the licenses have always played a vital role, especially on the perspectives of legal domain. And with the flux of the softwares coming into being and how do you decipher such software licenses? This is the path we will take today across to Sivashree Mukherjee, who is a leader in the Asia-Pacific region in Kosehwara. And the today's topic would be deciphering software licensing models. And the talk seems to be quite mind-stimulating and we are looking forward to Devisree for sharing his knowledge. Or do you Devisree? Thank you so much, Mr. Vikas. And first, thank you. And I'm humbled that I was invited for this session and for something that is dear to my heart, because this was my gateway into product counseling, I would say. So I come from an engineering background as well, an engineer-turned-noir, and have been working in the intersection of technology and the law. So what my role would entail is talking to the engineers, talking to the business folks, and not just work on the product compliance of things. It would also encompass working on the commercial models. And when we say commercial models, the commercial models take form in the form of contracts or the licensing agreements. And so that's why this field is quite close to my heart. The second aspect also is that if you look at NVIDIA's export, especially in the IT services sector, the software export revenue is about $190 billion going at about 12% to 15% year on year. And software is something which is there on all aspects of our lives, whether we use a phone. Even when we use a phone, we agree or click that I agree to the terms and conditions. I mean, very few people read those terms and conditions and are not aware of those implications. But yeah, we do agree to those terms and move ahead. It's spread across whether that be Canva, where we use, which we use to create different photos, templates, invitation cards these days, to your Photoshop's using YouTube, Google. Everything is a software, whether that be hosted on-premise or on-cloud. And then there are terms and conditions. There are implications here, which we agree to, which could be in terms of our privacy rights, renewal rights, et cetera. And we'll come to a few of these while we dig deeper into this session. Before we dig into this session, I just wanted to wish everyone a Happy New Year, whoever is celebrating in different parts of India. Now with that, I'll just... So how I have tried or how I would want to conduct the session is, one, I would want the participants and thank you to the participants who've joined on a Sunday evening. Thank you so much. I would want the participants to keep asking questions in anything that they are not able to understand. I can take it slow. I can try and come back with examples there, right? Or any questions the participants may have on software license. So how I would want to structure it is, I'll talk about the commercial models of licensing first, because it's very important to really understand that aspect of it, because that's what gets translated into the license agreements. Then I'll come to the license agreements and then dig deep into the terms and conditions that should be their basis on the different types of software which are there and the different models that are there, which would help not just in-house councils, but also councils looking to work on the technology domain and these, yeah, on technology domains and even for disputes, right? Like if you understand the crux of these contracts that's when it'll help you to work on disputes, whether that be litigation stage, arbitration, whatever. Okay, so coming to the different commercial models that there are, first would be a per user licensing model. Now, what is a per user licensing model? This is a very, you know, this is where an organization, let's say, wants to buy Photoshop licenses of the domain, right? And they have 10 employees who work on creating content where they create different, let's say marketing agency, they create different marketing minutes, right? And they need Photoshop for that. So they will procure, let's say, 10 licenses, right? And these 10 licenses will be linked to those 10 users. So this is user licensing model. Now, the user licensing model can have one once. It can be a named license also, right? So for example, the marketing agency says Debra Shimukerchi and XYZ are my users, right? And you have these name licenses for these particular users and you're not able to, let's say, transfer these licenses to others. Then comes the next level. The next level is what? It says user licenses, but these are concurrent users. So there can be 10 licenses which are procured by an organization. However, in the marketing department who need those licenses, let's say there are 15 people, right? Now, what the license agreement or the business model is, is that you will get 10 licenses and you can transfer those license to others as long as there are just 10 concurrent users, right? So 15 users may be using it, but cannot use it at the same time, only 10 users can be used, it can be used. So that is the per user licensing model. Then comes the per device licensing model. Now the per device licensing model is where the licenses are restricted to your device, that laptop, the server, the phone or any of these. An example could be the operating system, right? Windows, iOS, Android, right? Some of these come with, I mean, there are different licensing models for these as well, but some of these come with a device licensing model where each of those licenses would be restricted to that particular device. And then it may have the right to move one device to the other, but then you need to lock that license to the other device and remove the license from the previous device to which it was assigned. Next, coming to usage-based licensing model. Now what's a usage-based licensing model? And this is becoming quite common these days. And this is also from an enterprise perspective. When I say enterprise perspective, I mean a company perspective. This is something which has been used because this is mainly more economical, right? Where you only pay basis your usage. So you may not be paying for the entire set, the suite of features, but you may be paying using two features or three features and paying for that. Usually the usage-based licensing model is in terms of where you have a cloud hosted software, right? And you are using that software, but for particular calls, when I say particular calls, what I mean is that maybe you are using that software for some kind of an analytics, right? So you send a query and you receive back a response. So that could be one call, right? And the usage and the pricing is based on that. Another example would be, you know, which is the in thing now, a chat GPV, right? There are certain of these models where it is per query base or a lump sum of query base. That for 100 queries, this is the amount. Or for 200 queries, this is the amount that you need to pay. So this is usage-based licensing model. Then there is enterprise licensing, you know, which is similar.  So a company can buy, let's say 100 licenses and with 100 licenses, you know, they can give access to a hundred users and it could be a rotation basis where 200 employees are there, though concurrent 100 users can use it, right? The benefit there is to get the, you know, the cost benefit is there that you get bulk discounting for that. Then comes the subscription model. The subscription model could be both for on-premise as well as for cloud hosted. It is mostly subscription we link to cloud hosted like a Netflix, right? A Netflix you pay in advance for watching the content over their platform and you pay that amount in advance for that period. So it's duration bound. Then there could be hybrid licensing models, could be, I don't know whether you've heard of this term but this is a thing now where it's called a freemium model, right? What is a freemium model? And this is picking up quite fast in different markets globally. Now freemium model is where some of the basic features of the software or the platform is free, of course. When you go to the advanced features, that's when you have to pay, right? Now someone may ask, why are you giving those basic features for free? It is because the software organization company would want you to be used to that software and when you see the benefits of that software, that's when you may want to procure or advance to the other or the advanced features. And then there could be custom licensing model which could be a combination of any of these. So these are the commercial models which are there for software licensing, right? Now, coming to the legal aspects of it, right? The different software licensing models from a legal perspective. Now, first let's start with freeware, right? A freeware is a software which is there on the internet. It says it's free of cost or it could be there in a company's website. It's free of cost. Free of cost however does not mean that there aren't licenses governing those software, right? So you may download that software. You may use the software and you may distribute the software and use it for commercial purposes but you cannot modify that software as per your needs, right? So it is free of cost to use but not to modify. Then coming to open source licenses, right? So open source is something which where many of the engineers and many business folks think that, hey, open source is free software. I can do whatever I want with those components with that software, there is no restriction. But honestly, open source is like a ticking time bomb, right? If it is not used in compliance with the open source licensing terms. Now, I will not go deep into open source because it's a huge topic. We can have a discussion separately on that but why open source is risky, right? There are certain open source licenses like a GPL license which say that if you include the component governed by the GPL license into your proprietary software, in that case that entire code base, entire code behind that software becomes open source and then you will have to put the source code out. Now, what is the source code? A source code is the inner masala, I would say, right? That you don't want others to know, you know? That is the code which is readable by a human. That can be understood by someone, an engineer who reads it and bases that you have developed the software, right? So that source code, if that goes out in the public domain then basically anyone and everyone has access to that secret masala or that secret ingredient that you had running behind the software, right? So you wouldn't really want that to be distressed. So that is why open source licenses are good to use provided you know what the terms are, right? Open source licenses kick in only when you modify that open source component and you distribute it, right? And for a software company, distribution is the primary purpose, right? Like they will sell those licenses or license out those software in order to earn the money. So you have to be very careful with the open source licenses. There are few open source licenses which say you can do everything, you don't have to disclose the source code. Only thing that you do is you give an attribution, right? That, hey, you know, this person had created this bit of code and you just mention or give an attribution for that person or the developer. Now coming to the two most common forms of licenses, one being a proprietary software license and a cloud-based license. Now a proprietary software license and a cloud-based software license, both are basically proprietary licenses. The distinction is where the software lies. When I say where the software lies, I mean where the machine learning for, right? Now what is a machine learning? Or what is an object code? Not a machine learning code, but an object code. Now an object code is something that a machine understands, right? It's in the form of zeros and ones. So the source code is changed into a machine code and the machine then understands that code and then executes the software, okay? So we need to find out where that code lies and then we get into either a pure play on-premise proprietary software license or a cloud-based license. A cloud-based license is where the object code is in a server and when I say a server, I mean something like an AWS, Amazon web services. It could be Azure, which is Microsoft's cloud or it could be any other cloud. Let's say Google cloud or any other cloud, right? So here the risk changes, the nature of grant of licenses also changes. Now what I'll do is I'll dig deeper into some of the clauses, right? And when I say I'll dig deeper into some of the clauses, what I'll do is I will try to distinguish between a product-based company where the company is a software, purely develops a software and licenses that software and earns revenue. The other bit that I'll do is I will take examples from the information technology sector, right? And that is very important considering the huge $190 billion market that's there, right? So, and all they do is they develop software for their customers, right? So there are different licensing models as well there. I'll come to each of those. Or let's start off with an IT services company, right? And the licensing elements within that. Now an IT services company is what they do is a customer says that hey, Mr. Company X, I want you to create a particular software for me and provide certain services to me, right? Now the IT services company, what they do is that software is basically a work product, and the ownership of the work product goes to the customer, right? However, there could be, but however what the IT companies now are doing is they are becoming more of solutions provider, where they will have their own software along with the work product which is created. This software element is owned and retained by the IT service provider and the ownership is not transferred to the customer. So, there could be three types of situations. One, it's a pure play product where the IT services company has a software and they give access of that software to someone, to the end customer for using. For example, what could be an example? An example could be a bank. The bank has let's say a chatbot and the chatbot in the backend, for example, SBIs, you know, it could be forgetting HDFC's name, HDFCL chatbot, all these banks have chatbots, right? But in the backend, there is some kind of software which is running and that software could be that of the IT company. Now what the IT company will do is they will have license rights and restrictions provisions there, right? In the grant of licenses, they will say that, hey, Mr. Customer, we are integrating this software with your chatbot and however, the grant is only in the object code form, because you don't want to give the source code, okay? If you do not give the source code, then what happens is that the customer is able to use it but on the maintenance side, they will still need the IT service provider's help, right? So there is a stickiness which gets created, right? And the secret sauce or the secret masala is closed to the end customer.  The grant of licenses will clearly define the scope. That is, it is integrated only with your chatbot. It is granted only in object code form. Three, you will need to define the territory that the territory could be worldwide as well. It could be India, it could be just US or it could be any combination. You need to define the period for the license, right? That, okay, this license is for one year or for the term of the services, which could be three, four, five, whatever you ask. With a provision which says that it should be revocable. Customers will say that, you know, I have paid you the money, why is it revocable? Because they may misuse the license, right? So you need to create that right to revoke the license. And that it is, whether it is royalty, whether there will be royalty included with that license or not, that you need to mention clearly in the scope of a license. Second, what you need to do is you need to define the ownership of the intellectual property, right? Here, since it's a combination with their, you know, front-end chatbot. So what you need to define is that, you know, this software that we are integrating that we had created prior to the services or which we had created for a generic purpose which we can use for others. The IT service company will retain ownership of that software, right? It is very important because in these kinds of complicated cases where you have integrations, it is easy for someone to say, especially in our IT services kind of a sector where they might say that, you know, this is a combination, we need to use it. So, you know, there has to be a perpetual license or there has to be an assignment. So you have to be very careful in defining what your software is and in also mentioning that you retain all rights, titles and interests to that software which belongs to you. Then comes usage restrictions. In the usage restrictions, you will have to specifically mention, since this is hosted on, let's say, you know, your customers, servers or computers, customers will have access to the object code, right? You would want to restrict them from reverse engineering. What customers may want to do is reverse engineer to find out the secret source behind the software. Doing that, what happens is post the termination of services or post the expiry of services, they may be able to create a software because now they know the logic, how this was created, right? In object code form, they're not able to do it but if they reverse engineer it, then they are able to figure that out. Next comes the warranty, this came as, right? In the warranty, what you do, especially when it is on-premise software, that is software is on the computers or the servers of your customer, then warranty becomes very important because the customer would say, I want this software that you've installed to be working for, say, and you have to provide me maintenance for the entire duration of the license, right? But this is where you will lose the revenue for the IT service provider or the company, right? So what happens and the industry practices, you would say that, okay, if it's on-premise software, three months or six months is when I will give you a warranty, any bugs, right, or any issues that may arise, I will rectify that for your cost for you.  Then what you need to specifically do is disclaim certain warranties, right? And when I say disclaim certain warranties, you need to first of all, disclaim that you warrant or you represent that your software does not entrench on any sexual property rights, right? Because, and why do we say that, right? This is becoming industry practice. Why do we say that? We say that because it is practically impossible for someone to really, sorry, find out whether the software is infringing on any patent, whether the software is infringing on any copyright. It is not, it is very, very difficult to figure out. Yes, someone may say that a copyright infringement only happens when there is access to that infringing material, but you cannot control your engineers, right? How much ever controlled environment to keep your engineers in, you don't know whether they have, you know, copied some aspect from somewhere, right? And I come to what happens if an infringement happens. I'll come to that as well, because the customers may say that, hey, why should I buy from you when there's no gallon, right? So, yes, you disclaim the IP infringement. On patent side of it, there is a concept called freedom to operate search, right? So before any software is launched into the market, there is a freedom to operate search which is done by a patent professional. And they will see if there are any other payments which infringes on the or which covers this product that you're launching. But the problem is no patent engineer or patent attorney can be sure that they have covered all this, right? So there could be that issue. So you do not, and you disclaim that one. You further disclaim that it is fit for a particular purpose. Why do you do that? Because you do not know always for what exact purpose the customer will be using, right? So you disclaim that. Third, what you do, you say that I disclaim any warranties which are not specifically mentioned in the contract. Now, some of the warranties that can be mentioned in the contract is that, okay, I will run a search, a bug test, right? I will run the software, I will check for any bugs or any issues or any malware is, right? And doing that, after doing that, I warrant you that I give you a warranty that there are no malware or there are no viruses in the software, right? You do that. So these are some of the warranties and the disclaimers to warranties. Then you would come to the limiting the liability, right? Like how do you limit the liability there? Now, as industry practice or before coming to the limitation of liability, let's talk about the indemnity permissions, right? As a practice or as become an industry standard in the software world, a software company will only give indemnity or third party claims for IP infringement, for breach of confidentiality, for breach of applicable laws, for fraud, misrepresentation and willful negligence, right? So these are what the company would give an indemnity for. Now, you may ask, hey, we are disclaiming warranties for IP infringement, but at the same time, we are giving an indemnity for that. Why are we doing it? Because if you do not give some sort of a protection, right? To your customer, your customers will not buy your product, right? So you're saying that I do not know whether it infringes, but if it does, I am giving you an indemnity, which will cover your losses and cover your costs. Then you come to the limitation of liability provision. Now, in one particular issue or one particular breach, you cannot break your company. It comes down to how many, how much business you're getting and how much risk. So the risk reward balancing act has to be there. So the industry standard will be, you give or you restrict your liability for the 12 months of payment for that software, whether that be a payment which is done in advance or PMS, which would be made at the end of there using the software, right? So it's paid or payable and you restrict it to the 12 months period. However, there would be certain exceptions to these, right? And the exceptions are usually if you breach law, if you breach, if there is an indemnity with respect to intellectual property. So these are usually all willful mismanaged or willful mentions, right? These are the few of the provisions for which you give a uncapped liability or you carve it out of the limitation of liability provision. The other aspect, and this is interesting is the termination assistance, right? So when you're selling to another company, that software may be a critical component of that company, right? So if it is a critical aspect of the company, suddenly at the expiry or the termination, you cannot stop your services or your software from being licensed now. So you have to provide a termination assistance period which goes beyond the expiry or the termination of the licenses in which either you win back the client where you renew the licenses or what happens is till the time the client figures out another vendor, you keep providing that software or the software licenses and it keeps being integrated with the client's systems. The another aspect which is interesting and many of us will face in the, especially in the IT services sector is with respect to escrow provisions with software. You've seen escrow provisions in other financial transactions but escrow becomes very important in software as well. What is escrow here? The escrow provision says that the IT service provider will put the source code of their software into an escrow provider. The escrow provider will check whether it's properly, all information has been properly provided and whether it can then run on the systems and whether the customer will be able to use it. Now, why is that? Let's say the vendor goes bankrupt, right? Or the IT service provided was bankrupt and it's not able to provide services. In that case, the customer for whom this may be critical is now of no use because the vendor is not able to provide the services. So you need that. Sometimes the escrow provisions will also include a clause which says that if you're reaching the contract or you're not able to provide certain services, then also the escrow will be released and we will get the source code. Getting the source code is again the secret recipe or the secret masala. So that's on the escrow provisions. Coming to now the security aspects of it, right? So there are security risks as well, less so when these are on-premise software, right? Because if it is on-premise software, it is anyway with the customer and for it to really breach, the customer's information security systems have to have played some part in that breach. There could be malware as well, but if it is due to a malware that this breach has happened, in that case, of course, it will be the liability of the IT service provider. Now, we are mostly talking about out licensing, that is, a company licensing its software to another company and in an on-premise platform, right? Let's look at it when it is hosted on a server, right? So when it is hosted on a server, in that case, there is anyways an argument which is anyways going on, which says whether it at all is a license or not, when you give access to that software which is hosted on the cloud, right? So in that case, the grant language does not say that, hey, we are giving you a non-exclusive license to use the software. It says we're giving you a non-exclusive right to access the software. And what is the difference then? The difference is where the software resides. If the software does not reside on on-premise, in that case, you're not really using the software or running the software. Software is being run in the cloud. In this case, you're just sending in input and getting out, getting an output from that, right? So that is cloud hosted. Cloud hosted software will again have another provision on the SLA's, right? Or the service level agreement, which is a very interesting concept which hits someone commercially. Now, if you look at AWS, right? On which Netflix runs, right? If you look at Azure, all these cloud service providers will provide you with a SLA and the SLA will have the uptime. That for how long or for what percentage of the time the software will remain up without a downtime. When I say downtime, I mean the software will not be accessible to someone. And also if there is a bug, how fast you will get a response if you raise a complaint and how fast it is, it can be mitigated, right? So on the first bit on, let's say a company has an SLA of 99.5% and another has a SLA of 99%. And I did a calculation, right? So if it is a 99.5% SLA, right? That means yearly one day and 19 hours, it will be down. It is 99.5%. By 0.5, changing 0.5% that is making 99.5% to 99% it is a yearly downtime of three days and 14 hours. So three times of that. If it is a critical software, for example a software running on a phone or hospital, right? And most of the software are now cloud hosted. So if the hospital is not able to retrieve data, let's say insurance data, let's say medical records, right? And it is down for three days. It is a big issue for the hospital, for the patients, for everyone. It's disruptive, right? So you need to have SLA service level reach credits as well, right? Where you say that, okay, if from 99% you drop down, right? Then for every minute or every hour or every day that you're down, you will give me a service credit, which could be a certain amount, right? Which the customer would ask in their licensing templates. Now, this is heavily negotiated between the software provider, the cloud service provider and the customer as well, right? So here also there's an interesting concept where you restrict the credit pool, right? So if the credit pool is restricted, then yes, the customer is also happy that they are getting certain credits. There is certain, without going to the court also, you have some remedy here, where you get the credits and you don't have to pay for that much amount. As well as from the, if you have restricted the pool of credits, then the service provider also knows the maximum liability in this case, right? And this is other than the limitation of liability, which is anyways there in the contract. So this is about the online or cloud hosted software. Cloud hosted software again has a very, there is a very important aspect now to cloud hosted software as well. What is that? That being, let's say this cloud hosted software is for a hospital, right? Now this hospital will need to share personal information, right? In this case, the data privacy laws will kick in, right? If the data privacy laws now kick in, in that case, you will also now have to have a data processing agreement between the cloud service provider and between the software which is hosted on a cloud and yourself or the customer, right? What will it say? It will say that first, hey, you need to comply with all the applicable laws. Two, you need to have, you will use it only for the purposes of providing services to us. You will not use it for any other purposes. And if there is a breach to notify me further, if it is, if there are financial or payment related data, you cannot keep it outside of India. If it is outside of India, it has to be processed and deleted real time. So all these provisions, not getting into the details of that now, it's a whole other topic. But those are the things that have to be mentioned in the data processing agreement. Note that the data processing agreement is an obligation on the buyer or that is whoever is collecting the personal information and sending the personal information, right? Or deciding the purpose. So a vendor may say that, we don't need a data processing agreement, but it is your responsibility to sign a data processing agreement in order to bind the vendor so that some of the services that are being provided by them as part of your larger services that also gets covered and you kind of cover or mitigate your risks. So, yeah. Now cloud service providers will also have one more aspect which is an end user license agreement, right? And end user license agreement is nothing but what you click as I accept without really reviewing or not always reviewing the terms and conditions. Now there could be pitfalls there as well, right? What could be the pitfalls? Pitfalls could be inadequate scope, right? If you do not know for what purpose you're supposed to use the licenses and you go beyond the scope, then you are in reach of license terms. And mind it, many of the software, they have audit provisions, license agreements have audit provisions where they can audit your systems, they can audit your networks to the extent some of the software components also ping their servers back at their, ping their servers back with the customer which says that hey, I have been now installed in this computer or that computer and then the software manufacturer or the software developers or the software company will see, okay, this company has bought these many software but it is installed in many more devices, right? So that becomes challenging. So you need to know what is your scope, the number of licenses that you have. You need to read the terms. There could be issues with respect to termination provisions, right? What could be the termination? And especially when it comes to something like, let's say a Netflix kind of a service, I'm not saying specifically Netflix. You know the renewal provisions, right? Whether you are able to come out or unsubscribe of the services, right?  So those are the kinds of terms which would be there. From a company's perspective, it could be a lack of, let's say warranty disclaimers and especially if you're a global company, what lack of warranty stores does is, some implied warranties which are there by law which could have been disclaimed by adding to the contract. Not all warranties can be disclaimed. There's certain warranties which could have been disclaimed. If you do not disclaim those, those also apply to your product and to the usage there. So you will be subjected to those warranties as well and that increases your risk. Then there could be a inflexible, let's say pricing models, right? In adequate security or data provision clauses which could be there. So all these issues then crop up if you're not feeding the end user license terms. So if you look at a cloud hosted software, there would be these three main agreements that you follow. One, just to summarize, one, there would be a SaaS agreement which would be basically an agreement between the end customer and the service provider. Two, there would be terms of use. Terms of use will define how each user will use the software, the purpose, the scope, et cetera. So those would be covered. Three, the service level agreement which I just described, which is how they will respond, how they will fix the uptime, the downtime, et cetera. In, just to summarize, in proprietary on-premise software, there would be a simple license agreement which would again define the terms, define the ownership, define the usage restrictions, define the warranties and the same as the limitations of liability, the termination, the governing law and jurisdiction. Those would be defined. And finally, the open source license aspects, including open source in certain software, like I said, is risky. You should always read which open source licenses being used. For example, GPL, AGPL, these are of high risk because they put your source code in jeopardy where you need to disclose those. MIT, et cetera, are licenses which are less risky and do not require your source code to be disclosed. So that's a overall or bird's-eye perspective on the different license models and some of the terms. I just wanted to understand as to because, I mean, how much time do we have or if we can take any questions, if they are there. That's true, whether we have any questions. I was seeing that you have made it understand in a lucid manner. So, no questions are possible. Okay. Yeah. All right, so I think, yeah, so that was, I mean, a very broad level perspective, of course, digging deeper into, we could be deeper into each of these, those would require further time, but happy to answer any questions if there's anything on participants who have joined in live or happy to take them offline as well. I just saw the YouTube as well as on the chat. They're none. Okay, okay. Thank you, Dheeshvi. Thank you so much. Thank you so much, Sivikas. Thank you so much, everyone for joining in live and whoever. And yeah, you know, happy to discuss, please connect. Happy to discuss any provisions, you know, which may seem a little complicated or which we would want to discuss, yeah.


OK, let's begin the lecture. The lecture is on calculation and socialism. Socialism is a very important topic because in today's world, we have a group of people known as progressives whose goal is to impose a socialist state on many Western countries, but not to do it in the way that Marx wanted to do it, that it's through revolutionary means, but rather through an evolution of interventions that is government encroaching on the market in different areas. One thing socialists have learned is that if you don't have a market, you don't have any means, any host to exploit and to be a parasite on. So modern progressives are in favor of sort of keeping the market. But they want the market hemmed in by government regulations. They want interventions that transform the market in a way that brings about egalitarianism. So calculation is still important, even though we don't have revolutionary Marxists anymore. We now want to use revolution. The progressives, by the way, want to use sort of a mass democracy to transform the market economy and to implement several goals, including and especially egalitarianism. So the most important article, I think, written, economics article, written in the 20th century was the article by Ludwig von Mises, Economic Calculation in the Socialist Commonwealth. And that really kicked off the modern debate over socialism. And we'll talk about what socialism, what the debate was before Mises, what were the lines of debate. But importantly, the first article really just completely destroyed the intellectual foundations of socialism. Socialism really never recovered from this blow. All the arguments that they brought forth later on, Mises had already touched on. Now he expanded on this article in Human Action in 1949. This article was written in 1920. But the seeds of all of the later criticisms, by him and by others, were in this original article. Not only was it a complete refutation of the case for socialism, the economic case for socialism, but it was also a revolutionary breakthrough in price theory. Because in this article, Mises set out what the function of prices were. The function of prices were to be used as means of calculation by entrepreneurs. So it was tied up with entrepreneurship, which you've heard quite a bit this week. I also direct your attention to the epilogue of this article by a notable modern Austrian economist. I recommend that you read that. So there were two kinds of socialism before Mises wrote. Scientific versus the utopian socialism. And you could refer to a lot of the progressives today as utopian socialists. They all have schemes, different schemes in their minds, about how they would like society to look after the great transition through mass democracy. Utopian socialists back then were two famous French writers, Charles Fourier and Henri Saint-Simon. And then, I guess, a Scottish writer, Robert Owen. The scientific socialists, of course, Karl Marx and Friedrich Engels. And we'll explain where the term scientific comes from. OK, it isn't really descriptive of what their socialism is. Let's focus a little bit on the utopian socialists, because they explain why Marx took the tack that he did. So this is Charles Fourier. You can tell just by looking at him, he's up to no good. He's thinking. He came up with an idea called the Fallen Stair, which was based on a Greek military formation. Utopian socialists and probably the progressives today are have a mania for symmetry. They'd like everything to be just so. So his idea of a Fallen Stair was to have garden cities modeled after a grand hotel of 15 to 1600 residents. I mean, they numbered. I mean, they had the exact numbers. I mean, everything was quantified. Everything was set out very neatly. Each resident would be able to purchase accommodations according to his income or her income tastes and tastes. All residents would be stockholders in the city. They'd be collective production. And everyone would share meals in a communal kitchen. They didn't like private life. Privacy was a hoarding of your own time. I just read an article by Murray Rothbard that I had never seen before. I read it a few days ago. And he makes this point. It came out just after he died in 1996. It's called the egalitarianism and the elites. I recommend everyone read that. But that's why socialists don't want privacy. They don't want private cars. They love public transportation. Because being in private, having solitude, is hoarding time, keeping it from the rest of society. Dirty work would be shared. Now, here's a sketch of the Fallen Stair. This is exactly how it should look.  How do they know this is the optimal way that society should be arranged? Well, they all have what's called the gnosis, a secret intuition that no one else is privy to. Each socialist has this private source of knowledge. And he even had a little model of the Fallen Stair developed for himself. Now, that's what it actually looks like. There was one that was built in Mommeth County, New Jersey, which is the next county over for me. And so that's the reality of socialism. That's what it looks like. OK, now, Fourier had a lot of ideas. And it's important to go through them. He focused on France. He said that 19th century France was allegedly the fifth stage of advancement. And society had, previous to that, passed through confusion, savagery, patriarchism, and barbarity. He knew this. No one else did, but he did. After passing through two more stages, it would approach the upward slope of harmony, the final stage of utter bliss, which would last for 8,000 years, more or no less. Then, however, history would reverse itself, and everything would run back. So what were some of the other things? Very interesting ideas that Fourier had. These are the things that would occur in that 8,000 year stage of harmony. There'd be six new moons. We replaced the one in existence. A halo, showering gentle dew, would circle the North Pole. Seas would turn to Kool-Aid, or some kind of sweet juice that he would drink. All violent or repulsive beasts would disappear, and they'd become friendly to humans. You'd have an antiline. You could ride them. You'd have anti-chickens, which would fly into your mouth, roasted already. This is serious. You can look at this stuff. The human lifespan in the harmonic stage would stretch 144 years, and 5-6 of the time would be devoted to the unrestrained pursuit of sexual love. Free love is a part of almost every utopian scheme. OK, so if you're a socialist who really wants to change things, you're looking at these guys, and you're saying, they're nuts. They're embarrassing. And that's what Marx was doing. Now, the classical economists easily destroyed the utopian socialists. They said, well, this is a standard problem, first of all.  That's how it's usually phrased. We know that in a market economy, the price system provides incentives for people to do the dirty, the unhealthy, and other types of work that people don't prefer. There's an invisible hand of supply and demand. But the socialist answer was, well, there would arise a new socialist man who would work really for the community, for the approbation of the community, and not for monetary profit. But unfortunately, even though the classical economists destroyed the utopian socialist vision economically, both groups, both the utopian socialists and the classical economists, believed that if we didn't have this incentive problem, that socialism, yes, it could be as productive as capitalism. They never really challenged that. They simply said that you can't get people to do these things that you want them to do, and therefore, socialism will be less productive. But if for some reason there was really a new socialist man, that new socialist man or woman would be able to operate in a way that would make socialism as productive as capitalism. But still in all, the classical economists won the day and won the debate. That's where Marx comes in. That's where his brilliant, polemical ploy comes in. He realizes all the harm that these crazy scribblings of the utopian socialist did to the socialist cause. So he divides his doctrine of scientific socialism to counter them. And basically what it said is that, look, we need not talk about what the socialist future is going to look like. Socialism is going to come about as inexorably as the laws of nature operate. In the same way that a body dropped in a vacuum will accelerate at a certain rate of speed, certain as the law of gravity is, socialism will come about. Just as capitalism had replaced feudalism, and feudalism had replaced classical slave societies. And therefore, if you try to describe what the socialist future looks like, you are unscientific. There is no reason to try to describe it, to explain it, and explain how it will work in particular, because we already know that it's going to come about. And just as capitalism exists and works in a certain way and feudalism did, socialism will also do the same. So really, if you look at Marx's writings, they were all critiques of capitalism. They really had nothing to do with explaining what socialism would be like.  If you were a socialist, you wouldn't try to talk about what it would look like, because you would be tainted as unscientific.  Mises, who was a social democrat? Not a revolutionary socialist, but one who believed in socialism coming about through democratic means when he was younger, became an economist in 1903 when he read Manger's, around Christmas time, he told us that he read Manger's Principles of Economics, and it made an economist of him. So by 1920, he had known and learned enough economics that he came up with what we call the impossibility thesis, and basically pointed out that in a developed industrial economy with complicated production processes, a lot of capital goods, a lot of advanced technology, it would be impossible without economic calculation using market prices to organize rationally a socialist regime. So socialism, Mises said, was impossible. He used that word a number of times in the original article. And the argument is simplicity itself. Basically, socialism abolished its private property. There was a book written called The Contestants of Socialism by a professor who was kind of an interventionist who worked at the University of Vienna. And Shafla, Shafla was his name. And he looked at all the socialist schemes up to that point. He wrote this book, I think, in 1873. And he saw that every single, one thing that they all had in common was a hatred and a wish to abolish private property. So they hated private property, and they all wanted to abolish private property. And that, of course, Mises starts with that premise, that socialism will abolish private property in the means of production. Not necessarily in consumer's goods. You can own your own clothes, maybe even own your own automobile, and so on. But everything else, everything that's used to produce these things would be owned collectively by the state. All right, so now, if you have the state as a sole owner and decision maker regarding the material factors of production, they can no longer be exchanged. There can't be any, there's one person, or one group of people who have the same goal. So therefore, there can be no exchange. If there's no exchange, there can be no market prices. You've learned that much up to this point that you need exchange to have market prices. Under socialism, therefore, the state would not have prices to be able to calculate the costs of the things that it was producing. So we'd never know what anything costs to produce. So without knowing costs, even if you knew the prices, even if you sold the consumer goods, which Mises allowed, he said, yes, you could be paid certain vouchers to buy consumer's goods that could operate like money. But there would be nothing to compare these prices of consumer's goods, too, to decide if you're wasting resources or if you're producing things that consumers urgently demand. So without calculation of profit and loss, socialist planners cannot know the most valuable uses of scarce resources. And therefore, a socialist economy is impossible. So as Mises pointed out, it's like a socialist planner is like a man in the middle of a desert with no compass. He may know the goal that he wants to get to, but he doesn't know what direction to go in. He doesn't know what to do, literally. So the essence of socialism is not that there are bad people that control the means of production. They could be angels, or they could be devils. The fact is that one person or one group controls them, and therefore, there can be no exchange. So Mises wrote, the essential mark of socialism is that one will alone acts. It is immaterial whose will it is. Could be bad people, good people, indifferent people.  The main thing is that the employment of all factors of production is directed by one agency only. One will alone chooses, decides, directs, acts, gives, orders. The distinctive mark of socialism is the oneness and indivisibility of the will directing all production activities within the whole social system. In other words, there is no intellectual division of labor. There are no different minds interacting in marketplaces. One will cannot generate prices. One mind cannot generate a system of prices. It's impossible. A system of meaningful prices. You can come up with prices. You can put prices on things. They wouldn't mean anything. They wouldn't give you an idea of how scarce different things were and how they should be economized in Manger's terms. So what are the preconditions of economic calculation according to Mises? First of all, there has to be private property in all stages of production. All goods must be privately owned, including all capital goods, all original factors of production, meaning all kinds of natural resources and, of course, one's own labor. Secondly, that's not enough. You have to have the freedom to exchange all of these different kinds of goods on markets because that is what generates prices, which, in turn, allows you to calculate costs. And there must be a sound money, a money whose value you can depend on into the future. It doesn't have to be stable, as some people say. We don't have to have a stable price level, but the money has to be useful in the sense that it can be used for economic calculation as was the gold standard in the 19th century. And Mises put it that the political influence should not overwhelm the market forces that control the supply of money. So socialism abolishes all of these prerequisites and therefore nullifies economic calculation and therefore nullifies the rational use of scarce resources, which means that you cannot have a division of labor and specialization and therefore you cannot have society. Outside of a predatory groups of people roaming the countryside, killing animals, living off vegetation that's growing there. Okay, so let's look at the problem of socialism in the following way. Let's say that there's a socialist plan that decides or is deciding upon producing a batch of cars or producing, let's say maybe 20,000 cars or maybe in lieu of that, two million bicycles. Well, there's no problem with scientific knowledge under socialism or there need not be a problem whatsoever. Mises assumes for argument's sake that all the engineers and scientists who know how to produce cars are immediately accessible to the planners. So they know what we call in economics a production function, exactly the recipes, the different recipes, because cars can be produced in many different ways, the different recipes by which a car can be produced. Needs certain tons of steel, certain hours of machine time, the number of hours of unskilled labor, engineering labor, factory space, so on and so forth. You combine all of these, you transfer those, you transform those elements of your environment into a final car, and here is a BMW M500i, it's a beautiful car, but there's a problem. How can we calculate the cost of producing this car into socialism to determine whether or not the cost exceeds the value, okay, in which case it's a pure waste of resources, or the value exceeds the cost of the car, in which case you're using resources that could have been used elsewhere in a lower valued use, and you're using them and combining them in a way that gives you a higher valued use, okay, that benefits consumers. So in the marketing economy, you know how all this would be done. At every moment, right now, as I speak, every single capital good, natural resource, every unit has a price, okay, and it continues to have price, and they're changing. So that means anything that is thinkable, any product that you can think to produce, can be, the cost can be calculated. So let's assume that the average cost of producing the car is $50,000, if the entrepreneur expects that the price on the market, let's say in three years, when the car comes to the dealer's floor, will be $60,000, well then he'll produce it, and he has benefited society by doing so. He has taken resources that would have produced things worth $50,000, he was bidding against other entrepreneurs, right, this is the intellectual division of labor, who are all thinking about producing different other things, and he bid against them, he outbid them for those resources, and then he combined them into a package that was worth $60,000. So resources were used in a more highly valued use than they would have been used had he not intervened in the market. On the other hand, if he expects a price to be $45,000, well then it would be a waste of resources and he would not do it. Now, if he went through with it, because he expected the car to sell for $60,000, but yet it only sold for $45,000, he would have made a mistake, and we're not saying Mises never said that entrepreneurs don't make mistakes. The point is they realize that they've made the mistake when they see the losses, which the central planner would not know, and they then rearrange the resources. And if they don't do so, if they persist in thinking that the car is gonna be valued more than the resources, well then they'll go out of business and we have a selective process that selects out the bad entrepreneurs. Also, calculation allows the firm to determine what technology is least costly. A titanium bumper on a car is technically is probably the best bumper. I mean, I don't know how light titanium is, I don't think it's too heavy, but we don't use that, okay? And we no longer use steel, we used to use steel because steel would reduce the cost of service repairs in case of an accident. But now with fiberglass and the way they can make fiberglass, fiberglass bumpers are used, even though it might increase the cost of repair, it reduces the weight and the cost of running the car so much, use of gasoline, that it's more valuable. So all of these different decisions can be made rationally because of calculation. Okay, now I had a friend, I grew up with a woman who moved to Montana, and I've told the story many times. And she actually married a cowboy, a real cowboy, kind of like you see in Yellowstone. They had cattle and there was actually a few oil wells on her ranch, it's a very big ranch. But one day she called me up and she said, we got a new house.  She said, no. She said, well, we had it built, we had it built and shipped in. So in Montana where there's like 11 people, labor is very scarce and therefore has a very high price because more highly valued uses elsewhere, being cowboys for example. So you don't, as I found out, you don't build a house on site, okay? It's actually cheaper to build a house in modular pieces and then use those huge trucks that you see, the wide load trucks and ship those pieces to where they will then be assembled by some labor, but not as much as you would need and not with the same skills as the ones that would build the house on site as they would do in the Northeast or the Southeast here. So she had hers built in Omaha and shipped 687 miles. Now, would a Soviet planner have thought of that without knowing prices? Of course not. Who would build the house 700 miles away from the place and then ship it and think that that's a less costly way to do it? Well, an entrepreneur who's interested in making profits would do that, okay? That's just an extreme but important example. So Mises didn't deny that some economies could be run without calculation. If you had a single person who had homogenous labor, his labor is every hour of labor that he puts out is the same as every other hour. And there were only a few resources on this island that he stranded on. Well, then he could actually run his own household economy. He could determine without prices what goods were more and what goods were less valuable. That is, he could just value them. He could set up a value scale and let's say he had 12 hours of labor to work before he becomes exhausted. He would allocate three hours to each one of these types of goods, the fish, the mushrooms, and so on. But now let's say he had made a discovery that there are rabbits on the island and they require six hours to hunt and catch, okay? Well, he could actually know what the cost is without resorting to prices, okay? So Mises admitted this. So in this case, the third and fourth most valuable uses of those three hour blocks of labor time were the eight coconuts and one sac of berries, the least valuable things. So he would know that the cost of a rabbit is sacrificing eight coconuts and one sac of berries. But socialism can't advance beyond that level. It can't operate in a system where there are many capital goods that could be substitutable for one another over a vast range of different production processes, okay? For that, you need prices. So how did the Soviet Union get along for so long? Well, there's a few reasons, or a few reasons for why they last 75 years, which I'll get to. But how did they plan? Well, they had a central planning agency called Ghost Plan and it was gross output planning. That is, each industry was given a certain target to meet and then the commissar of that industry would give the firms under his or her direction the targets to meet in kind. That is, they would tell them how many nails to produce, how many yards of women's clothes to produce, how many tons of building nails and so on. So there were problems with this. It was difficult to specify qualities and varieties of the product. So they would generally use weight. Tons of nails or numbers, numbers of yards of cloth and so on. And so there were always problems with the production. Let me just give you some examples. There was a shortage of roofing nails because when the target was given, it was given in terms of tons of nails. So it was cheaper and easier to produce large nails rather than the small roofing nails. So even though many homes and commercial buildings were built in the Soviet Union, many of them didn't have roofs or roofs and therefore they stood unfinished because there weren't enough of these small nails. Other examples, there was a famine in the Soviet Union in the 1980s, but there were tractors that were rusting in fields of unharvested grain. So you had the grain, you had the tractors, but you didn't have the workers to produce them and you didn't have the gasoline because the workers were busy in factories producing steel, which would be turned into tractors, which would then sit in the fields and rust. Okay, so it was a totally irrational system. Also women were constantly complaining that there weren't enough petite sizes. Okay, so because again, if you're gonna make clothing, it's easier, you can meet your target more easily if you make large-sized clothing rather than multiples of smaller-sized clothing. Khrushchev, the Soviet Premier in the 1950s, once criticized in a polyporeal meeting, criticized the chandelier makers and the Westerners were scratching their heads, why is he doing that? Well, it turns out that they were making the chandeliers because it was again, gross output planning that were told they had to make certain amount of tons of chandeliers. They made them extremely heavy and so they were pulling down the ceilings of the Doshes and killing the comrades. And then there was an incident where Khrushchev once banged his shoe on the table in a UN meeting and supposedly said, we will bury you to the West but meaning will bury you economically. So when Soviet economists and Western economists met, the Soviet economists said, yes, we'll bury you but we're not gonna bury Hong Kong. We're gonna leave Hong Kong alone so we can see the prices and that's the key. I mean, how did socialism last for 75 years? They utilized prices on the world market. Mises said that there was no really true socialist regime ever in existence except for an exception that I'll talk about in a moment. Because socialism in a capitalist world, socialist countries are like the post office. It's extremely inefficient, it's annoying but they kind of get the job done if very badly and inefficiently because they can use prices that are generated on the world market just as the post office can use prices and technology that have been generated produced by the capitalist firms around them. And also the Soviet Union, you could think of it as one big firm that engaged in international trade. It sold gold, electricity, oil, diamonds on world markets so there were some prices there that it could use to calculate. There was also a system of bribes whereby firms that had surplus wood and needed some sheet metal would trade so there were trades, it was called blot and so there was sort of crude pricing there. Also the Soviet planners kind of turned the blind eye to black markets in things like Beatles records and American denim wear and so on. So there were a lot of illegal black market prices, gray market prices, prices in terms of bribery and so on. And so that's why it lasted for 75 years. It wasn't a true socialist economy. The only period in which there was true socialism where prices were not used, deliberately not used was the period of war communism which lasted from about 1917 to 1921. Things became so bad that the whole economy collapsed. People burned or were living in houses but they didn't have any heat and so they were burning their furniture to keep warm and when they burned all that up they then burned the house to keep warm and then they all migrated to the countryside and roamed around and lived off the land. I mean, that's what socialism would lead to. At that level where you have no prices you can use simple values to determine oh I like that rabbit better than, I'll go after that rabbit rather than that deer or something like that, okay? So what is it about, if we go a little deeper into it, about capitalism? Oh there's a great cartoon. So that's the plant manager telling the commas that I've met my gross output target, okay? And so it's a 50 ton nail that he's produced. And it was a system by the way of mutual lying because the Soviet planner would know, well let's put it this way, if you didn't make your target you got a vacation in the gulag, okay?  But if you exceeded your target, yes you did get bonuses and you may have gotten a better apartment but the next year they knew that you were lying so they would raise the target. So the manager would always lie about what the target was. He'd minimize it whereas the planner would know that he was lying and would give him an amount that would exceed the target. Hopefully not exceeding what he actually could make, okay? So to get back to the, what it is about the market economy that allows this wonder of providing for a very complicated technology, or using a very complicated technology to provide for hundreds of millions of people. Mises called it the social appraisement process and it's driven by entrepreneurs and it determines the prices of all consumers goods and capital goods and other resources, okay? And it looks like this. So if you look at the purple of the entrepreneurs, okay? They look ahead, okay? They look ahead at what the prices will be and what they believe or expect prices to be in the future, okay? Based on their expectations of future prices, they then bid against one another for all the available resources and in bidding against one another that establishes the prices of the factors of production which in turn allows them to calculate the costs to compare against those expected prices. All of us take part in this social appraisement process. That's why it's truly social. Each, no one of us comes up with the price system, okay? But yet all of us interacting in the markets in this intellectual division of labor, consumers, producers, laborers, entrepreneurs, all of us interacting together causes a price structure to arise that anyone can use, okay? So this is what we might call a positive externality, okay? So mainstream economists might say, well, we should be paying one another because we're getting this for free. Yeah, this is the fruits of a civilized society and economy, okay? That there is a price structure. It's always in existence. Every day when we wake up and go to work, it restarts again, okay? And it depends on the subjective evaluations and expectations of all of us, okay? So we get the current structure of resource prices. That's what you can't get in a socialist economy. So we call that the intellectual division of labor. Everyone is involved in generating the price structure. The consumers, capitalists, entrepreneurs, laborers, okay? Through all the choices they make based on their values. And in that sense, prices are a genuine social phenomenon. Everyone contributes a little bit to the formation of the price structure, okay? But it exists beyond, it transcends the individual human mind, okay? So it's truly, I guess people think that Hayek called it a miracle, but he actually called it a marvel. It's truly a marvel, the price system. And prices allow entrepreneurs to calculate the costs of any conceivable good, okay? That's technologically feasible to produce. All right, so let me just talk a little bit about some of the marked responses to Mises' argument. So in the 20s, there were some German socialists who responded to Mises. And one of the responses was that, well, we don't need prices, okay? We can calculate in terms of natural units as Otto Neurop, who was a fanatical Marxist, claimed, okay? We calculate costs by adding up resources in their natural units. Tons of steel, kilowatts of electricity, gallons of paint, apples and oranges. Of course, we know that that's not true. I mean, so Mises had already addressed this and said there's no way that you can add these heterogeneous units, right? I mean, it's the law of arithmetic that you can only add like units. And so that was one. The second was, well, let's calculate with labor hours since labor produces everything. Let's calculate with labor hours. But labor is not homogeneous, right? Different people have different skills and those skills cannot be added together. So for example, Neurop's difference is the quality of someone who is a McDonald's cashier, how that person differs from someone who's a software engineer or a brain surgeon, okay? Even in the same profession, you have the hours are not homogeneous, right? LeBron James, labor as a basketball player is much superior to the 12th guy, gawky guy, sitting at the end of the bench who doesn't play at all in the game, okay? So and also labor hours, just adding up labor hours, it takes to produce a good, leaves out an account that there's also capital goods and natural resources involved. The more capital goods that a worker's working with, the more productive that work will be. So for the same amount of hours, that work will be able to produce more because he or she has more capital goods. Or we can assume a stationary economy. That was another response to Mises. Let's just tell the managers, keep the same managers that we had yesterday, which was the last day of capitalism, and tell them that tomorrow on the first day of socialism, you'll come in and you do the same thing, okay? Well, that works if nothing changes and it might work for a few months. But the whole point of the market economy is to allow entrepreneurs to continually adjust to changes in people's tastes, technology, the depletion of resources or the discovery of new resources. So the economy is entrepreneurial, okay? It's not managerial, okay? The managers take their orders from the entrepreneurs. So you can't assume a stationary economy because of a changing world. You can't tell them socialist managers to do the same thing. I have a few more minutes, so I'll talk about some more sophisticated responses. It came from the English-speaking economists in the 1930s who were trained as neoclassical economists. And there's a couple of these and I'll go through just a few. So there was a mathematical solution. Basically, the mathematical solution said that, well, you know what? We know because of equilibrium economics that we can devise a system of supply and demand curves for all the goods in the economy. And we can run this simultaneous system of supply and demand equations and we can get answers as to how much, what's the optimum quantity of each good produced and what is the optimum price, okay? And so that's no problem, all right? The second response, more sophisticated response, was market socialism. The central planning board will set the prices of the factors of production and it will give two orders to the managers. One, minimize, use those prices that we're giving you, whether they're right or wrong, just use them. Minimize your costs based on those prices and then set your quantity at a point where the last unit that you produce has a marginal cost just equal to the price that we gave you, okay? And then, if there's a surplus, that is, if we set the prices too high, we'll lower the prices and if there's a shortage, we've set the prices too low and there's a greater demand than supply of steel or coal or something, we'll raise the prices and eventually we'll have an equilibrium price, we'll find the correct prices through trial and error methods, okay? So, let me jump over. There was a response by Hayek and Robbins which focused on there's not enough knowledge to figure out all the data that you need to put into these equations and even if you could, it would take a long time and even if you did that, you didn't have the computers in the 1930s to get a timely solution to the mathematical solution. And also, trying to set prices, how frequently are you going to do it? The market sets prices through trial and error from moment to moment prices change, right? But under market socialism, that couldn't be the case. They do it every month, every three months, in which case there'd be a lot of waste going on because the managers would be using the wrong prices. Mises' point was that this is all nonsense. Market socialism is children playing at the market. There is no bond market, there is no stock market, there is no creation and destruction of firms. That's the way resources are moved to their highest value uses in a real economy. You don't just have 10 firms with 10 managers who you give orders to, okay? You have owners that dissolve firms and create new firms. And then the mathematical solution, Mises said, let's just seek, simply assumes that everybody does the same thing round after round. In the real world, things are constantly changing and people are making mistakes. For example, and I'll end with this, today we have too many railroads and not enough trucks and not enough cargo planes to move goods across the country. Why? Because years ago, railroads were overbuilt. But that doesn't mean that you throw them away and start from scratch, okay? Profits and losses tell you how to use the capital goods that you built that may not be the optimum. And they're never an optimum, okay? Right now we have a lot of goods that should never have been built, a lot of factories that shouldn't have been built, but we make the best use of them. And how do we know how to use them? Not through a system of equations because there are no profits and losses in those equations, okay? But through actual profits and losses. So I'll stop here. Thank you.


How can businesses use Megaport as they're trying to educate or execute on their digital transformation strategy? Yeah, hybrid multicloud. I mean, that's our daily conversation, right? You know, I think if I'm an expert at anything, which I don't know if I am or not, but yeah, I feel like that's probably what I'm an expert at. I think if you talk about it every day, you probably become somewhat knowledgeable that there's no way around it. But the biggest thing about when you start thinking about building a hybrid connectivity or building connectivity to the cloud is, as you know, at 1623, you have Google in your data center, right? You've got the Edge, the Google Edge in your data center, customers can connect directly to 2623, connect right to the Google network and great for Council Bluffs, that central region with Google, outstanding option, right? But as you know, the Edge of each cloud provider is not gonna sit within your particular data center, right? Or any data center provider, it doesn't matter, right? They're not everywhere. So you have to have a strategy to be able to get outside of your data center and get to the Edge if you're gonna have a hybrid cloud strategy, right? And one of the great things about Megaport and where we fit that need and we assist some of the folks that sit within 1623 Farnum, they can essentially connect to our network and 1623 is an example and we have 700 able data centers across the globe, but 1623 customer connects to our network in your data center, it essentially brings the cloud provider Edge to the customer because once they're connected to the Megaport network, they're able to build private connectivity to the cloud provider Edge across the globe. So a great example in this particular use case, you're sitting in Omaha, Nebraska, you connect at 1623, you build a private connection across the Megaport network to say AWS or Azure in Chicago, if you wanna go East, if you wanna go West, you can build connectivity into Denver, you can build it all along the East or West coast, but you can also extend your network outside of the United States. You can build connectivity across Europe, you can build connectivity across APAC. So when we start thinking about hybrid cloud connectivity and having a strategy and building your network, one of the things that we like to say is really future-proofing that network is we all know that in working with our customers that maybe I'm in AWS today, maybe I don't have any intention of going to GCP or anywhere else, but inevitably someone's gonna find a resource in another cloud that they're gonna wanna access and they're gonna wanna build that connectivity. So you have to have a strategy that allows you to really pivot and make change in a moment's notice. And that's really where our network is a purpose built to facilitate those types of connections. Yeah, that's great. So I've been in the business for about 15 years in the carrier hotel space. And so I've seen how customers can be successful when they have multiple options and as their business changes and scales and whatever they have to pivot, they have at a carrier hotel type facility, you have 50 carriers and ISPs, you can now have on-ramps to different clouds, but then I think Megaport just takes it to the next level just to your point. So really love that you guys have a diverse deployment at 1623, it's just another builder to the network ecosystem. Do you have any interesting, the ICE was a great example, but do you have some other interesting ways customers or your customers are using Megaport that you can share? Yeah, I think there's many ways when we continue to expand, I think what's interesting is our customers sometimes find ways outside of maybe what we had envisioned for the network, which is outstanding, it's incredible really. I think the other interesting thing is when you talk about hybrid cloud and multi-cloud, when customers do work in a multi-cloud environment, they wanna be able to route directly between those clouds, but also back into their data center. So as a service type of functionality is another great tool to have in the bag, because if you are gonna develop a multi-cloud strategy, typically those resources, you wanna sit in very close proximity, right? So a great example here in the US is the East Coast. I mean, Ashburn, anybody who's in cloud and is in probably anywhere in the world, but especially here in the United States, we know that Northern Virginia Tech Hub is unbelievable, right? The data center operators, they're there, the cloud provider regions, they all have regions that sit there, right? So if I'm building out a multi-cloud strategy, that's probably one of the primary places where I'm gonna build it out. One of the great things that tools that we have is a virtual routing appliance that a customer can turn up on demand. It sits on top of our private network. It sits, the appliance itself physically sits right at the edge of the cloud provider networks. So if I wanna route from say AWS, I have some front end applications that I'm utilizing in AWS and I wanna keep the Oracle databases, people have Oracle databases, I wanna integrate those two networks together. One option is doing that over the internet, which the reliability issues there, security issues there, also throughput issues. An easy way to do that is to have a virtual routing type of platform that you have access to. So that's one of the probably unique use cases or main use cases that we see. The other thing that's great about that is I can still offer that virtual edge, I can still build private connectivity back to my reuse sources at Farnum as well. It's 1623 or any data center across the Megaport network. So that's kind of one of those, I don't know if it's a unique use case, but it's certainly one that I think customers aren't always aware of that they're able to use as a service type of routers as prevalent as they are today. That's great. Well, this kind of conversation has been amazing and I really appreciate you taking the time. Anything else you'd like to add before we head on out here? Wow. Yeah, I mean, sometimes it's hard to shut me up, so I don't know, it's a risky proposition. But I think the other thing that I would add is that we didn't really touch on is building in that resiliency as well. You mentioned out of 1623 Farnum that we have dual fiber, fiber paths from a layer one perspective and then from a layer two perspective. We have protection across the network. The other thing that's a key tool to have in the bag and again, bringing those edge connections into your data center, ultimately from far away, is being able to build a high availability architecture and that resiliency across the platform. So the only other thing I would say around that hybrid cloud is work with a strategy that does allow you to connect potentially in multiple geographical locations, but also gives you the flexibility to manage it as you see fit. And I think that's it. Maybe there's a problem. I'm sure there's a lot more we could go on forever. Yeah, no, I appreciate that. Thanks for hosting Greg and it's been a great conversation. Thanks to JSA TV. Yep, thanks Mike and thank you JSA TV and we'll see you on the next one.


On July 6th of 2019, Canonical's GitHub was compromised, but don't worry, the world's not coming to an end. Our repositories are not fully pwned and we're now installing spyware with our updates. Don't worry. It's bad, but it's not that bad. It's bad in effect that we suspect that this was just a credential compromise and that they probably didn't have 2fh turned on. That's my suspect when we get a full debrief of this. But the important part to remember now is that this is their official statement on it that they did confirm. They've acknowledged a breach, they acknowledged it was GitHub, but the important is that furthermore, the Launchpad infrastructure where Ubuntu distribution is built and maintained is disconnected from GitHub. So they keep mirrors of things. GitHub is one of those mirrors. They have their internal distribution platform Launchpad and this is where the source code is and this is where they compile and they're saying that was not compromised. And that's an important aspect of this because that would mean that the source code and the compiling of that source code that then gets delivered for updates for Ubuntu based distributions could have been compromised. And it sounds like none of that happened. This disconnect is a huge important factor in here. And it could be why they were lax on the security for this. If that's true, I'm speculating that they didn't have 2fh turned on. It could be because they thought, well, it's not as big of a deal. But then again, it kind of is a big deal that you maintain operational excellence even on accounts that well, are disconnected and may matter less to you in terms of priorities. But still it's an inconvenience but two factors should be on for everything.  I'm hoping for a full debrief and they maintain transparency over this issue because well, it's still concerning. What did they do when they got in? Well, that's less exciting at all.  So nothing real exciting. This is a web archive from the way back web machine of what the account looked like very briefly. They were very quick to respond and fix it and they removed this compromised account right from their GitHub. So doesn't look like much happened. There's not a whole lot more to talk about in this tech but I just wanna make sure people understand and have a link to the officials statement from them. Your updates are fine. They did not slip something in. The compiling service and the GitHub service are two separate things. So that's my thoughts on this. I'm not worried about it. I'm still going to apt-get update. There's some further discussion of people talking about it. This is the article I originally linked to and tweeted out yesterday when I found that this happened. So there is some discussion going back and forth on what happened here. Nothing, lots more speculating and that's about it. There's not too much of a problem going on. So it's just minor concern in terms of the updates and things like that. I still want a full debrief on there but it's not enough that I'm saying, oh no, don't update until they've audited all this because it doesn't sound like anything that bad happened here. So it's not too bad but not too good because it did happen at all. So that's kind of my thoughts on this. But it is a security wake up for them. So the fact that they're on the news, they don't want to be in the news for things like this. So I have a feeling that they're going to tell us what they're going to do in the future and that future probably means they're going to audit all the accounts, they're going to go for two factor and nobody likes your holiday weekend disrupted. Well, for the US holiday here for 4th of July, imagine at least a few of them are here in the US. No one really likes on a weekend having to hurry up and delete some accounts. So I'm looking forward to a full debrief and I'll cover that if there's something interesting to cover. All right, thanks. Thanks for watching. If you liked this video, give it a thumbs up if you want to subscribe to this channel to see more content, hit that subscribe button and the bell icon and maybe YouTube will send you a notice when we post. If you want to hire us for a project that you've seen or discussed in this video, head over to laurancesystems.com where we offer both business IT services and consulting services and are excited to help you with whatever project you want to throw at us. Also, if you want to carry on the discussion further, head over to forums.laurancesystems.com where we can keep the conversation going. And if you want to help the channel out in other ways, we offer affiliate links below which offer discounts for you and a small cut for us that does help fund this channel. And once again, thanks again for watching this video and see you next time.