This week some things ‘happened’ to me that made me want to read up on the grander scheme of things, meaning economic value, in particular that of software. I’ll just list them briefly
- this youtube video which is about a French guy cooking pasta really, states an interesting economic theory, namely that aiming for the highest quality of some product is the best way to create value for all actors in a vaue chain. In this case, producing the best (and therefore more expensive) pasta is a way to give the wheat farmer a fair price.
- Neil on sofware argues that software has no ‘intrinsic value’. The lengthy argument boils down to: software is like a building. The moment it’s built, the value is zero. It becomes valuable once the tenants move in and start to pay rent, or someone buys the property. There is no such thing as perfect software which value is selfevident, because it probably solves a problem that the world needs solved, eg. self-driving cars. The question Neil tries to answer is whether Microsoft paid 68 billion for Activision Blizzard partly for its software. Interesting…
- My mother sent me money (to avoid inheritance tax)
- I’m quitting the project and my current employer
What is the value of software?
Jamie says this: Software is no different from anything else: it’s only worth what you can sell it for.
Right, so does ‘anything else’ then have ‘intrinsic value’? Either nothing has, because everything conceivable (sellable) is only worth what you can sell it for, or everything has, because intrinsic value actually is (an estimate of) what you can sell it for.
It seems that Jamie and Neil (software developers) implicitly think that intrinsic value is some property that some ‘things’ have and others don’t but has nothing to do with the price that someone ends up paying for it. And software doesn’t have it. This in itself is not interesting I think. I frankly do not care.
What is interesting though, are the consequences, namely that developers should not hang on to their code, for the sake of it. Yes, it may be utterly beautiful, or complex, or developers have slaved on a large software behemoth for years, it’s worth nothing, if it’s useless, if it solves no customer problem or enables no business opportunities. Like a beautiful golden hammer that is endlessly configurable to all your woodworking needs, but fails to hit a nail. It must die, like so many shiny innovative new products emerging from startups or whatever.
Which is true of course.
Software developers should not get hung up on quality, or beauty, or whatever they strive for in code, while it’s still unsure if it will sell. There is the aspect of risk. Why invest in a good quality hammer if there are plenty cheap hammers out there that will do the job? Or when the world is still unsure it needs one at all. Adam Savage said: if you think a tool could be useful, first buy the cheapest version, and add it to your toolshop and if it proves it’s worth, and only then, go back to the shop and buy the most expensive you can afford.
So what is ‘Intrinsic Value’ anyway?
Just googling for an answer here… random link:
Intrinsic value is a measure of what an asset is worth. This measure is arrived at by means of an objective calculation or complex financial model, rather than using the currently trading market price of that asset.
This ‘objective’ calculation is then based on numerous subjective estimates and qualifications, nonetheless.
Some analysts and investors might place a higher weighting on a corporation’s management team while others might view earnings and revenue as the gold standard
And what is the purpose of the analysis? It’s to estimate future cashflows
I’m not saying that what is said here is the absolute truth, but it seems reasonable that someone’s estimate of the quality of the management team of a company is a fair thing to take into consideration when trying to guess the value of that company.
But then I would argue that if such an elusive concept is part of the mix (the ‘complex financial model’) then surely software, a large codebase, arguably the result of years of work by some fine minds, albeit not physical in nature, but undoubtedly objectively inspectable by anyone (in theory, or at least by experts) must also be. A game engine (in the case of Activision Blizzard) that has powered multiple best selling games in the past, is a source of (potential) future cashflows.
And this got me reading Piketty’s Capital in the 21 century (or rather the 50 page version of this behemoth of a book). I had originally thought of Karl Marx, but then, I’m not a communist and we don’t live in the nineteenth century anymore, but Marx does talk about the creation of value, so that’s why. I don’t want to re-explain this book here. Read it for yourself if you want to. What I got from it is that it’s fair to say that software is part of national capital, like houses, agricultural land and investments.
The big message of the book is that the income gap widens. The rich get richer, not by working, but by leveraging their wealth in a way that middle and lower classes will never be able to.
Now, I am a software developer and my mothers capital is modest really. I won’t get rich by quitting my job and investing her money in stocks, startups and obligations. I’d probably starve. But avoidance of inheritance tax is indeed the way, the elites stay rich, while the rest of us toil and suffer.
Why I quit
So I’ll just continue making software. I like it. I value it. Someone pays for it. My livelyhood.
It may very well turn out, though, that the project I have been working on since past year will be cancelled because it hasn’t worked out really well and will cost too much to make it a success. Why? A system too bloated for what it is supposed to do: send letters to tax payers. Overengineered with specs that noone needed. Some piece of software (platform) that will never be able to handle the desired throughput, because architects and designers and business analysts came up with a highly composable hammer that hits like a hundred nails every week where it should have been two million per day. My motivation is completely drained and i’m writing a blog post instead of deploying the UI which I’m supposed to do.
Hopefully my next employer will find some interesting work. They are really small, devoid of fluff and bullshit talk. There’s no office. They work from home.
Continuous Improvement and the art of making pasta
So the project failed and what’s to learn that less money would have been wasted if the product had been cancelled earlier or had gone live successfully with less fancy system.
Start simple. Improve later
Maybe the pasta makers at Felicetti also started with a plain staple pasta that did not stand out from anything in the supermarket. Their factory and lab are immensely impressive but it started a hundred years ago when the great grandfater sold his company and bought a small pasta factory.
Pasta is a commodity. But achieving this product, sold at this price (3 euros for 500 g, which is expensive, but not extremely so) ensures that the whole supply chain gets the correct price. ‘from the seed to the land, to the farmer, to the miller, the pasta producer and the owner of the store.’ (Riccardo Felicetti).
What he says next (3:10) is nothing less than mind blowing:
‘…because this idea, increasing the quality and the value of agriculture gets spreaded around. And this is our goal.’
So in reality they are not even in the pasta business, they produce ideas that improve agriculture (by producing pasta).
Everybody eats pasta, but my family less so because two of us are gluten intolerant (coeliac disease) and I abstain from wheat because of irritable bowel syndrom. So no wheat based pasta and I’ll just stay in the software business. The pace is higher, meaning it doesn’t take one hundred years to create a great product out of nothing. And if it’s a piece of software, that actually serves a need, if it makes peoples lives better, or just a little more happy, then the best thing you as a developer can do is improve it. Continuously as in every day. So that people get the best value for their money.