(1) Open business models exist for open source software, open hardware, DIY crafts, and fab labs, but being open is not enough - the market must also be considered. (2) Current open business models include services, custom manufacturing, dual-licensing, and crowdfunding. The long-tail approach seems most sustainable. (3) As design, manufacturing, hardware, and software become commodities, future value may lie in creativity, attention, and collaboration from users. Open money and processes could support a more sustainable open, DIY, and peer-to-peer economy.

1. On Open Business Models
Markets and business models for Open and DIY projects
Massimo Menichinelli
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Ljubljana (Slovenia): June 2nd 2011
EDUfashion Conference - Refashioning fashion: new scenarios of clothing
http://www.edufashion.org/
Presentation available on:
http://www.slideshare.net/openp2pdesign

2. 01.
Why should a designer be
concerned about business?
I'm a designer, after all!

3. (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/

4. 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

5. 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

6. Just being “Open” is not enough
.. but what about the
market?
Source: http://www.kickstarter.com/projects/1833785894/100k-stray-toasthed-pull-toys

7. 02.
Open and DIY Business
(as they are now)

8. 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

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

10. Business models of Open Source (software)
Red Hat
first 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

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

12. 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

13. 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/

14. 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/

15. 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
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Source: http://blog.makezine.com/archive/2010/05/million-dollar-baby-businesses-de.html

16. The market of Open Hardware: SparkFun
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.”
Source:http://www.sparkfun.com/news/599

17. 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
$250.000.000
Total $ 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/

18. ...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/submit
http://www.openp2pdesign.org/2011/open-design/business-models-for-diy-craft/

19. 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/

20. 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/

21. 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/

22. 03.
The future of Open and DIY
Business: where will be value
created?

23. 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

24. 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

25. 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?

26. … so is still now value in creativity?
Source: http://www.freedomofcreation.com/home/3d-systems-acquires-freedom-of-creation

27. … 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 Flowers
Comparing 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

28. 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/

29. 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

30. … reinventing an open wheel is not enough
Will just making open an unstainable past be sustainable?
Source: http://www.theoscarproject.org/

31. 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)

32. Any question or comment?

33. Thank you!
Massimo Menichinelli
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