Hark Episode 2, “The Software Paradox”: Guest, Kent Beck

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As newsletter subscribers are aware, Episode 2 of my new podcast Hark, “The Software Paradox,” dropped last week. In this month’s episode, Kent Beck – yes, that Kent Beck – dropped by to discuss The Software Paradox. What does someone responsible for some very popular software think about the thesis that software’s up front commercial value is headed in the opposite direction from its strategic importance? What were his experiences trying to monetize data telemetry with JUnit Max? We covered that and more – I can’t speak for Kent, but from my end it was a really conversation.

For those of you who don’t do podcasts, however, we offer a transcription of the episode below. Enjoy.

Steve: A little while back I wrote a book called The Software Paradox. Because the book claims, among other things, that software markets that were performing well at the time would be performing less and less well overtime, some people were unsurprisingly less than thrilled, which is fine of course, you’re not going to win too many popularity contests as an analyst. It’s certainly not why you get into this business. What I was always curious about however was what authors of popular software thought about the idea, the core idea that software would be less valuable over time, at least from the commercial standpoint. I talked to a great many developers over the course of writing the book and certainly over the course of our day to day jobs, but still, there was always that curiosity, there was always that question as to what they thought around the idea. Could they challenge the perspective or even refute the base thesis of The Software Paradox?

Enter Kent Beck. Many of you may know Kent for JUnit, maybe you know him for Extreme Programming, or maybe as a signer of the Agile Manifesto most recently from his time at Facebook. However you know him, however, it is very likely that you do know him because Kent has had a very successful career as a software developer. He was kind enough to join the show for discussion around his thoughts and feelings on The Software Paradox both as a software developer and the author of some very, very popular software projects. Welcome to part episode two, The Software Paradox. So excellent. Welcome to the show, Kent. I wanted to start with a quick background. So as we’d like to do when we open the show, can you tell me who you are and what you do?

Kent: My name is Kent Beck. I am currently employed as a technical coach at Facebook. I run a variety of education programs for younger engineers and at this point, they’re almost all younger engineers. Before that, I was a independent consultant, probably best known for Extreme Programming, test-driven development, the use of patterns in software development, the JUnit, the family of testing frameworks that was something that I developed with Erich Gamma, and am I leaving anything out, Steve?

Steve: That’s the background as I know it, I’m sure. I’m sure as it is true with all of us, I’m sure there are things that are going to fall by the wayside but no, I think that sums it up pretty well.

Kent: Okay.

Steve: So to get the conversational ball rolling so to speak, this little podcast started out of sort of an interchange where you were kind enough to point people at a book I wrote called The Software Paradox, and just for the background of people who are unfamiliar with that concept, this is how I would sum it up and we’ll see if you agree or disagree, Kent. So Software Paradox from my perspective is essentially the idea that the value of traditional on premise, it was sort of paid upfront commercial software is in decline, and is in decline broadly, across a wide sector of categories, consumer to enterprise. But this is occurring even as a strategic importance of software is actually going up by the day. Is that your understanding? Does that definition work for you?

Kent: So I probably would use slightly different words. The value is increasing, the value of the software is increasing, but the revenue pool available for people who create that software is shrinking.

Steve: Yeah, I’d say that’s fair. So what is it about that idea that resonated with you? In other words, you had a response and you were, as I said, good enough to point people over to it. So what was it about that idea that sort of piqued your interest?

Kent: Well it’s just so backwards. In any other case, it defies experience. So if something becomes more valuable, its price goes up. It sends a signal out. Yeah, I’m not an economist, but I’m a, what would you call me?

Steve: You know enough to be dangerous.

Kent: I do know enough to be dangerous. Thank you. Yes, yes, that’s good enough. So prices rise to send out signals to make more of this stuff that’s valuable. Except in software world, sometimes more of it makes it less valuable like when you got too many integrated development environments out there. You like to have the cliché more wood bind, fewer arrows [SP], except then every once in a while everything turns topsy turvy and you get these old incumbents that have slowed down and then you want Kuhn’s Extraordinary Science, you want fulfillment [SP] and lots of little things growing up. But in general, the way the market works is if something’s valuable, it raises prices so that there’s more of it. And here’s the case where that’s just the opposite. So if you can’t point to examples, I don’t know if you have other examples in world history where this kind of inversion took place, I guess that’s my first question.

Steve: That’s a great question actually. I don’t know, I’m trying to think if I came across any sort of in the background because it’s one of those things people always ask us how do things like The Software Paradox or before that, things like The New Kingmakers come up. And really they’re born out of conversations that we have, lots of them, right? So we obviously as sort of just by function of being an analyst, you have a lot of conversations with a lot of different people and you begin to see patterns, and then you begin to see sort of trends over time, and The Software Paradox was essentially that’s exactly what happened. I kept talking to businesses that were struggling to monetize and this is true again across a variety of sectors in my experience. And yet at the same time, you have essays like Mark Andreessen’s Software’s Eating the World, which is largely true I think at least from my perspective, that suggest that a lot of companies even in traditional industries are going to be increasingly defined by software, which means the software’s playing sort of this more important role. But it’s a great question, I don’t know that there’s another historical example that I can point to.

Kent: Okay, I assume this is a thinking on our feet kind of conversation?

Steve: Oh, very much so.

Kent: Okay. So what came to my mind was the Model T, which as it became more valuable because there were more roads and more gas stations, having a car became more valuable but the price dropped. But at the same time, I think the revenue pool didn’t shrink. I think the revenue pool expanded dramatically.

Steve: Yeah, I think there’s a lot of examples of products that would basically make a transition from what I would call sort of a margin opportunity to a volume opportunity, right? That’s something that we see sort of over and over and over again. I think there’s a couple things that are different I think in this case and that you pointed out one of them, right, which is that I think that the total revenue pool is in many cases actually shrinking. There’s fundamentally less dollars to go around, which is again a change because in the case of the Model T or any other number of examples we could point to from history, the actual size of those industries grew dramatically as they transition from margin to volume. The other interesting twist that software adds at least in my view, is that it takes the floor out, right? So in other words, when you produce something like a Model T, there’s a certain cost of goods, certain cost of manufacturing that goes into that. So in other words, whatever that cost of the materials is to put it together and whatever the cost of labor is, there’s a reasonable floor, right, that goes into putting that together, which is not to say that software is sort of inherently without some of those costs, but obviously the cost of distribution is effectively zero. The cost of replication is zero.

So in many cases, it takes out sort of the bottom of that market. So for the cost of a physical good, it may go down to a near [SP] cost. In many cases, what we see in software is that it doesn’t go down to near cost, it goes down to zero. And that’s a big change, and that’s a big issue for many that the vendors from a software standpoint to grapple with because it’s one thing if you sell near cost, if you have to sell for zero dollars, what is your business? What is your market?

Kent: Right. And there’s this argument about well, the price drops to the cost of replication, which is essentially zero. But there’s also the amortized cost of development that needs to go in there. And so if I’m a…here I am a 55 year old man, if I think, “Oh, let me start this new open-source project,” how is that ever going to contribute to my retirement? Because if I took say 6 months out of my life, which I did about 10 years ago now. I built a JUnit add on called the JUnit Max, and I couldn’t figure out how to turn it into a business. Now partly that’s because I’m a lousy businessperson. I’ve read too many books and I have too little talent or something like that.

Steve: Yeah, I know the feeling.

Kent: But it’s also because like, how am I going to get paid for that six months? And eventually I just decided there’s not a way to get paid for that time, so that leads me to not build tools that might be really useful. That’s another part of the paradox is that the signals the market sends by dropping the revenue available for software, it sends this signal that this stuff shouldn’t be created. And then we don’t create it and then the value available to everybody drops, and yet somehow it doesn’t go, it doesn’t go to zero. Facebook, for example, spends a lot of investment dollars on open-source software for which we receive zero revenue, but we got React and React Native and all the changes we made to MM [SP] Cash and there’s just a huge laundry list of things which makes sense for Facebook to invest in, but where does the…I don’t see where the engine is that starts the next thing.

Steve: Yeah, and I think that’s sort of an interesting segue to one of the questions that I wanted to sort of get at on this which is, do the underlying economics, and I’m a big believer that economics are one of the most powerful if not the most powerful change agents, do the economics here not necessarily stop the flow of open-source software or other software in general, but does it change the nature of the creation? And to get to that point is kind of…your example I think is perfect, right? Because on an individual level, it’s very difficult for a lot of developers, I think, to justify the effort, the resources that go into producing a given piece of software if there’s not a clear financial return for them. Now in many cases, we can all think of exceptions I’m sure, where it’s, “I’m going to create this project because I want to get hired by this other company. I’m going to create this project because it solves the problem that I have,” or what have you, but one of the key used cases of course historically has been, “I’m going to create a piece of software because I want to make a living and I want to make money off that.” And The Software Paradox would suggest that on an individual level, that’s sort of difficult to maintain. And yet, as you know, we have large entities, Facebook certainly is one of them, Google is another, Apple surprisingly is now one with Swift, and so on.

We have all these large entities that are now producing software and they are essentially releasing it for free, which again, from an economic perspective, suggest that they’ve looked at it and essentially determined that they have a higher return from releasing it than they would from selling it, which makes sense because none of those companies are in the business of selling infrastructure software at least. So I guess from my perspective, I guess the question I’m curious about from your end, having been an individual software developer and working for Facebook now, do you expect or anticipate a shift in terms of where the software’s coming from and who it’s produced by?

Kent: My next question is for whom does it make sense? It doesn’t have to make economic sense, but it has to not be fatal. I had kids in college and a mortgage to pay and I had to get a payoff some place. So for whom does it make sense to get software project started? Well, I think young people with low net and kind of nothing to lose and nobody relying on them. For them it makes sense to start that snowball rolling downhill. Most of the snowballs are going to go two feet and then stop, but every once in a while, one of them is going to start an avalanche.

My metaphors are getting a little mixed up here, but so I think you’re going to…what I would predict from my understanding of the model is that the innovation you’re going to see, the beginnings of innovation is going to come from people with nothing to lose and lots to gain. The refinement of those innovations into something enterprisey, something that a company like Facebook can deploy on a 100,000 servers, that refinement is going to come from those bigger companies because there’s no way that Jane grad student is…knows how to prioritize some piece of infrastructure at Facebook’s scale. So Facebook’s happy to pay for it, but it isn’t going to be money that triggers the beginnings of all these new piece of infrastructure. Who I feel sorry for in this whole thing is a company that wants to sell infrastructure. You’re just getting squeezed hard.

Steve: Yeah, it’s hard because it’s…we work with a lot of software companies and we work with software companies that are huge, we work with software companies that are just a couple of people. And again, that was a large part of the impetus for creating the book in the first place was that in many cases, they are getting squeezed. They’re getting squeezed at the bottom by open-source software. So for many of the commercial products, there are free as in beer alternatives that are…will do the job credibly, and exist, at the very least, sort of a downward price pressure. And in many cases, you’re getting squeezed at the top end by businesses that have things that still matter in today’s economy, things like account control or they have the sort of you’re the CIO and so on. And it’s a difficult position to be in, there’s no doubt. And a lot of them frankly… so we have as an example, I think I mentioned this in the book, I can’t remember. One of the businesses that we’ve spoken with basically looked at this and said, “We don’t necessarily agree across the board with the idea of The Software Paradox.” And I discussed some exceptions with them, but essentially they looked at it and said, “For our business specifically, we see our long term revenue from an upfront licensing standpoint going to zero then we plan for that.” And that’s a conversation that you don’t have four or five years ago, right?

Kent: Right.

Steve: That’s a conversation that is something that’s new and it’s a conversation that frankly, again, is surprising because you go to industry conferences today that have nothing to do with technology and they’re all talking about technology because technology in so many industries is now the differentiator. So the fact that the strategic values headed straight up in the sort of realizable commercial return is in many cases cratering, it’s a hard thing for a lot of companies to deal with.

Kent: So I’m a musician too and a writer so I’m interested in the evolution of those markets. The situation is…the analogy is not perfect because if you’ve got lots of bands putting out music for free, it’s not like that the value of that music…I’ve only got so many hours and I’ve only got two years. The value of that music isn’t skyrocketing. The economic leverage, you can’t take that music and turn it into a ten billion dollar company instead of a one billion dollar company the way that you can with software. So I’ve been scowering those markets for quite a while and it didn’t occur to me that just now that the analogy’s not perfect. So even if I figured out how to make money as a musician or I figured out how to make money as a writer, it wouldn’t necessarily inform the software situation.

Steve: Well, yeah. I think that there are definitely parallels though, right, because I think one of the things that you see in a lot of markets is that the experience as a whole is subsidized by some portion of it. So what do I mean by that? In other words, if you can sell at a software business, if you can sell one product for a tremendously outsized return, right? So for example, prior to the introduction of open-source databases or open-source application servers, where businesses felt they had no other choice, businesses would spend lots and lots and lots of money on sort of enterprise class application servers or databases or what have you. And those returns and those outsized margins can fuel investments and other products, right? They can fuel essentially experimentation.

They basically can subsidize a lot of other areas of the business. And clearly, I think, from a writing standpoint, you see that at least in journalism, right, where that whole business was for years and years and years subsidized by classified ads, sort of if nothing else, and in many cases, a sale of print editions and so on, and as both of those have fallen off, journalism and writers in general are left searching for, “All right, what’s the economic model here?” And again, I would say the same thing is I think is true to some degree of music where if you go back, certainly when I was growing up, you didn’t have downloadable singles for 99 cents or 79 cents or 89 cents or whatever they might be, you have to go out and buy a record for 16 or 17 bucks. And that’s again, subsidizes a lot of other investments and a lot of other economic opportunities for artists theoretically. A lot of that money obviously went into the hands of the recording business owners, but in other words, everything disintegrates. I said this before, everything disintegrates in subsidy for something else. And the challenge in a lot of today’s markets is that the original subsidy is gone and we need to find a new one. And I think in the case of software, I have ideas certainly in terms of what those are. Data is one of them, services is another, but I think that a lot of those original subsidies, “Hey, I’m going to charge some outlandish fee over and over and over again, and have 90%, 100%, 110% margins.” Those days, they’re not gone, they’re certainly businesses that are still realizing those kinds of returns, but they’re increasingly few and far between. Yeah.

Kent: Yeah, it’s such a puzzle. I think that’s the thing. When I get into a puzzling situation, first I look for analogies and I don’t have an analogy. And then I look for principles, like economic principles in this case. And I can’t even find economic principles where this makes sense.

Steve: Well, and it’s a difficult thing to me. You see this all the time with software, right? Software is just a fundamentally different animal and it’s really difficult for people to grasp that and not to go down a whole rat hole, but the most obvious example of this recently is the FBI versus Apple case, right, where you saw a lot of people sort of making the argument that hey, this is no different than essentially the FBI having the ability to go and search somebody’s house. And you basically have to step back and say, “If you think that, you don’t understand software, because software is inherently scalable and inherently sort of theftable or stealable in a way that a house key is not.” In other words, it’s not practical. I can’t go out and search million houses in 10 minutes. I can do that theoretically with a phone and with some of these vulnerabilities because software is just a fundamentally different animal. And it’s true economically as well, right? We see this sort of over and over and over again where people are trying to apply the economic rules for physical goods to software and to digital goods and it just doesn’t work that way.

Kent: And it did for a long time. I think that’s the confusing thing. I was involved in a startup called Agitar and we had a good product, a product that 10 years earlier would have made a, I don’t know, would have turned into a billion dollar software company. And because it was based on license revenue, poof, just gone, it’s just not a viable model. So that model worked for quite a while and now it’s stopped working. So here’s why I wanted to talk with you is we could probably list four, five classes of people, new graduate with technical abilities, investors, MBA who wants to go into technology, aging programmers, one that strikes near and dear to my heart, kind of mid-career programmers who are being squeezed by this.

What can we say? That was the piece of a book that was missing for me, what can you say to them, to any of those or all of those classes of people? And I don’t have any answer because I don’t have a model, I can’t. Usually I have got some kind of model and then I can just if I project forward in time far enough, then I sound outrageous and visionary and then, but it’s just a trick because I project 20 years, another people are projecting 10 years, then they go, “Oh yeah, you’re saying crazy stuff.” But here I just don’t even have a model. So what do I say to my daughter who’s just getting started in a software career? What do I say to myself?

Steve: Yeah. Yeah, I think that there are a couple different things. And I think a lot of the answer to that question to me depends on time frame, all right? So for the, say short to medium term, I’ll say out to four or five years let’s say because I don’t want to, well, one of the things that we find at RedMonk is that we tend to predict things and then they end up happening five years later than we think. I think in this case, I think for the foreseeable future, you’ll definitely have commercial opportunities and a fair number of them within the sort of commercial infrastructure software space. And were those opportunities be the size or the nature of what they would have been 10 years ago, no. You won’t have as many of them necessarily. But the fact of the matter is that Microsoft for example, is still making tens of billions of dollars annually on each of their twin revenue engines in Office and Windows, and that’s not going to change. And there’re a lot of businesses that are in that same boat, where they may be in decline, they may not be seeing the growth that they would have a couple of years ago, but they’re still making money and businesses are still paying for software. And for conversing…

Kent: Sorry to interrupt. As long as you can cut cost faster than revenue drops, then you got a viable business. So there’s a market out there, there’s a skill, a market out there both business and technical for a software hospice. You know it’s going to die, it’s a matter of time. You can stretch it out, give it some quality of life for a few more years. So yeah, I think there’s a book to be written there and I’m not going to write it because it’s the wrong side of…

Steve: Well I was going to say, I don’t think I’ll write a book called The Software Hospice. I don’t think that’s going to win me many fans.

Kent: [inaudible 00:26:54] software.

Steve: Yeah, people are already upset enough about The Software Paradox. Software Hospice might push them off the ledge.

Kent: It’s a natural follow up.

Steve: Yeah, yeah, exactly. As a follow-on to some of these businesses that are in decline, I think that there’re absolutely opportunities and good opportunities to build smaller businesses around open-source products. And the way that you do that typically is by saying, “Hey look, hey there’s a software product. We know it better than you do Mr. and Mrs. business. Do you really want to manage this sort of on an ongoing basis? Do you want to patch it, do you want to keep it up to date?” All those kinds of things. The answer is probably not. So look, this is what we do. We can sell that to you.

To sweeten the pot, a lot of businesses are turning to sort of “open core”, right, which is you have the sort of core of a product, all of the core features are available for free, they’re an open-source and then you have some proprietary layer that sits on top of that, that you have to pay for, whether that’s management or some other feature that isn’t necessarily integral to the experience but is a valuable add on and something that a business might pay for. So you can definitely build those kinds of businesses. We see that over and over today.

Kent: So here’s my problem with the open core model, is a question of internal moral hazard. Your part of the business is motivated to add features to the core because they want more adoption in general. And part of the business is motivated to exclude features from the core in order to make the commercial opportunity more attractive. I’m not saying it’s not navigable, but I think that there’s kind of this…

Steve: There’s a constant…

Kent: …seeds of a destruction.

Steve: There is a constant tension, there’s no doubt. Absolutely no doubt. Now, the way around that from my end, as you say, you can navigate that in the short term, right? In other words, it’s never a comfortable discussion. We’ve worked with many, many clients on just that subject in terms of, “Look, you can’t close that feature. You’re going to get killed.” So yes, it’s absolutely attention. It can be navigated in the short term. To me, the best solution to that particular problem over time is to go the services route, because all of the sudden from a services standpoint, one of the things that tends to happen is that all of your incentives begin to align with customers in ways that they don’t.

So as an example, if you have an open-source business and you’re selling support and service, well, theoretically if you do a great job of manufacturing a product, you’ve just put yourself out of business because why would I pay for support for products that works well basically all the time? Now of course, we all know that’s not how things work and there’s always bugs in software and so on, but there is a fundamental misalignment if you will, of needs, that the vendor needs customers to have problems, but the customer wants a product that has as few problems as possible, right? So that’s a fundamental misalignment. So what do you do? One of the things that you end up doing is that you offer these software assets as services. And all of a sudden, a lot of those question go away.

So for example, the tension between releasing features or keeping in private, gone. In other words, you want people to sign up, you want to retain customers, so what do you do? You continue to innovate and iterate on that product. So all of a sudden, that dries up and blows away. The concern for example of okay, what is the purchasing trigger, right? How do I get somebody to actually buy this software? Again, that goes away, right, because all of the sudden there are very few people who are looking for infrastructure software in a hosted setting for free, the way that they are for on premise, sort of open-source software.

Kent: I wouldn’t trust it if it was.

Steve: Exactly. In other words, even tiny services that we use, everything is paid, because otherwise where is that? You want the service to be around. It’s easier to justify paying for something where you know that they’re cost baked in versus software. A lot of people will sort of make the excuse to themself which is, “Well, look, they’ve already paid to develop the software and if I use it, there’s no additional cost to them to develop it again because the cost of replication is free and so on.” You don’t have that with services. There’s none of that sort of internal moral discussion.

So a lot of those issues go away if you go the services route. And the difficulty that we have in terms of talking to a lot of open-source businesses is that they’re aware of this, right? They’re aware of a lot of the issues that they have with The Software Paradox, they’re aware of some of the opportunities that exist in services business, but that is a much different business to start and run than is sort of the support and your traditional open-source important [SP] service business, right? All of the sudden, you need to hire a different caliber of person, you need to hire a different type of person because you’re not just developing a piece of software and sort of releasing it and testing it and so on, you need to keep infrastructure up and running 24 hours a day, 365 days a year. So how do you do that? Where do you that? Your capital costs are entirely different. Your cost of customer acquisition is all upfront, whereas the return from that is amortized over time. So it’s a difficult…as simple as it seems for a lot of analysts, people like myself on paper, that’s a hard question for a lot of businesses in terms of, “How do I get into that?”

Kent: Sure, it’s easy to put the spreadsheet together though.

Steve: Yeah, oh yeah. Yeah, we do it all the time.

Kent: For 20 years I’ve been on the board of a company in Switzerland called Lifeware that does life insurance contract management. So it was one of the earliest software as a service businesses. They basically run the whole backend of life insurance for medium-sized insurers. And because they’re really good software developers, their costs are a fraction of what a big life insurer pays for management a contract for a year. They only get paid by the contract, so their incentives are really closely aligned with their customers’ incentives. And it’s a tough business to run. As you say, you got all these upfront costs and then in the insurance business, you’re talking about a revenue stream that’s going to last 30, 40, 50 years. So you have to have access to capital, thank goodness, Switzerland, but you also have to have a lot of patience in a way that you don’t talk to a lot of recent MBA wannabe start up a software business and you’re talking about a 50 year timeline.

Steve: Yeah. And again, it’s just that things have changed, right? Because in other words, you go back 10 years ago, you can start with a relatively small piece of software. You can grow that into a sizable business quickly and you can either become sort of a huge entity in and of yourself, or you can sell out, you can exit for some large sum of money and the mechanics of those businesses have changed, right? And that’s something that a lot of the businesses that we talked to are struggling with.

Kent: Yeah. And with JUnit, I managed to completely miss that whole exit thing.

Steve: Yeah. So actually that was interesting. Talk to me about The Software Paradox lens as applied to JUnit. So what was your experience like, what would you have done differently if you had thought about it?

Kent: We couldn’t. We very explicitly had that conversation, Erich Gamma and I. “If we charge for this, no one’s going to use it. If we don’t charge for it, there’s no revenue. Duh, what are we going to do?” And we both had day jobs so we were the kids at the top of the mountain kicking a snowball down, because we were willing to just throw away that investment because we didn’t care if it paid off or not. Initially we had three hours on an airplane before the batteries ran out, flying from Zurich to Atlanta and so yeah, why not? And then this particular snowball rolled and rolled and picked up size and speed and turned out there was a lot of loose snow and so it ended up being very successful.

But very early on, we realized that if we tried to monetize it in any kind of way, that stops the snowball dead in its tracks, and it’s the end of the story. And we wanted people, we wanted programmers to have the benefits of automated testing, so we gave it to them. And I always get that argument, “Well, it’s going to pay off in other ways.” The last time I was doing consulting, my daily rate was half of what it had been 10 years previously, so I don’t see the payoff. And that’s part of the emotional trigger of your book for me is I faced this paradox in a very explicit way, and I didn’t get a result that, I don’t know, that made sense to me. I have a farm in southern Oregon and I have my goats and I live a really nice life. I still have to work for a living. So I did okay, but I’m not financially independent out of it. In the global world, I’m a ridiculous number of zeros, .001%, but at the same time, if a success at that scale had happened 10 years earlier, it would have been rational software, that was kind of the previous generation’s version of that which turned into a whole bunch of money for a bunch of people.

Steve: Yeah. Yeah, it’s interesting because the question of return is always an interesting one, right? So in other words, we just hired a new analyst. So I did, oh I don’t know, 25, 26 phone interviews and one of the questions that we got high percentage of time, we don’t get as much these days, but certainly we get it from time to time is, why do you release your content, your research for free? James and I had almost exactly the same conversation that you and Eric did, which was, I think it was year one actually which was, “All right, we have this research. If we charge for it, it’s going to be difficult,” because basically one of the biggest drivers for research isn’t the research itself, but somebody wants a name on it to say that, “Somebody told me to buy this so if it blows up, I’m not going to get fired.”

And if you’re a small firm, your name doesn’t count for anything in that analysis. But conversely, if we try to charge for it, nobody’s ever going to read it. And we made the decision at the time to say, “All right, you know what, this is the best economic decision for us is to release this as essentially open-source, if there was a term for that, certainly Creative Commons is the closest.” So release it under Create Commons license. And the return for us has been great because basically what ends up happening is it will put out a piece of research and businesses will say, “Hey, this is great, but how does this apply to my business?” Okay, awesome. That’s a consulting project, yeah.

So the return for us, it’s not always direct of course. It’s not like every piece of research produces something like that, but the attachment is close enough that it makes sense, right? It’s a justifiable economic decision for us. I think in a lot of cases for open-source, there are real questions as to whether or not it will be, because one of the things we haven’t talked about which is certainly a factor these days, is that there is so much open-source software that’s standing out and been sort of achieving that, “Hey, we’re going to become the snowball that starts an avalanche,” is increasingly difficult because standing out from the rest of the projects is more problematic than it was 5 or 10 years ago when there was just less software to compete with.

Kent: So I’m going to go ahead and disagree with you on that one, Steve. I think that it’s always been difficult to get attention. The success of software projects is always going to be distributed along some kind of power law distribution, which means that the vast majority of projects are going to get zero attention. And if you’ve never had a hit, if you’ve had a thousand zero attentions in a row, then that feels pretty unfair to you, but that’s actually a pretty small sampling. I’ve probably started 2, 3, 400 programs like JUnit, put in that amount of initial effort just because I was curious and I wanted to see. And that one’s by far the one that paid off the most. And I think given how much energy I’ve given to programming, I’m above, I’m exceeding variants. I got more than my share if I measure by people using and finding valuable the work that I’ve done.

Steve: Yeah, yeah. And to be clear, I don’t mean to imply that it was 5 or 10 years ago, hey, it was just simple, you throw something out there and it’s successful. I guess what I’m thinking of more is that take the database space in particular, right? If you go back 5 or 10 years ago, right, really what are we talking about? We’re talking about a small handful of projects, right? You’re talking about probably three from the commercial standpoint in terms of the most successful, Oracle, DB2 and SQL Server, and then you’re talking about two effectively from an open-source standpoint, MySQL and Postgres.

So that’s a relatively small sample size of projects. If you fast-forward to today, right, we have, depending on how you define the different categories, you probably have four or five different categories, right, in terms of relation [SP] obviously is still around, it’s still a big deal. You have graph, you have key value, you have sort of larger-scale data operations sort of in the [inaudible 00:42:37] type category and so on. And there’s probably two or three different more that we could list that are popular enough and that they’re sort of quasi-mainstream. And in every single one of those categories you now have, oh I don’t know, anywhere from say three to six legitimate contenders, legitimate sort of projects vying for attention. So it’s a crowded marketplace, right? There’s a lot going on and that’s a factor. When you start thinking about, “Okay, if I want to make my mark, where am I going to do that? Where am I going to sort of invest my time that hasn’t been done sort of over and over and over again, sort of done to death and I don’t have tons and tons of competition? The number of those areas is getting smaller.

Kent: Sure. If you were putting money in, expecting to get money out, you’d have to be nuts to start a competitor, to start, “Okay, I’m going to have another relational database and it’ll be the next MySQL,” because that’s just such a stupid bet. So I would say if you’re calculus is money in and money out, you’re going to have to wait, kind of seed funding the cost of planting the seed is so far below the transaction costs for a seed round that it just doesn’t make any sense to put money in to try and get money out.

Steve: Yeah. Well, I was just going to say, I think honestly for me, the biggest opportunity, the best return, I think, for a lot of businesses today honestly is going to come from data. And the difficulties is that it’s a very fraught conversation to have with vendors, right, because there’s all sorts of sensitivities in terms of, “Hey, if I tell customers that I’m collecting their data, they’re going to go nuts and not use my product and so on.” But here’s the thing, is that if you look at, if you talked to any of these customers who supposedly won’t use software that spies on them or watches any sort of what they do, the next logical question to ask them is, do you use any software as a service offerings? And the answer of course, in every case is yes, they use it somewhere for something. And in that case, then everything they do is being watched, right? Everything they do is being monitored, everything they do is…

Kent: Better be.

Steve: Exactly. You’re not doing your job if you’re a software as a service vendor. You’re not paying attention to things like usage patterns, right, or what are customers struggling with, what queries are taking longer and so on. So that to me is the…when I talk to businesses today and a lot of them are actually beginning to sort of take steps in this direction, the way out, and this goes back to sort of what you might tell your daughter or what I tell the startups that we speak with, is begin to think about not necessarily short term. You don’t have to pivot your business overnight, but begin to make preparations to create data as an asset, because if we look at your employer, Facebook, or if we look at businesses like a Google or a Twitter and so on, a lot of the value that they have at this point isn’t in the software, right, it’s in the data, it’s in the data that they generate. I use this example all the time. If you give me Google software from two years from now and you give me all the people and all the resources necessary to run that software, all the data centers and so on, just magically you grant that to me, it doesn’t matter because I don’t have the corpus of data to give you the returns that they can. In other words, the data that’s been built up overtime.

And obviously, it’s not a linear comparison, it’s not a one-to-one comparison comparing Google’s business to say your traditional infrastructure provider. But there are comparisons to be made because look, infrastructure software generates tons and tons of telemetry, we all know this. Anybody who’s used Spelunker, any other of the other sort of logging tools is aware of how much data it generates. That data has value and that data can be put to work.

Kent: Right, especially if you’re going to aggregate. That was the idea behind JUnit Max, this product that I worked on that we would log all the test run results from everybody, every program or everywhere in the world, and then you can answer questions like, do my test fail more often than other people’s? Or which languages seem to encourage better testing or worst testing and what can we find out about that? It is a hard flywheel to get started because you need a lot of data before it to starts to be valuable enough that you attract more data and you get the positive feedback going. But I agree with you.

I think if you’re looking for money in, money out that…so, okay. I live on a farm and this whole John Deere anti-hacking stuff, that’s a topic of conversation where I live, and what idiots John Deere is. If John Deere was, okay, so I’m just going to say it the way I would say it here in Oregon. If John Deere was really smart, they would let people do anything they want with their tractors as long as John Deere gets to collect the telemetry data from those tractors…

Steve: Totally agree.

Kent: …[inaudible 00:48:24]. And they could turn that around and they could run the most profitable commodity arbitrage business in the world. They could, oh god, there’s just a million ways they could sell that data. Anyway, they don’t have that vision.

Steve: No, no, they don’t. And that’s one of the things I really struggle with around The Software Paradox. The conversations we have with our clients is trying to get customers to have that kind of vision to see some of those opportunities, right? Because the difficulty is that when you have these conversations, it’s kind of an analogy I’ve used in the past, it’s kind of like trying to sell a relational database, right, in the sense that a relational database is a fantastic piece of software, it’s tremendously versatile, it’s behind sort of basically every application you touched on some level. But if you’re just trying to sell it to somebody in a vacuum, it’s difficult, right? Because okay, well, what can you do with a relational database?

Kent: It’s like selling an engine.

Steve: Yeah.

Kent: Which only works if you’re selling to a Formula One team.

Steve: Exactly.

Kent: If you’re selling to me, an engine isn’t doing me any good.

Steve: Yeah, I mean great. Okay, what can I do with that? Lots of things. Well, okay, what kinds of things? And then you have to basically try to find a way to scale that conversation, so it’s difficult, right? It’s a difficult conversation to have. Now the thing that’s helping is that you begin to see little examples here and there of people doing interesting things with their data. So in other words, they cancelled it now, but I thought what New Relic was doing with the App Speed Index was fascinating, right, because New Relic has access to whatever it is, tens of thousands, or hundreds of thousands of nodes sort of all over the world. And they can begin to give you a baseline in terms…

Kent: Oh, is that all?

Steve: Whatever it is, yeah. It’s not quite the Facebook experience.

Kent: I am spoiled at Facebook [inaudible 00:50:18].

Steve: No, no, no, I know.

Kent: Had to throw my little snotty snark in.

Steve: Of course, of course. No, it’s really appreciated.

Kent: Hundreds of thousands, okay.

Steve: Yeah, who knows, maybe it’s millions. I don’t have the actual number for them. But I think the point is that whether you’re talking about a New Relic, whether you’re talking about a Facebook, once you get to even a modest level of traction, you can begin to make some sort of interesting assumptions, you can begin to make some interesting conclusions in terms of, “Hey, what’s going on? How do I compare to a baseline? How do I compare to people in my industry? How do I compare to businesses of a similar size?

Kent: How do I compare to six months scale?

Steve: Exactly. And those are the kinds of things that the advantage is that they really only become more valuable and more defensible from a market standpoint overtime, because we saw this in the case of Apple Maps, where Apple goes out and drops 200 and some odd billion dollars on six or seven different startups, come out with a really nice, aesthetically pleasing, well-designed mapping product and it’s an absolute disaster because they hadn’t spent the last 10 years or 15 collecting data. And you can’t make up that ground inorganically. So yeah, I don’t know that The Software Paradox is necessarily easily answered in every case by sort of data or telemetry based models, but I think particularly in infrastructure software, I think it’s going to be a common answer and I think it’s going to be a good one.

Kent: Yeah, I was just trying to think of what’s changed to make that true. As bandwidth gets cheaper and cheaper, then collecting the data becomes cheaper, there’s fewer barriers.

Steve: Yeah. And also you allow customers to acclimate, right? So for example, when I was a systems integrator in the ’90s, right, we ran around and talked to lots of different businesses. And one of the things that we would talk to them about was, “Hey, you guys are not good at implementing CRM software. Basically half of the implantations fail. Why don’t you let us run this stuff for you in a data center, there will be dedicated hardware, nobody else has access, etc.” All those businesses came back and said, “Yeah, you guys are nuts. The customer data’s the most valuable data we have. It’s never leaving our firewall, over my dead body.”

And we’re five years later, every single one of them is running in Salesforce, because your initial reaction, your initial apprehension and so on will give way overtime if value is demonstrated. And that, I think, is going to be the trick with a lot of these businesses is, all right, you need to give customers time to get used to the idea of, “Okay, look, I’m not giving away my customer data,” for example because none of the vendors want that, that’s more liability than it’s worth. Basically they, in many cases, if not all cases, just want, “I want the telemetry. I want the data about how you’re operating. The actual data itself, that’s actually toxic. I don’t want anything to do with that.”

So as customers gets used to that, and more importantly as you can begin to show them value which is, “Okay, look, if you share this data with us, this is an example of the kind of data that we’ll give you in return.” “Oh, okay.” I’ve used the example with Gmail. If you walk up to somebody in a vacuum and say, “Hey, do you want an email client that’s going to scan your email and sort of mine it to present you with better ads?” Everyone says, “Absolutely not.” If you put Gmail in front of them and then say, “Oh, by the way, this is the cost to that.” Everyone says, “Oh, okay. Yeah, that’s fine. I can do that.” So a lot of it is just how you present it.

Kent: Yeah. So can we wrap this up?

Steve: Yes.

Kent: Here I am, driving your podcast, with concrete suggestions for those classes of people that I mentioned. That’s why I wanted to talk with you, like, “Oh, what do I do, Stephen?”

Steve: Yeah, so let’s see. So the classes of people were…

Kent: Recent graduate.

Steve: Recent grad, MBA…

Kent: MBA, mid-career.

Steve: Mid career and what was the last one?

Kent: Geezers like me.

Steve: Geezer, okay.

Kent: And then investors.

Steve: Okay, and then investors. So I would say for the recent grads, I think open-source is a great way to sort of build your visibility. In other words, you need to think about return, not necessarily in financial terms and not necessarily expecting to be sort of the runaway success of a JUnit, but a lot of the businesses we speak with are looking for profiles and they’re looking for contributions, they’re looking for sort of demonstrated capabilities, and open-source is a fantastic way to do that. So your return as a recent grad in terms of releasing projects of your own or contributing to other projects is going to be, I think, reasonably high from a career standpoint. For folks mid-career, I think you need to think sort of more about okay, presumably at that point you’ve made your name, you have some reputation and so on, and obviously you probably have more responsibilities in terms of your life and sort of dependence and so on, in which case, your concern shifts, right? You need to think about, all right, maybe I don’t release this project as open-source software, or if I’m going to release it as open-source software, it’s only going to be sort of as an incentive to essentially move along to other forms of business, like a services arm [SP].

And likewise for an MBA, if I’m an MBA, I would look at the numbers sort of across the board. I would look at The Software Paradox and basically say, “I’m bullish on services, I’m bullish on data, and I’m…” A software business that wanted to recruit me out of an MBA program would need to really prove to me that they have an answer for this. In other words, again it’s not impossible, there are businesses that are exceptions to the rule, but I want to see you prove it and I want to be convinced. And then for the geezers, basically I think a lot of it comes down to what your goals are, right? In other words, if you’re a Kent Beck and your reputation’s assured, then I think that’s not a big deal. I think that there are lots of different things that you can contribute to, whether that’s open-source, whether that’s businesses of all shapes and sizes. Again, if I was going to get hired, I wouldn’t want to buy a software company, I [inaudible 00:56:40] understand and sure to what their answers were.

Kent: I wonder if this hospice model is kind of a natural landing ground?

Steve: It could be. Certainly could be because if you are comfortable sort of not being necessarily in a high growth market, a lot of those businesses are going to be ones that are familiar to them. A lot of those products are going to be ones they probably use or worked on or build competitors to. So yeah, I think there’s opportunities there.

Kent: Okay. Cool.

Steve: All right, well I have one last question, one quick last question for you.

Kent: Sure.

Steve: It’s a fun one that we’d like to close on, which is, what animal are you most frightened of?

Kent: Okay, we had a ram here who figured out, he was kind of a silvery gray color, he figured out how to open the latch to his house. So you’d go out and feed at night and he’d be literally lurking behind a tree and you couldn’t see him, and the first thing you knew, you were flying through the air. And Smiles, his name was Smiles because it looked like the joker face had been painted somehow on his face especially after he had just sent you. And Smiles sadly is no longer with us, but he really scared the crap out of me.

Steve: That’s fantastic. Well, with that I think we can bring it to a close. Thanks so much, Kent, for the conversation. It’s been a lot of fun.

Kent: Thank you. Oh, it’s been my pleasure. Thanks, Stephen. Bye-bye.

Steve: Thanks again for listening to Hark. As a reminder, you can find us on Google Play, iTunes, Pocket Casts and Stitcher. You can also listen directly or find links to all of the above or by heading over to hark.tech, which will take you to SoundCloud. If you have questions, feedback, or suggestions, you can hit us up on Twitter, @harkpodcast, or via email at [email protected] We’ll be back next month with episode three and until then, enjoy your time.

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