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Are products owned when bought?

-December 06, 2012

A product sale involves an economic exchange between buyer and seller. The buyer gets the product and the seller is usually given money in exchange. The seller is free to do with the money as the seller chooses. The buyer is free to do with the product as the buyer chooses - or at least that is the ideal in a free market. When the buyer has freedom from the seller regarding the product for the time the buyer has it, that is what I call total ownership.

In earlier times in the electronics test and measurement industry, T&M companies had an open-source policy for their products. Tektronix and H-P would publish detailed technical information about their products so that the customer not only had the physical product, the information about the product accompanied it. The customer was thereby less dependent on the seller in interacting with the purchased product, such as repairing and maintaining it. To the extent that the buyer continues to be dependent on the seller for the use of a product, the exchange has not been a free transaction in that a dependency persists.

In the early decades of electronics, before WWII, some manufacturers did not exercise an open-source policy. Companies such as those of Howard W. Sams and John F. Rider arose. They reverse-engineered products and offered a packet of technical information on them, oriented to the local radio-TV repair shop. Most manufacturers would be supportive of these efforts, though they themselves did not expend the time and effort to provide this information to the buyer. (They did often work cooperatively with the disclosing companies.)

The trend in recent decades has been an increase in the dependence of the buyer on the seller. Trends in technology might account for some of this. Microcontrollers are custom products because of the firmware they contain. Other customized or unmarked parts make the buyer dependent on the seller for replacements. Many manufacturers are now not only not disclosing information to the buyer in manuals or other technical literature, they will not do so when it is requested. The local radio-TV repair shops have all but disappeared, removing the market for reverse-engineered information. Their disappearance is in part a consequence of larger global economic changes, such as foreign manufacture of products at low cost.

Instead of being repaired they are discarded and replaced, giving rise to repeat sales and the illusion that the product is low in cost to the buyer because of its low sale price. The buyer maintains a dependence on the seller to continue to supply the product. This often does not occur in that product lifetimes have also become shorter and often a given product can not be replaced by the buyer. The nearest equivalent can be of less quality because in the interim, the manufacturer has learned what corners can be cut and still offer a semblance of similar functional capability.

Sellers will offer a guarantee to the buyer to replace a dysfunctional product or reverse the sale, whereby each returns to the other what was exchanged. In effect, the seller has agreed to a limited dependence, for a time (or distance, for vehicles), during which the customer is able to ascertain whether the claims of the seller about the product are true. Without a guarantee, the buyer must perform on the product what due diligence is required to avoid misrepresentation of the product or even fraud by the seller. Product claims by sellers are usually in the form of specifications, which are functional definitions of products, not technical explanations. The customer is told what the black box does, not what it is. To the extent that the buyer does not know what it is, the seller maintains a dependency over the buyer in that the buyer is not free to choose who repairs or maintains the product.

Why do sellers have a closed-source policy nowadays? Obviously, this hinders competitive copying. Once the information is disclosed to a buyer, a competitive seller might be a buyer. Nondisclosure agreements could be effected between buyer and seller, but with multiple agreements in an imperfect world of industrial espionage, the information is no longer secured by the seller. If disclosure of product information places the seller at a significant competitive disadvantage, then why was it common industry practice in T&M instruments for decades?

Sellers who freely disclose information about their products are not hurt by it as much as it might at first seem, if they are progressive enterprises. Copying companies are not those leading the field. It takes time for a second-rate copier to reverse-engineer the product, even with the help of a product manual with circuit diagrams, parts lists, and mechanical drawings.

If the originating company is selling their products at a competitive price, the copier is not only late to market with a possibly inferior product but is not offering any distinctive competitive advantages. Consequently, to compete, a lower price is about the only advantage that can be offered. If the originator is manufacturing products by taking advantage of whatever advantages exist in global labor rates and parts costs, then there is no room in the market for a copier, except for value-added customization. The originator, in making product information available, endears the customer by respecting the buyer’s freedom of ownership. There is nothing more that the copying competitor can offer in advantage over the originator.

The U.S. government once sought out other electronics companies to copy a Tektronix oscilloscope for sale at a reduced price. The inside humor at Tektronix about this affair was that the copied ‘scope had extra holes intentionally placed in the chassis that were not used except as evidence of copying and which showed up in Air Force manuals of the copied ‘scope. The copying company also copied the holes.

Tek sued the U.S. government in 1961 for “just compensation for the government’s use of our patents in awarding oscilloscope contracts to two other manufacturers”, and many years later won the court case, though it was by then a wan victory which bumped profit-sharing up one pay period. However, it set a precedent in disallowing the U.S. government to infringe private patent claims with impunity. (For more on this story, see the book Winning with People: The First Forty Years of Tektronix, by Marshall M. Lee, published by Tektronix, Inc., 1986, pp. 241 - 244.)

In a better economic world, product information disclosure would include all that is required for the owner of the product to be free of the manufacturer in the use, maintenance, and repair of the product. This would include object-code downloads for firmware and winding details for magnetic components. Total ownership might also include the freedom to modify the design of the product, to customize or adapt it to the customer’s particular use. However, there are some limits, based on what was intended in the sale exchange.

Most manufacturers intend for the buyer to be able to use the product according to its advertised function, not other functions to which the same physical product might be put. Limitations in intended use are usually implicit in the agreement of the sale exchange. Source code need not be disclosed, or the engineering notebooks of the designers, because competitors could gain insights from them that increase their ability to compete. H-P and Tek never went this far, though they published literature that encouraged the customer to understand the technical concepts of their products. One cannot expect that H-P would have published a booklet titled, “You too can be an audio oscillator manufacturer”.

With product freedom through total ownership, product lifetime takes on new meaning. If the supplier has equipped the buyer for product independence, then for a supplier to cease support of a product means little in practice; the product is already supported in the field. Technology-enabling products, such as integrated circuits that buyers presumably cannot make, depend on multiple sources for continuance, or on companies such as Rochester Electronics, to provide a continuing supply of legacy components - those enduring parts that transcend the notion of a product lifetime.

The total-ownership-oriented company takes this into consideration in the choice of components used in product design. IC companies that introduce many products quickly, like some book publishers, as market testing for high-selling parts can expect designers seeking legacy parts to generally avoid their products. So can semi-custom IC suppliers who offer parts for general sale that have one large customer. Once the high-volume customer no longer requires the product, the volume does not justify its continued production, and those who also designed it into their products find their product lifetimes tied to that of the product of the main customer.

There is a need for a return to the open-source way of doing business in the sale of products. A few companies have largely continued the H-P and Tektronix tradition and continue the older Tek culture, such as Audio Precision, Inc. As the developing world expands in population and economic importance, the need exists to be able to repair and maintain T&M equipment locally. The optimal developing-world supplier is not only open-source but also designs products by minimizing the number of custom (or single-source) components in them. They are built and packaged so that no expensive, customized tools or fixturing are required to work on them. With independence from the manufacturer for ongoing interaction with a product, a buyer achieves total ownership.

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