The government, through the Domestic Trade and Consumer Affairs Minister, wants to put all VCDs, DVDs and computer software under the Price Control Act.

Predictably, the computing industry was against it, but consumers said it was a good thing. I came out thinking it wasn't such a good idea although I agree that the price disparity between pirated and original software was one of the main reasons behind the high piracy rate in Malaysia.

What the consumers do not understand is that it does cost money to produce software.

Software has intrinsic qualities which make it different from manufactured products. It costs somewhere in the region of RM3 million to produce the first copy.

Subsequent production is RM0.50, but that is just the cost of the physical manifestation of it.

The value lies not in the CD or DVD but the information it contains. That is what you are paying for, not the disc itself.

So the argument that it is cheap to manufacture software is actually not to the point as it only refers to the cost of putting it on discs. The cost of producing the software - RM3 million - needs to be apportioned across every copy licensed over the lifetime of the product.

Value chain

The usual law of supply and demand applies. If there is a huge market for the software, then the costs are apportioned over a larger number of copies thus reducing the price of each individual copy. This is why commonly used software is cheaper than specific niche software like CAD and chip layout tools.

Also, the way software is sold sometimes inflates the price as well since the entire value chain will take a portion of the sale price.

The larger the value chain, the more the middlemen. The more the middlemen who need to be fed, the more the consumer will have to fork out. So one way of reducing the consumer price of software would be to shorten the value chain and reduce the number of middlemen.

Government regulation of price is not a good idea, for it will set a barrier which software publishers will have to meet. Publishers will then know what maximum price they can set, and only allow innovation to be below that barrier.

This will stymie the industry and in the longer run, all of our business and consumer operations.

Software is a critical part of our landscape, with the global software market estimated at US$600 billion, as compared to US$100 billion for the semiconductor industry. Software sits and powers everything today, from your personal computers to your car, refrigerator, air-conditioner and television.

If software stopped working, the world would stop working. And when you suppress innovation, you will not be able to derive the benefits of a cheaper diffusion of both technology and convenience to the consumer.

In the long run, we will all suffer, not only the software industry. Is this what we want ?

Exorbitantly high

I will submit that software prices in Malaysia are exorbitantly high for the consumer and business, but as I pointed out, this is partly due to the long value chain which feeds off it.

Reduce that value chain, and you can reduce software prices by a substantial amount. Also, open source software cuts that value chain to zero, with the consumer being able to procure the software directly from the publisher and even engage the publisher for customisation and other consultancy work.

The middleman is removed, thus benefitting both the publisher and the consumer. Also, utilising open source software is an excellent opportunity to LIVE (Learn, Innovate, InVent) and in the process become more technologically savvy.

That should be the resolution we must implement, not price controls of software which will only hurt the smaller publishers. The bigger and larger ones will be able to lobby themselves out of this mess, so they are not really worried.

Could we review this price control thing, for software is definitely not the same as chicken or rice.

Dinesh Nair is an IT consultant who uses his blog to talk about issues of technology, society and policy. He believes in the interactive nature of the Internet and would like to be engaged on his thoughts.