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

On Open Business ModelsMarkets and business models for Open and DIY projectsMassimo 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 beconcerned about business? Im a designer, after all!

(Open) Design + Business ?a designer / researcher studying how to co-design OpenProcesses 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 businessSource: 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--> its 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--> … its 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 $1bnmark in 2011.Source: http://www.channelregister.co.uk/2011/03/24/redhat_q4_f2011_numbers/Cost of developing LinuxThe Linux Foundation (LF): $10.8 billion to build the Linuxcommunity distribution Fedora 9 in today’s dollars with today’ssoftware 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 openProjects 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.blender.org/blenderorg/blender-foundation/logo/ Source: http://www.arduino.cc

The levels of openness in Open HardwarePatrick McNamara defined 4 possible levels of Openness in Open Hardwareprojects: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 HardwareSource: 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 strategySource: http://www.openp2pdesign.org/2011/open-design/business-models-for-open-hardware/

2009:The market of Open Hardware * 13 companies over $ 1 m. $11.000.000 * total: $ 50 m. $10.000.000 * $ 1 billion by 2015 $9.000.000 $8.000.000 $7.000.000 $6.000.000 Revenues $5.000.000 $4.000.000 $3.000.000 $2.000.000 $1.000.000 $0 s o d it are s i os y n t rb o La b e mb e uin rkfu fru ron rS h tud idw e Ada Ard Chu Bug Sp a Mak D e dS Liqu Mak DIY e SeeSource: http://blog.makezine.com/archive/2010/05/million-dollar-baby-businesses-de.html

The market of Open Hardware: SparkFunNathan Seidle (founder):“In 2010, SparkFun had revenues of about $18.4MM. As of April of 2011, we havearound 120 employees, up from 87 a year ago.”“We hope to grow by 50% this year (2011) to around $28MM in sales. We expectto be in the 30-50MM range in the next 3-5.”Source:http://www.sparkfun.com/news/599

Long Tail + DIY Craft market: Etsy Total Members: +8 million Total Active Shops: +800,000 Items Listed: 8.5 million $350.000.000 $300.000.000 $250.000.000Total $ sold (Gross Merchandise Sales) $200.000.000 $150.000.000 $100.000.000 $50.000.000 $0 2005 2006 2007 2008 2009 2010 2011 (March) 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 inannual sales with a 35% profit marginSource:http://www.threadless.com/submithttp://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/

A place for Open / DIY projects: Fab LabsHow 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 its like a low-cost entry point into the market)None of the business examined tries to help its user to make a living on theirproject. 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 USASource: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 DIYBusiness: where will be valuecreated?

Look for what is becoming a commodityA commodity is a good for which there is demand, but whichis supplied without qualitative differentiation across a market.[...] the market treats it as equivalent or nearly so no matterwho produces it.Source: http://en.wikipedia.org/wiki/CommodityCommoditization (also called commodification) occurs as agoods or services market loses differentiation across its supplybase, often by the diffusion of the intellectual capitalnecessary to acquire or produce it efficiently. […] a unique,branded product into a market based or undifferentiatedproducts.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 its proprietary: personal computers --> Microsoft emerges* (00s-...) Even software is a commodity, so lets 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 its 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 sectorinnovation to be quite large: 6.2% of UK consumers - 2.9 millionindividuals - have engaged in consumer product innovation duringthe prior 3 years. In aggregate, consumers’ annual productdevelopment expenditures are 2.3 times larger than the annualconsumer product R&D expenditures of all frms in the UKcombined. “Eric A. Von Hippel, Jeroen De Jong, Steven FlowersComparing Business and Household Sector Innovation in ConsumerProducts: Findings from a Representative Study in the UKSource: 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 makingit “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 wegoing 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 enoughWill 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-------------------------------------------------------------------info@openp2pdesign.orgopenp2pdesign.orgtwitter.com/openp2pdesign

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

by Massimo Menichinelli

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