The Economics of Free 119
Wired's editor-in-chief Chris Anderson is working on a new book, to be published next year, about the idea of "free" in the old and new economies. Wired is running a long excerpt from the book and some sidebars about the economics of giving away, e.g., CDs and directory assistance. Techdirt has a few quibbles about Anderson's ideas — mostly areas in which he may be shading the argument to sell more books — but mostly buys that the equations of economics continue to work when zeros are plugged in in judicious places.
Well.. (Score:5, Insightful)
Lets see what he says when his book ends up on Piratebay. He is giving away the book for free, right?
Re:Well.. (Score:4, Funny)
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WEll, getting paid to provide content via comments, photos, etc is different than being paid just for reading/looking at it. I think the "consumers" will continue to pay either directly or indirectly through advertising. But I agree that there might be some room for contributers to et paid.
Just may $0.02.
Lessig's 'Free Culture' on pirate bay? (Score:3, Informative)
credible? (Score:5, Insightful)
He also wrote the book The Long Tail, which was a New York Times best seller. He made a lot of money from that, despite the fact that he wrote the book in public view and with public input on his blog thelongtail.com. In fact if you go to that blog right now you will see him discussing the monetary benefits of giving away books.
I don't think it hurts his credibility that he sells the book, actually I think it helps him. Lawrence Lessig's book has a higher purpose of promoting free culture, while Chris Anderson's book is simply observing the changing state of economy. Mr. Anderson is already using the techniques he outlines by giving a long excerpt, and blogging about the contents of his book.
Re:Well.. (Score:5, Insightful)
He's not giving away the book for free, he's making money on a handy paper version that looks nice in a bookshelf and is easy to bring on the train. At the same time, he is strengthening the Chris Anderson brand.
A good author will manage to get paid no matter how rampant piracy gets. JK Rowling sold a handwritten book for 1.95 million pounds.
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And then gave the money away to charity [bbc.co.uk], 'cause she didn't need it.
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This works very well in a small world, like that of famous-and-accepted technology commentators. However, the number of people who will be able to rise above the mass yammerings in the next generation, without being selected by somebody with money and an established media presence to give them a pulpit, is likely vanishingly small; and the bootstrapping problem will only get worse with collapsing publisher profit margins. In any event, mass
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So I'll toss and mix your post a bit and say that organized publishers care about selling to the masses, "promoting comfortable mediocrity". And individual artists/authors operate in "small words", and are more deeply concerned with outputting quality.
The future is filled with niches. Instead of 1 big thing, you'll have 100 small ones. And since you can easily google the 5 that are amazing for you, it does not matter if 95 are crap. (And really, they
Re:Well.. (Score:5, Informative)
Actually, yes: [mediapost.com]
of course the ultimate in free is WAGLESS ECONOMY (Score:1)
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I have yet another site that hosts some 20+ million pages that are all available for free, monetized by Google ads.
Yet another site that I'm responsible for was built for free, because of their tremendous pagerank and my option to include my backlink in the site template, theoretically raising my pagerank (eventu
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cd and directory assistance... (Score:1)
WiReD, dead tree edition available free. (Score:2)
The DTA mentions that you can get the dead-tree edition of the mag for free by going to www.wired.com/free [wired.com]. First 10,000 only, though, so better get crackin'!
Free, huh? (Score:2, Funny)
To get it, you must live in the USA. That's a heavy burden [dhs.gov] to get a 'free' magazine.
Hope you guys can fix everything with your election.
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Hope you guys can fix everything with your election.
Public Mindshare (Score:5, Interesting)
I really don't see the big statement he is trying to make.
tech advances (Score:3, Insightful)
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as long as there is value in society, it will be offset by cost. you may be able to write off some cost, or make it so minimal that it is insignificant, but cost will always coincide with value...it will almost certainly always exist.
his book should be called "offset value". free is worthless.
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Revolutionary occurs when the authorities cannot enforce the market system at an acceptable cost. This is essentially what is happening with the online sharing of music. Musicians and music publishers can try to make a virtue of necessity, but they can no longer exercise any control over distribu
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Nothin
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Even your enjoyment of sunshine (if you're not a pure
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Awesome post. Well put. I couldn't have stated it better myself.
Digital data is to the point where it "can be thought of as free and used like it". I agree with bands giving music away and making money on merch and shows.
I believe writers should give away their words, and then accept post-transaction donations from customers who enjoyed them. I am a little disappointed, in fact, that the article does not link to a Free version of the book in question... a Wired article of "a significant portion of i
Information and software may be "free" (Score:2)
I
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Re:Public Mindshare (Score:5, Interesting)
Over the past decade, however, a different sort of free has emerged. The new model is based not on cross-subsidies -- the shifting of costs from one product to another -- but on the fact that the cost of products themselves is falling fast. It's as if the price of steel had dropped so close to zero that King Gillette could give away both razor and blade, and make his money on something else entirely. (Shaving cream?)
Second, how the fuck is Gillette making money off shaving cream not a cross-subsidy?
2 paragraphs later, he has this to say:
Those are all cross-subsidies.
Bands* are trying to drive sales of CDs, merchandise & concert tickets.
Ad-supported gaming... the advertisers are subsidising it. My instincts say "not free"
free-to-try MMOG. "to try" being the operative words. the "try" is subsidized full cost customers.
Google... see ad-supported gaming. We pay for it by looking at advertising & hopefully making a purchase.
If "free to consumers" is TFA's definition of free... I guess I have to disagree. Costs are being lowered & shifted around, but they are still there, someone is still paying and I'm still looking at advertisements.
*NiN actually is a good example of free, they've literally given away the raw audiomixes for most of their Year Zero album.
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::Sigh:: Those are all cross-subsidies.
Mod parent up.
Open Source is another example of (dare I say it) not free. It takes labor to create and maintain. The difference is that, to some extent, the consumer is putting in the labor. The consumer becomes the vendor.
In fact open source doesn't obliterate economic theory, it exemplifies it. Software exhibits economics of scale, the bigger you are the cheaper it is to produce. Traditional companies have to make significant investments to make a good product. Open source makes considerable invest
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Very insightful, but Gillette making a profit off of shaving cream alone (and giving away razor/blades for free) doesn't smell like a cross-subsidy because you don't have to buy the shaving cream first to get the free stuff. I guess you could think of the razors as advertising for the shaving cream.
As for the rest of the stuff... ad-supported MMOGs being the new wave of "free"? NetZero, AT&T, etc. did that crap to my parents with "free" ad-supported dial-up that always crashed full-screen games lik
Even NiN cross-subsidizes (Score:3, Informative)
Despite all the pretense (Score:4, Interesting)
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Microsoft (which is no longer a Silicon Valley firm, I know) would make no money today if XP and Vista were free.
They never were, but ok. Would they make money if Windows 3.11 was free?
Intel would make no money if anybody could just copy Intel chips.
Which Intel chips? The ones they just finished designing or the 8086?
If they were free, nobody would bother with Linux. Where are the linux billionaires?
Now you're just trolling.
Nor would biotech companies make any money if anybody could just copy their inventions.
Yes, ok, as you're unable to make the point, I'll make it for you. Companies need time to recoup their investment.
But after the investment of initial development is paid off, it is pretty hard to argue that they need IP protection to stay in the market.. they can compete like the rest of the players.
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Intel would make no money if anybody could just copy Intel chips.
Anybody can copy Intel chips. The chip design can be analyzed and reverse-engineered, it wouldn't even take much technology or time. However, the manufacturing process is quite expensive and R&D (i.e. newer, faster chips) plays a large role in profits. The Chinese certainly could just copy Intel chips, with no or few economic reprecussions, but they cannot do it better than Intel.
Where are the linux billionaires?
Mark Shuttleworth seems to be doing quite well, as are the
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Silicon Valley makes most of its money from hardware. [google.com] That was just a short list off the top of my head. Notice that they're all valued in the billions, 10's of billions, and 100's of billions.
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Check out Microsoft, Google and Oracle for companies that make most of their money from software(and nearly offset the market caps of all the stocks you listed). Any list that doesn't split earnings/revenues/market cap between hardware and software and isn't exhaustive, isn't going to be worth it.
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More than hardware revenues? Care to back that up with a link?
Check out Microsoft, Google and Oracle for companies that make most of their money from software
Google is *NOT* a software company. They're an advertising company. Google *sells* advertising. If you're going to attempt the "use" route, then you'll need something to refute the high costs of all that hardware and cabling in and between their data centers. As for Microsoft, did you know they sell hardware too? Alth
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http://www.ibm.com/annualreport/2006/md_4segment.shtml [ibm.com]
Anyway, they make more than 2/3 of their revenue providing software and services, and a little less than 1/3 of their revenue on hardware. Much of their software and services is built for their hardware, but they will work with other
Re:Despite all the pretense (Score:5, Insightful)
Basically, whoever is rich is someone who's smart enough to figure out how to get other people to perform labor for him. The pyramids were built without money, (as far as we know,) yet we would consider the pharaohs very rich.
In a free economy, the rich person is whoever can figure out how to get the most people to labor his benefit. One becomes rich by organizing labor so that everyone benefits. The challenge is finding a motivation technique that can satisfy laborers more then money.
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Furthermore, I can imagine a series of fabrication technologies, for example, that make mp3 players so cheap as to be essentially free. There's no imaginable (currently) technology whi
Here is the motivation (Score:1)
Re:Despite all the pretense (Score:5, Insightful)
Spread all around the economy, ranging from Google to mom'n'pop shops. The linux billionaires are those who _use_ linux and save money. Coincidentally, the very same are often those who invest time back to solve their own problems, as the money they save far, far outweighs the money it'd cost to roll their own from scratch.
The fact that someone is making money from monopoly protections does not mean that it's good for the economy as a whole. We could hand out monopoly rights for air, and you'd get a huge AirCo, developing amazing technology for measuring how much air each person was using and charging for it. They'd certainly make money, but we'd all be poorer by paying for a resources that would have been produced anyway.
Linux, BSD, and all Free Software proves that software would be produced anyway.
If anyone could just copy chips we'd get the same economy there. There are many 'open chip' projects around.
The purpose of the economy isn't about 'making money'. The purpose of the free market economy is to maximize the creation of wealth by encouraging competition in overcharging sectors and constantly lowering the costs of production. When the cost of production reaches zero we've all won; we've got infinite wealth.
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Do they really save billions of dollars? Does every company have to become a Linux specialist to "invest time back to solve their own problems"? Or were you going to argue that "that's
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The purpose of the economy isn't about 'making money'. The purpose of the free market economy is to maximize the creation of wealth by encouraging competition in overcharging sectors and constantly lowering the costs of production
That, and to distribute scarce goods efficently (as in letting the consumer decide which scarce products he wants/needs the most).
One thing that is often ignored in economics is the fact that in a free market, the price of the product has more to do with the cost to produce it than it has to do with the value of the product itself. As long as there is healthy competition (something needed for a free market to function) and the consumer are informed (another needed thing), the producers will never be able t
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The purpose of the free market economy is
to eliminate scarcity.
Your long-winded version is correct, but mine makes a better slogan. And I am not sure what "infinite wealth" is.
My aim for the ultimate economy would be where automated machines do all the jobs that humans don't want to do, so that we are freed up to do the ones we enjoy. The way it is now, I think there are a ton of people working jobs that they don't enjoy simply to "earn a living". It would be better for those people to go back to school and further their education. Also,
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so, the developers get shafted and the people that use it for free save money. I think the original poster was talking about a company that sells linux as its main product (Not someone that uses it for free).
"The purpose of the economy isn't about 'making money'. The purpose of the free market economy is to maximize the creation of wealth by encouraging competition in overcharging sectors and constantly lowering the costs of production. When t
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This is how society advances, technology increases economic efficiency and wealth such
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This isn't true. In the past couple of months, I have passed over OSS projects for their proprietary counterparts. Mainly because of features and usability. I see some open source projects that are in the equivalent of the digital stone age.
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This isn't true. In the past couple of months, I have passed over OSS projects for their proprietary counterparts. Mainly because of features and usability.
How much of that is due to competition being shut out by patents and copyrights?
You are forgetting an import part of the equation: human nature. Without an incentive, nothing will get completed (one can look at all the abandoned projects in sourceforge or freshmeat for a good example of this). Money is the prime motivating factor.
Well, I'm an economics expert, maybe the best in the world on this topic. The underlying incentive for all creation is not "money" but the the results (value) that the creation imparts (yes, this is economic wealth, a form of "money"). People will only develop code for others because others have a need for the results that code can give them. This means removing copyright/patent monopoly alleged incentive does not in the sligh
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none. I was going to use a open source mail server only to find out that all of them are pieces of shit. I ended up using a proprietary one that is much better in terms of features and support.
"Well, I'm an economics expert, maybe the best in the world on this topic. The underlying incentive for all creation is not "money" but the the results (value) that the creation imparts (yes, this is economic wealth, a form of "money")
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You are working backwards... (Score:2, Insightful)
Silicon Valley has and continues to derive the vast majority of its income from intellectual property protections for its software.
It could be true. Do you have numbers backing up that claim, or are you just assuming it must be true because that is how your world looks like?
Regardless, Microsoft (which is no longer a Silicon Valley firm, I know) would make no money today if XP and Vista were free.
I believe Microsoft Office would continue to sell well even if XP and Vista were free. I also believe that the vast majority of businesses and many home users would pay for a subscription to "Windows Update", even if the underlying operating system is free.
Intel would make no money if anybody could just copy Intel chips.
You mean, if anyone had a billion dollar fab in their backyard? Technically true, as you can interfer any
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The only academic research I know of that has been done into this came to the conclusion that patents made little difference to semiconductor R & D: the main incentive was to get products out before the competition.
Like a lot of pro-patent arguments, your turns out to be an unfounded assertion.
That is a red herring. It does not matter how much money people make, as long as the products are developed. The ex
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That sounds interesting; do you have a handy link or other reference?
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Bronwyn H. Hall and Rosemarie Ham Ziedonis, The Patent Paradox Revisited: Determinants of Patenting in the US Semiconductor Industry, 1980-94
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=158610 [ssrn.com]
drafts of both that and this:
Bronwyn H. Hall and Rosemarie Ham Ziedonis, The effects of strengthening patent rights on firms engaged in cumulative innovation: insights from the semic
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Because, as a rule, people don't mind paying for something they perceive to be worth the expenditure of money. You can use any product you want; cars, movies, books, knives, all are measured both in number of units sold as well as how much money was generated by their puchases. Statistics are kept on the best selling products as well as the most profitable products. One can use those statistics to show that product
What would Steve do? (Score:2, Interesting)
Google 411 didn't work so well for me (Score:1)
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A real use for Free (Score:2)
When I come to
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Yeah, you're right. GOOG [yahoo.com] isn't worth anything anymore and doesn't make any money.
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BTW, HP is worth $125B. Google is worth $149B. Stop pulling numbers out your *** and start backing them up with proper facts.
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Nothing new (Score:5, Insightful)
- give some X for free so they buy more X later
- give X for free and sell supplies for X
- give X for free and sell advertising on X
All done for many years by such a diverse group as drug dealers, razor manufacturers and magazine publishers. There is not a single example in the article that doesn't fall into one of those three categories.
It may be true that the Internet is a making that kind of marketing much easier and more common, and it may be an interesting subject for a book. However his approach is needlessly sensationalist: "$0.00 is the future of business", "free changes everything", "freeconomics" etc. It's worth remembering that the same laws of economics (and laws of nature) still apply as they always have. A business can only survive if it sells its products for more money than they cost to produce. The rest is just marketing tactics.
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- give X for free and sell supplies for X
very similar:
- give X for free and sell support for X
- give X for free and sell customizations for X
Or even:
- give some X for free so they buy more X later
- give X for free so they buy Y later
be it just that people now trust the brand or that they have been "locked-in" and now need the other components of the system - for example, Adobe Acrobat Reader is free, the creation tool is not.
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A business can only survive if it sells its products for more money than they cost to produce.
wrong. A business can only survive if it makes more money than their products cost to produce. It is not necessary to make the money selling the products. The point is that it isn't even feasible to sell products if they can be made extremely cheap, because people don't like using their credit card for 1 cent. But since you can reach a huge public with a product that cheap, you can find other way to make money, based on reputation/ mindshare / attention or however you want to call it.
Is this new? Maybe
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1. Create X that you and some other people need.
2. Make X freely available.
3. Watch people helping to make X better do what you and some other people need.
LIBRE (Score:1, Troll)
Why not use the French word "libre". It is already well known.
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(Yes, contrary to what NERD RAAAAAGE will tell you, this is important. If normal people can't understand you, they'll write you off.)
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As long as you have competition, market value is far more dependent on the cost of production than it is on the actual value of a thing. Actually having competition and a decently informed market is another matter though.
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In markets with little competitition, such as your picasso where the value is in owning the original picasso you have a scarcity that the seller can use to set a price far above the production cost of the item.
Note that competition is a relative term. Unless two items are percieved to be exactly the same, they aren't competiting fully. They can still be competing to a certain degree though. Many successful business make a living by maki
Free, Free, Free (Score:1)
I used to edit wikipedia, until they deleted my article on the 'aerodynamics o
The secret is in the t-shirts. (Score:1)
Predictably Irrational (Score:2, Informative)
I heard a story on NPR a week ago about a new book by MIT Professor, Dan Ariely, talking about what happens to our "rationality" when we are offered something for free. From the interview, it sounds like the rules of economics break down when we are offered something free.
http://www.predictablyirrational.com/ [predictabl...tional.com]
http://www.npr.org/templates/story/story.php?storyId=19231906&ft=1&f=2 [npr.org]
Re:Free as in beer? (Score:5, Insightful)
The sheer elation that you get from the freedom provided is definitely not worth the ignorance lost. So remember folks, don't use free stuff because you might learn something, and that would be terrible.
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The amount of knowledge in the world is essentially infinite.
It's best to stop trying to learn everything after you figure out that Grimace is the big purple dude.
Re:Free as in beer? (Score:5, Insightful)
Yeah, see... Most people don't use computers to learn more about them any more than they (sorry in advance) drive cars to learn about them. They do both to solve problems in their lives. Linux solves basically none of my problems and meets none of my requirements of a computer.
I respect playing with things to learn. I play with Linux, too. But I work with OSX and Windows.
You're not better than people who don't care to learn about computers; you just have different interests. I know a lot about tuning 50cc scooters to go way faster than they should (and have, unfortunately, the 30-day suspension on my license to prove it). But I don't denigrate people who just want to hop on one and go to the store and back. They're not dumb or lazy; they just don't care.
So, while I'm glad you enjoy editing .conf files, I encourage you to explore the possibility that people who don't just... don't.
They are not mutually exclusive (Score:2, Insightful)
I have spend years playing with Emacs, and as a result, I can do stuff in seconds that others spends hours on with lesser tools. Seconds compared to hours sounds like a great win, but only if you ignore the years mentioned earlier in the sentence.
Basically, learning your tools does wonders for pr
Re:Free as in beer? (Score:5, Interesting)
This statement needs a bit of clarification before I can argue with it. As it would be too slow to ask for clarification I'm going to assume the following:
- stuff the people don't care to learn is stuff like intermediate and advanced levels of configuration, programming, CLI and the like, but also set theory, theory of data, theory of communication etc.
- the better you are referring to is not ethical, but mainly economical, societal and utilitarian.
First off, I would want to agree with you that people do need to make decisions about what to learn. Even though you will spread that learning throughout your whole life there's just too much stuff to know. However, it a dangerous self-deception to think that you can ignore computers and not have negative consequences to yourself in terms of your economic prospects, your fitness to society and your personal happiness.
It is really hard say what level of knowledge with computer should be considered a citizen skill(*), but it is more than basic OS usage and knowledge of specific applications. I think people should be able to command their computers. To this logic and set theory are most important, although any specific formalism unimportant and those used by experts of the particular fields are probably counterproductive. A working knowledge of a general command language is probably a must, although you may be able to get by with GUIs. A general command language is of course also a programming language, but don't let that fool you. Programming (i.e. building computational systems) isn't part of the operational ability to command a computer.
For better or worse, computer skills aren't just another technical skill that might be fun to have. Computers are the foundations of our current and future prosperity. They are the means of production and communication of our societies. Computer knowledge is power. Computers can't be just a purview of engineers.
(*) A skill nearly every citizen has or is expected to acquire. I know this is a very Finnish concept, but I'm not ashamed of that.
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Set theory really isn't terribly important to understanding how to run a computer. Logic, yes, but logic is important for day-to-day life -- I mean real logic, not the inaccurate-to-cognition formalisms of symbolic logic, and oh hey, that's actually more significant to computing!
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It is a common mistake, but a mistake still, to think that the program's logic is more important than program's data. For everyday computer use this is even more of a mistake. People have data and they need to use it. First and foremost they need to understand that this data is a set of sets of datum. All important computer operations that the everyman needs to do transformations between two sets. The amount of logic required for the transformation is often tri
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Re:Free as in beer? (Score:5, Funny)
On Windows I submit weekly reports about hours and answer emails of people who are lazy enough to lift their behinds and walk 10 feet into my office, I write documentation that nobody reads, I waste my time browsing websites.
Linux makes me think. Windows makes me a slob.
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Not to feed the trolls, but, isn't that more of a choice, rather than a result of an os? Seems likely your attitude towards windows makes you a slob.
I use windows with photoshop, my friend uses OSX with photoshop- he isn't more productive than me...
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What I am saying is that if you do computational science (that covers all bioinformaticians), Linux is your choice. And I would be very suspicious of a scientist who uses Photoshop
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Their hearts are broken. Their spirits are crushed. They retreat to their parent's basements to bask in the comforting glow of boxen and resume coding free software to numb the pain.