On Open Business @ EDUfashion conference - Ljubljana 02/06/2011

On Open Business Models Markets and business models for Open and DIY projects

Massimo Menichinelli

---------------------------------------------------------------------------Ljubljana (Slovenia): June 2nd 2011EDUfashion Conference - Refashioning fashion: new scenarios of clothinghttp://www.edufashion.org/

Presentation available on:http://www.slideshare.net/openp2pdesign

01.Why should a designer be concerned about business?

I'm a designer, after all!

(Open) Design + Business ?

a designer / researcher studying how to co-design Open Processes with communities--> and trying to make his design / research activity a

sustainable business

+ a report on business models of:* Open Hardware* Fab Labs* DIY Craft

-->

http://www.youcoop.org/ http://www.platoniq.net/

http://www.goteo.org/

From a paper project to a real project

Designers start thinking about the business

Source: http://www.kickstarter.com/projects/danprovost/glif-iphone-4-tripod-mount-and-stand

From a paper project to a real project

Now on Apple Store!

Source: http://www.kickstarter.com/projects/1104350651/tiktok-lunatik-multi-touch-watch-kits

Just being “Open” is not enough

.. but what about the market?

Source: http://www.kickstarter.com/projects/1833785894/100k-stray-toasthed-pull-toys

02.Open and DIY Business (as they are now)

Business models of Open Source (software)

Non-monetary incentives:* problem solving* ethical questions* education + learning* reputation --> social interactions + jobs

--> it's not just about money! Also a gift economy

Business models of Open Source (software)

Monetary incentives:* selling software (as open or even with dual licensing)* offering services (customisation, support, ...)* paid developer work* donation* software as service (freemium, ...)* embedding software into hardware

--> … it's not just about volunteer work! Also a market economy

Business models of Open Source (software)

Red Hatfirst open source company expected to break through the $1bn mark in 2011.Source: http://www.channelregister.co.uk/2011/03/24/redhat_q4_f2011_numbers/

Cost of developing Linux

The Linux Foundation (LF): $10.8 billion to build the Linux community distribution Fedora 9 in today’s dollars with today’s software development costs.

$1.4 billion to develop the Linux kernel alone.Source: http://www.linuxfoundation.org/sites/main/files/publications/estimatinglinux.html

Please note: Open Business is not completely open

Projects may be open but:

* identity (brand) is fixed and is warranty certificate* existing business ecosystems may not be open* knowledge, expertise, tools, resources are not always “open”

Source: http://www.arduino.ccSource: http://www.blender.org/blenderorg/blender-foundation/logo/

The levels of openness in Open Hardware

Patrick McNamara defined 4 possible levels of Openness in Open Hardware projects:

1. Closed: any hardware for which the creator of the hardware will not release any information.

2. Open Interface: all the documentation on how to make a piece of hardware perform the function for which it is designed is available (minimum level of openness).

3. Open Design: in which enough detailed documentation is provided that a functionally compatible device could be created by a third party.

4. Open Implementation: the complete bill of materials necessary to construct the device is available.

Source: http://www.osbr.ca/ojs/index.php/osbr/article/view/379/340

The business models of Open Hardware (01/02)

* Services and expertise (customization, consulting) * Manufacturing of owned or third party Open Hardware* Manufacturing of proprietary hardware based on Open

Hardware* Dual-licensing * Proprietary hardware designs based on Open Hardware* Proprietary hardware tools for Open Hardware

(Sparklelabs)* Proprietary software tools for developing Open Hardware

Source: http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/

The business models of Open Hardware (02/02)

* Free services for a greater user base (Adafruit Jobs Board) * Partnership between Open and Fabbing companies

(Ponoko + Sparkfun) * Funding Open Hardware projects in exchange for

documentation (Bildr)* Renting spaces for co-working (Hackerspaces)* Brick and mortar store (Makerbot - Botcave)* Piracy as a learning and market building strategy (Shanzai)* Microcredit / peer-to-peer lending / crowdfunding (Open

Hardware Bank)

--> Long-tail seems the best strategy

Source: http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/

The market of Open Hardware

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Source: http://blog.makezine.com/archive/2010/05/million-dollar-baby-businesses-de.html

2009:* 13 companies over $ 1 m.* total: $ 50 m.* $ 1 billion by 2015

The market of Open Hardware: SparkFun

Source:http://www.sparkfun.com/news/599

Nathan Seidle (founder):

“In 2010, SparkFun had revenues of about $18.4MM. As of April of 2011, we have around 120 employees, up from 87 a year ago.”

“We hope to grow by 50% this year (2011) to around $28MM in sales. We expect to be in the 30-50MM range in the next 3-5.”

Long Tail + DIY Craft market: Etsy

2005 2006 2007 2008 2009 2010 2011 (March)$0

$50.000.000

$100.000.000

$150.000.000

$200.000.000

$250.000.000

$300.000.000

$350.000.000

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)Total Members: +8 millionTotal Active Shops: +800,000Items Listed: 8.5 million

Source: http://www.etsy.com/press/kit/

...another business model: Crowdsourcing (Threadless)

Founded in 2000 with just $ 1,000, now it has a revenue of $ 17,000,000 in annual sales with a 35% profit margin

Source: http://www.threadless.com/submithttp://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/

A place for Open / DIY projects: Fab Labs

How to start it:* $50,000 (or open source low-cost version for $12,500 - $5000)

* value proposal: facilities or innovation support

* The Enabler business model: launch new Labs or support them* The Education business model: a global distributed model of education

through Fab Labs (Fab Academy + P2P learning among users)* The Incubator business model: provide infrastructure for entrepreneurs to

turn their Fab Lab creations into sustainable businesses. * The Replicated / Network business model: product / service that utilizes

the infrastructure, staff and expertise of a many Fab Labs.

+ Hackerspaces, Sewing Cafes, Techshops, ...

Source: http://www.openp2pdesign.org/2011/fabbing/business-models-for-fab-labs/

A place for Open / DIY projects: Fab Labs

* usually not so interested in becoming profitables (though they could)

* attached to institutions... or to brands (Absolut Lab, Madrid)

Source: http://www.openp2pdesign.org/2011/fabbing/business-models-for-fab-labs/

Does the long tail help small DIY business?

Etsy:* very few users can make a living on it

* competition, but impossibility to increase volumes

--> downward pressure on prices* rather an incubator for the most promising makers (so it's like a low-cost entry point into the market)

None of the business examined tries to help its user to make a living on their project. At least Shapeways uses revenues to lower prices down.* generated 244,000 € in revenue over 2009, but at the same time it lost

1,400,000 € * received a $ 5,000,000 fund from VC in order to open offices in the USA

Source: http://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/http://www.openp2pdesign.org/2011/fabbing/business-models-for-fab-labs/

03.The future of Open and DIY Business: where will be value created?

Look for what is becoming a commodity

A commodity is a good for which there is demand, but which is supplied without qualitative differentiation across a market. [...] the market treats it as equivalent or nearly so no matter who produces it.Source: http://en.wikipedia.org/wiki/Commodity

Commoditization (also called commodification) occurs as a goods or services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently. […] a unique, branded product into a market based or undifferentiated products.Source: http://en.wikipedia.org/wiki/Commoditization

Hardware and Software, becoming commodities

* ('50s-'70s) Hardware is the product, software is for free: mainframes--> Hacker ethic of sharing information

* ('80s-'90s) Hardware is commodity, software is the product and it's proprietary: personal computers --> Microsoft emerges

* ('00s-...) Even software is a commodity, so let's sell services and get data from users: open source, web 2.0, services around software, software as service, the cloud --> web 2.0 emerges

Manufacturing and Design, becoming commodities

* ('90s-'00s) Manufacturing becomes a commodity and slowly disappears in the West (thanks to China)

* ('10s-...) Now it's even more a commodity (thanks to Fabbing)

* ('00s-...) Professional design is slowly becoming a commodity (Fast Fashion, Ikea, design schools bubble, Shanzai)

--> Where is value now, in Design and Manufacturing?

… so is still now value in creativity?

Source: http://www.freedomofcreation.com/home/3d-systems-acquires-freedom-of-creation

… in attention, collaboration, creativity from “users”?

“ We fnd this previously unmeasured type of household sector innovation to be quite large: 6.2% of UK consumers - 2.9 million individuals - have engaged in consumer product innovation during the prior 3 years. In aggregate, consumers’ annual product development expenditures are 2.3 times larger than the annual consumer product R&D expenditures of all frms in the UK combined. “

Eric A. Von Hippel, Jeroen De Jong, Steven FlowersComparing Business and Household Sector Innovation in Consumer Products: Findings from a Representative Study in the UK Source: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1683503

Open and P2P Money, are they a solution?

Does it address the current problems of money, or is just a way of making it “open” reinventing the wheel and avoiding the business models?

Source: http://www.bitcoin.org/

When everything is peaking...

Even renewable resources like wood are peaking.. What and how are we going to manufacture when everybody will be able to do it?

Source: http://ecoalfabeta.blogosfere.it/2011/03/il-picco-del-legno.html

… reinventing an open wheel is not enough

Will just making open an unstainable past be sustainable?

Source: http://www.theoscarproject.org/

Building blocks of an Open, DIY and P2P Economy

* open business for design, energy, materials, tools

* open business that consider information as abundant but materials and energy as scarce resources

* open money (but well designed and linked to energy and materials)

* API between open businesses

* Open processes (and this is my research about Open P2P Design)

Any question or comment?

Thank you!

Massimo Menichinelli

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[email protected]/openp2pdesign