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how much of a flattener open´source becomes。 
Microsoft's first point is�察�How do you push innovation forward if everyone is working 
for free and giving away their work�拭�Yes�察�says Microsoft�察�it all sounds nice and chummy 
that we all just get together online and write free software by the people and for 


the people。 But if innovators are not going to be rewarded for their innovations�察�
the incentive for path´breaking innovation will dry up and so will the money for the 
really deep R & D that is required to drive progress in this increasingly complex 
field。 The fact that Microsoft created the standard PC operating system that won out 
in the marketplace�察�it argues�察�produced the bankroll that allowed Microsoft to spend 
billions of dollars on R & D to develop Microsoft Office�察�a whole suite of applications 
that it can now sell for a little over 100。 
;Microsoft would admit that there are number of aspects of the open´source movement 
that are intriguing�察�particularly around the scale�察�community collaboration�察�and 
communication aspects�察─�said Craig Mundie�察�the Microsoft chief technology officer。 
;But we fundamentally believe in a commercial software industry�察�and some variants 
of the open´source model attack the economic model that allows companies to build 
businesses in software。 The virtuous cycle of innovation�察�reward�察�reinvestment�察�and 
more innovation is what has driven all big breakthroughs in our industry。 The software 
business as we have known it is a scale economic busi´ 

ness。 You spend a ton of money up front to develop a software product�察�and then the 
marginal cost of producing each one is very small�察�but if you sell a lot of them�察�
you make back your investment and then plow profits back into developing the next 
generation。 But when you insist that you cannot charge for software�察�you can only 
give it away�察�you take the software business away from being a scale economic 
business。; 
Added Bill Gates�察 �You need capitalism ��to drive innovation。�А�To have ��a movement�А�
that says innovation does not deserve an economic reward is contrary to where the 
world is going。 When I talk to the Chinese�察�they dream of starting a company。 They 
are not thinking�察�'I will be a barber during the day and do free software at night。'。 。 。 
When you have a security crisis in your ��software�А�system�察�you don't want to say�察�
'Where is the guy at the barbershop��'; 
As wemove into this flat world�察�and you have this massive Web´enabled global workforce�察�
with all these collaborative tools��there will be no project too small for some members 
of this workforce to take on�察�or copy�察�or modify´for free。 Someone out there will 
be trying to produce the free versions of every kind of software or drug or music。 
;So how will products retain their value�拭─�asked Mundie。 ;And if companies cannot 
derive fair value from their products�察�will innovation move forward in this area�察�
or others�察�at the speed that it could or should�拭─�Can we always count on a 
self´organizing open´source movement to come together to drive things forward for 
free�拭�
It seems to me that we are too early in the history of the flattening of the world 
to answer these questions。 But they will need answers�察�and not just for Microsoft。 
So far´and maybe this is part of the long´term answer´Microsoft has been able to count 
on the fact that the only thing more expensive than commercial software is free 
software。 Few big companies can simply download Linux off the Web and expect it to 
work for all their tasks。 A lot of design and systems engineering needs to go around 
it and on top of it to tailor it to a company's specific needs�察�especially for 


sophisticated�察�large´scale�察�mission´critical operations。 So when you add up all the 
costs of adapting the Linux operating system to the needs of your company and its 
specific hardware platform and applica102 
tions�察�Microsoft argues�察�it can end up costing as much as or more than Windows。 
The second issue Microsoft raises about this whole open´source movement has to do 
with how we keep track of who owns which piece of any innovation in a flat world�察�
where some is generated for free and others build on it for profit。 Will Chinese 
programmers really respect the rules of the Free Software Foundation�拭�Who will govern 
all this�拭�
;Once you start to socialize the global population on the idea that software or any 
other innovation is supposed to be free�察�a lot of people will not distinguish between 
free software�察�free pharmaceuticals�察�free music�察�or free patents on car designs�察─�
argued Mundie。 There is some truth to this。 I work for a newspaper�察�that is where 
my paycheck comes from。 But I believe that all online newspapers should be free�察�and 
on principle I refuse to pay for an online subscription to The Wall Street Journal。 
I have not read the paper copy of The New York Times regularly for two years。 I read 
it only online。 But what if my daughters' generation�察�which is being raised to think 
that newspapers are something to be accessed online for free�察�grows up and refuses 
to pay for the paper editions�拭�Hmmm。 I loved Amazon。com until it started providing 
a global platform that wasn't selling only my new books but also used versions。 And 
I am still not sure how I feel about Amazon offering sections of this book to be browsed 
online for free Mundie noted that a major American auto company recently discovered 
that some Chinese firms were using new digital´scanning technology to scan an entire 
car and churn out computer´aided design models of every part within a very short period 
of time。 They can then feed those designs to industrial robots and in short order 
produce a perfect copy of a GM car´without having to spend any money on R & D。 American 
automakers never thought they had anything to worry about from wholesale cloning of 
their cars�察�but in the flat world�察�given the technologies that are out there�察�that 
is no longer the case。 
My bottom line is this�此�Open´source is an important flattener because it makes 
available for free many tools�察�from software to encyclopedias�察�that millions of people 
around the world would have had to buy in order to use�察�and because open´source network 
associations´with their 
103 
open borders and come´one´come´all approach´can challenge hierarchical structures 
with a horizontal model of innovation that is clearly working in a growing number 
of areas。 Apache and Linux have each helped to drive down costs of computing and 
Internet usage in ways that are profoundly flattening。 This movement is not going 
away。 Indeed�察�it may just be getting started´with a huge�察�growing appetite that could 
apply to many industries。 As The Economist mused ��June 10�察�2004���察 �some zealots even 
argue that the open´source approach represents a new�察�post´capitalist model of 
production。; 
That may prove true。 But if it does�察�then we have some huge global governance issues 


to sort out over who owns what and how individuals and companies will profit from 
their creations。 

Flattener #5 
Outsourcing 
Y2K 
India has had its ups and down since it achieved independence on August 15�察�1947�察�
but in some ways it might be remembered as the luckiest country in the history of 
the late twentieth century。 
Until recently�察�India was what is known in the banking world as ;the second buyer。; 
You always want to be the second buyer in business´the person who buys the hotel or 
the golf course or the shopping mall after the first owner has gone bankrupt and its 
assets are being sold by the bank at ten cents on the dollar。 Well�察�the first buyers 
of all the cable laid by all those fiber´optic cable companies´which thought they 
were going to get endlessly rich in an endlessly expanding digital universe´were their 
American shareholders。 When the bubble burst�察�they were left holding either worthless 
or much diminished stock。 The Indians�察�in effect�察�got to be the second buyers of the 
fiber´optics companies。 
They didn't actually purchase the shares�察�they just benefited from the 

overcapacity in fiber optics�察�which meant that they and their American clients got 
to use all that cable practically for free。 This was a huge stroke of luck for India 
��and to a lesser degree for China�察�the former Soviet Union�察�and Eastern Europe���察�
because what is the history of modern India�拭�In short�察�India is a country with 
virtually no natural resources that got very good at doing one thing´mining the brains 
of its own people by educating a relatively large slice of its elites in the sciences�察�
engineering�察�and medicine。 In 1951�察�to his enduring credit�察�Jawaharlal Nehru�察�India's 
first prime minister�察�set up the first of India's seven Indian Institutes of 
Technology ��IIT�� in the eastern city of Kharagpur。 In the fifty years since then�察�
hundreds of thousands of Indians have competed to gain entry and then graduate from 
these IITs and their private´sector equivalents ��as well as the six Indian Institutes 
of Management�察�which teach business administration��。 Given India's 1 billion´plus 
population�察�this competition produces a phenomenal knowledge meritocracy。 It's like 
a factory�察�churning out and exporting some of the most gifted engineering�察�computer 
science�察�and software talent on the globe。 
This�察�alas�察�was one of the few things India did right。 Because its often dysfunctional 
political system�察�coupled with Nehru's preference for pro´Soviet�察�Socialist 
economics�察�ensured that up until the mid´1990s India could not provide good jobs for 
most of those talented engineers。 So America got to be the second buyer of India's 
brainpower� �If you were a smart�察�educated Indian�察�the only way you could fulfill your 
potential was by leaving the country and�察�ideally�察�going to America�察�where some 
twenty´five thousand graduates of India's top engineering schools have settled since 
1953�察�greatly enriching America's knowledge pool thanks to their education�察�which 
was subsidized by Indian taxpayers。 


;The IITs became islands of excellence by not allowing the general debasement of the 
Indian system to lower their exactingstandards�察─�noted The Wall StreetJournal ��April 
16�察�2003��。 ;You couldn't bribe your way 

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