. The more the software is downloaded, the more users are available for testing of the software and for elimination of bugs. As a result of these large numbers of beta testers, open source projects typically have a feedback and update cycle that is many times faster than commercial projects. For example, currently there are over 90,000 registered Linux users, with a large number of these having submitted minor applications or fixed bugs. These users are in addition to the over 300 central developers of Linux who have made substantial contributions to the software. Weber believes that in many ways, Open source software is inherently more secure than other software since the more people who try to do different things with the software, the more bugs or security lapses will appear. A security breach or bug must first appear before it can be fixed, with over 3,000 programmers and these problems are solved quicker than they could be in any proprietary software.

The phenomenal growth of the Internet has allowed thousands of people to collaborate since it pro-actively wiped away networking incompatibilities and geographic restrictions. The widespread diffusion of the Internet has resulted in lower transaction costs since now anyone with an IP connection can instantaneously access a variety of tools needed to participate in creating programming for open source software. Moreover, the Internet scales in a way that physical space does not allow for. On email, thousands of people can communicate just as easily as ten people.

Weber stated that the key to open source’s success is to think about it as a production process, with the software produced just an added benefit. It is the process of how open source software is written, not the product, that has changed the industry and continues to lead to significant changes in the Internet economy.

If this is the case, than the remaining question is how can society extend this process to other areas of the economy? What boundaries exist? Steve Weber believes that the key concepts—user-driven innovation, taking place in a parallel distributed cooperative setting—are generic enough to suggest that this process can flourish in other places, and not just in software. We find this an intriguing notion and something worth exploring because of the enormous benefits it can bring.

Hellerstein & Associates joins with Steve Weber in seeking a way to extend the process that allows for the creation of open source software to other areas of the economy. We believe that this process could go a long way to solving the problems of the digital divide as well as helping to lay the foundations for a better economic and legal infrastructure in developing countries.

Currently, leaders from eight industrialized nations, known as the G-8, are reviewing the recommendations from the Digital Opportunity Task Force (DOT Force) which just published the results of their yearlong study on ways of closing the digital divide. The DOT Force was created by the G-8 to come up with solutions to eliminate the digital divide between the wealthy and developing nations. Over a third of the world's population has never made a phone call, or even seen a computer. Moreover, few developing nations have the infrastructure or government market liberalization policies needed to entice private investors. According to the study, a 1% growth in the number of phone lines per capita leads to a 3% increase in a country's GDP. Thus increasing a country's teledensity percentages has a significant impact on a nation's economy.

Hellerstein & Associates has long held the view that relying on one technology to meet a country’s access needs is a bad policy. Instead nations should examine the cost-effectiveness of multiple technologies, satellite, cable, wireline and wireless, and use a mixture of all these technologies. It is good to see that the DOT Force is now advocating this viewpoint.

Hellerstein & Associates is a strong believer in IT’s ability to transform processes and institutions, creating opportunities and linkages that were not possible or even imaginable a decade ago, such as in basic education, in enterprises of all sizes, in participation in government, in disease prevention and control, and in disaster assistance. Countries that harness IT can look forward to expanded economic growth, improved human welfare, and stronger democratic governance. It is in this type of situation where the same process used in creating open source software could dramatically speed up the time for evaluating and implementing an appropriate technology to meet a country’s access needs. Over the next two months, these G8 countries will be making decisions about which of the report’s recommendations to support. In the US, the Agency for International Development has issued a Request for Application to increase digital opportunity for developing nations. Hellerstein and Associates plans to bid on this contract and is seeking to partner with other similarly like-minded organizations.

Hellerstein & Associates is interested in learning what its readers think of these issues. Please send all comments directly to Judith Hellerstein at Judith@jhellerstein.com. If you would like more information on this topic please e-mail Judith Hellerstein at Judith@jhellerstein.com.

______________________________________________________________________________________________________________

To subscribe to, or unsubscribe from, the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW, please e-mail Judith Hellerstein at Judith@jhellerstein.com or sign up via the Hellerstein & Associates website's newsletter subscription form at www.jhellerstein.com. For past editions of the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW please visit the Hellerstein & Associates website at www.jhellerstein.com.

Hellerstein & Associates is a telecommunications and technology research group that provides its clients with a competitive edge through market research, competitive intelligence, and regulatory analysis on broadband access, competition policy, and wireless issues. We look forward to hearing from you and will strive to meet all topic requests. Redistribution of this newsletter is encouraged provided it includes this paragraph.

Topics covered in the HELLERSTEIN TELECOM & TECHNOLOGY REVIEW were chosen because of their interest to the work of Hellerstein & Associates. Please send all comments or suggestions to Judith Hellerstein at Judith@jhellerstein.com .