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Open Business @ DMY Berlin 2011 - MakerLab


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Which are the possible business models for Open projects like Open Design and Open Hardware? And what about running a Fab Lab or a similar place? Which strategies can we adopt in order to have successful DIY
Craft projects? People that want to organize collaborative spaces or companies need to think about how to run their business in a sustainable way, but even single or groups of Open Designers could get more insights for their project if they discover the possible business models. Let's have a look at the existing markets, the common business models and the possible future scenarios.

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Open Business @ DMY Berlin 2011 - MakerLab

  1. 1. Open P2P DesignMarkets and business models for Open and DIY projectsMassimo Menichinelli---------------------------------------------------------------------------June 04-05 2011DMY Berlin - MakerLab available on:
  2. 2. 01.Why should a designer beconcerned about business? Im a designer, after all!
  3. 3. (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
  4. 4. From a paper project to a real project Designers start thinking about the businessSource:
  5. 5. From a paper project to a real project Now on Apple Store!Source:
  6. 6. Just being Open” is not enough .. but what about the market?Source:
  7. 7. 02.Open and DIY Business(as they are now)
  8. 8. 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
  9. 9. 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 only volunteer work! Also a market economy
  10. 10. Business models of Open Source (software)Red Hatfrst open source company expected to break through the$1bn mark in 2011.Source: of developing LinuxThe Linux Foundation (LF) (2008): $10.8 billion to build theLinux community distribution Fedora 9 in today’s dollarswith today’s software development costs.$1.4 billion to develop the Linux kernel alone.Source:
  11. 11. Please note: Open Business is not completely open* identity (brand) is fxed and is warranty certifcate* existing business ecosystems may not be open* knowledge, expertise, tools, resources are not always “open”Source: Source:
  12. 12. The levels of openness in Open HardwarePatrick McNamara defned 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:
  13. 13. The business models of Open Hardware* 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 software tools for developing Open Hardware* ... and:Source:
  14. 14. The business models of Open Hardware* Proprietary hardware tools for Open Hardware (Sparklelabs)Source:
  15. 15. The business models of Open Hardware* Free services for building a greater user base (Adafruit Jobs Board)Source:
  16. 16. The business models of Open Hardware + =* Partnership between Open and Fabbing companies (Ponoko + Sparkfun)Source:
  17. 17. The business models of Open Hardware* Funding Open Hardware projects in exchange for documentationSource:
  18. 18. The business models of Open Hardware* Piracy as a learning and market building strategy (Shanzai)Source:
  19. 19. The business models of Open Hardware* Brick and mortar store (Makerbot - Botcave)Source:
  20. 20. The business models of Open Hardware* Renting spaces for co-working (Hackerspaces)Source:
  21. 21. The business models of Open Hardware* Microcredit / peer-to-peer lending / crowdfunding (Open Hardware Bank)Source:
  22. 22. 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:
  23. 23. 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:
  24. 24. Similar models for DIY Craft... EtsySource:
  25. 25. Similar models for DIY Craft... 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:
  26. 26. Similar models for DIY Craft... Sewing Cafes* Renting spaces for co-working (Sewing Cafes)Source:
  27. 27. ...and 1 more: Crowdsourcing (Threadless)Founded in 2000 with just $ 1,000, now it has a revenue of $ 17,000,000 inannual sales with a 35% proft marginSource:
  28. 28. A place for Open / DIY projects: Fab LabsHow to start it:* $50,000-$55,000 (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.* not so interested in becoming proftables + Hackerspaces, Sewing (though they could) Cafes, Techshops, ...Source:
  29. 29. A place for Open / DIY projects: Fab Labs* attached to institutions... or to brands (Absolut Lab, Madrid) -->Source:
  30. 30. Does the long tail of Etsy help small DIY business?* 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 DIYers (a low-cost entry point into the market)Source:
  31. 31. Does the long tail help small DIY business?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. ButShapeways:* 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:
  32. 32. … and a lesson from the pastIn 1914 Ford offered a $5 per day wage ($110 in current dollar terms), whichmore than doubled the wages. Fords policy proved that paying people morewould enable Ford workers to afford the cars they were producing and be goodfor the economy. Ford explained the policy as proft-sharing rather thanwages.Source:
  33. 33. 03.The future of Open and DIYBusiness: where will be valuecreated?
  34. 34. Look for what is becoming a commodityA commodity is a good for which there is demand, but which issupplied without qualitative differentiation across a market. [...] themarket treats it as equivalent or nearly so no matter who producesit.Source: (also called commodifcation) occurs as a goodsor services market loses differentiation across its supply base, oftenby the diffusion of the intellectual capital necessary to acquire orproduce it efficiently. […] a unique, branded product into a marketbased on undifferentiated products.Source:
  35. 35. 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
  36. 36. Manufacturing and Design, becoming commodities* (90s-00s) Manufacturing becomes a commodity andslowly 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 (thanks to Fast Fashion, Ikea, design schools bubble, Shanzai)--> Where is value now, in Design and Manufacturing?
  37. 37. … so is still value in creativity?Source:
  38. 38. … or 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:
  39. 39. 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 Without proposing business models?Source:
  40. 40. 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:
  41. 41. … reinventing an open wheel is not enoughWill just making open an unstainable past be sustainable?Source:
  42. 42. New language, business for the new media: collaborationEvery new technology takes time to develop its own uses, languages andbusiness models.Source:
  43. 43. New language, business for the new media: collaborationEvery new technology takes time to develop its own uses, languages andbusiness models.Source:
  44. 44. … 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 + distributed testing of business models
  45. 45. Any question or comment?
  46. 46. Thank you!Massimo