The Business of Software

The basic economic resource—"the means of production," to use the economist’s term—is no longer capital, nor natural resources (the economist’s "land"), nor "labor."
It is and will be knowledge.
—Peter F. Drucker, in Post-Capitalist Society

Peter Drucker, who writes more influential books than is good for any one person, pointed out in Post Capitalist Society that the age of capital is over. It seems money just doesn’t do it any more. Cash no longer makes one powerful. Capitalization is no longer the key factor; neither is oil, uranium, food, or any other hard resource. We are now in the age of knowledge. Knowledge is what counts. But where do we deposit this asset? There are only five places in which we can store knowledge. They are, in historical order: DNA, brains, hardware, books, and most recently, software.

Drucker asserts that the asset of the future is knowledge. What then, is the currency of this asset? In the golden olden days of capitalism just past, money was the generally accepted currency. A currency exists to allow assets to be (a) used outside of their immediate domain and (b) exchanged for other assets, in which actions are very closely related. If I am a farmer with a field of corn, I have a valuable asset in the domain of food. If I wish to build a barn, I can’t use corn assets. To build a barn using corn assets, I have to convert them into barn assets: wood, nails, barn-building skills, and so forth. Long ago, I might barter my corn for the barn. More recently, I would sell the corn for currency and use the currency to buy the barn assets.

Why is software a knowledge medium? Of the five media in which we can store knowledge, software has the most valuable set of characteristics: it has broken free of the confinement of brains, it avoids the passivity of books, is more intentional than knowledge in DNA, and is much more flexible than knowledge in hardware. Most of all, in software, knowledge has been made active.

If we managed finances in companies the way we manage software, someone would go to prison.

Knowledge in software not only is, it does. The knowledge has been made usable outside of its domain. An accountant with knowledge of tax accounting has several choices. Assuming that applying recombinant DNA techniques would not work on tax accountants and that we cannot build a mechanical tax machine, the accountant has three places in which this knowledge may be stored. The accountant could leave the knowledge in his or her brain, could write a book on tax accounting, or could develop tax-accounting software. To those people who don’t have tax-accounting knowledge, the software version is arguably the most valuable—the user can now do what the accountant does without knowing what the accountant knows. Powerful stuff.

Since the purpose of a currency is to allow an asset to be used outside of its domain, the asset of the future is knowledge, and the purpose of software is to allow knowledge to be used outside of its domain, making software the currency of the future.

This means technology and society will have to find answers to some of the problems we’ve tackled for cash. Software bloat and software-functional duplication, both of which are software’s equivalent of inflation, will need to be managed. Our humble software configuration management (SCM) systems, currently at the stage of the Medici banks in 15th century Florence, will need a complete rethinking for ensuring integrity of their contents is preserving the asset value. And speaking of SCM, what company would consider starting up without an accounting system? Few if any. But how many corporations allow SCM to be an afterthought? Truly, if we managed finances in companies the way we manage software, someone would go to prison.

But if software will be the "finance" of the future—are we ready? Our APIs and interoperability standards are like exchange rates, allowing one knowledge asset to be translated into another. And we see much fighting over who owns these "gold standards." Speaking of gold, how will we protect the high-value currency elements, like a program that instructs a universal milling machine to carve an atom bomb core? Already, piracy (equivalent to counterfeiting) is a major problem for software, but what about open source? Do we have people minting and distributing their own money like in Frank O’Rouke’s science fiction classic Instant Gold? We already see cycles of growth and recession in software development.

When software is the accepted and dominant currency, how will we cope? The "fear, uncertainty, doubt" strategy employed by some vendors is highly speculative, and we see software patents being used to "corner the market," but where is the software SEC? We already see predatory software behavior appearing, and not just in viruses. Stock trading programs are the rock-em-sock-em robots of Wall Street. Are these the software J.P. Morgans and corporate raiders?

Finally, where will we keep the knowledge of how to manage this brave future? Where will the knowledge of how to manage this knowledge asset lie? In software, of course, where else? But who will own that?

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