Open communities business models. Chapter 1: Open Hardware

Published on 03/15/2011 - Goteo

P2P economy, Tecnology reappropiation, Prosumers, Business strategies, Hacking

Contributors: Massimo Menichinelli


From page 1

Business Models for Open Hardware
Khatib proposed four business models for Open Hardware companies; later Edy Ferreira y Stoyan Tanev further expanded these to seven business models. According to Edy Ferreira and Stoyan Tanev, there is little research on the types of business models specifically related to Open Hardware, just like there is no consensus on the definition of Open Hardware itself as well.
The open asset is different from the ultimate market offer, the manufactured hardware device itself, and hence the problems with the adoption of existing Open Source business models. Ferrera and Tanev examined 4 companies, 88 market offers and 93 Open Hardware projects, and then identified seven business models for Open Hardware:
1.    Services (customization, consulting) over owned or third party Open Hardware.
2.    Manufacturing of owned or third party Open Hardware.
3.    Manufacturing of proprietary hardware based on Open Hardware.
4.    Dual-licensing: companies owning Open Hardware designs that are offered for use under either a GPL license or a proprietary license. The design does not contain any proprietary module.
5.    Proprietary hardware designs based on Open Hardware.
6.    Hardware tools for Open Hardware: companies selling the right of ownership of development boards for the testing and verification of hardware devices manufactured on the basis of the Open Hardware assets. The designs of these boards are entirely proprietary (another related example is Sparklelabs).
7.    Proprietary Software tools for developing Open Hardware.

Furthermore, there are three more business models for Open Hardware already implemented:
1.    Free service for building a greater user base: Adafruit created Adafruit Jobs Board as a marketplace for designers, makers, programmers, artists, engineers and companies who want to meet and work together. This is a free service, but in order to use the job boards users must be Adafruit customers.
2.    Partnership between Long Tail Open and Fabbing businesses: Ponoko has teamed up with SparkFun Electronics to enable its users to build custom electronics products combining Ponoko's laser cutting technology with a 1500+ strong electronics catalog from open source electronics supplier SparkFun.
3.    Funding Open Hardware projects for getting good Open documentation: In August 2010, Bildr offered to fund original user projects in return for good documentation: in this way it would have promoted a bildr user by showcasing his/her work and paying for the parts to construct it. In return, Bildr would have got more information for its wiki, blog and community under the MIT software license.

Manufacturing Open Hardware

But business models are just half of the issue of developing a thriving Open Hardware project: we should also focus on the manufacturing of the Open Hardware projects, a step that we don't find in Open Source Software. The value of manufacturers is in economies of scale: cheap high-quality objects or a superb shopping and support experience. But what about manufacturers of Open Hardware?

According to David A. Mellis most open-source hardware projects (including Arduino) seem not to have taken advantage of the distributed manufacturing models enabled by the open nature of their designs. Instead, we mostly see two conventional distribution models: centralized manufacturing (that makes the product available in many places, but increases the cost to the consumer) and artisanal production (this keeps the costs low because there's only one party profiting from a product, but at the same time it limits the product's availability).
Mellis suggests then to adopt a distributed manufacturing model: a number of smaller groups independently producing the same design for local distribution.

Significantly enough  Chris Anderson, in his "In the Next Industrial Revolution, Atoms Are the New Bits" article, suggested to manufacture Open Hardware projects in China using (until a complete distributed manufacturing ecosystem will be ready), the largest aggregator of the country's manufacturers, products, and capabilities. doesn't aggregate only companies suitable for manufacturing Open Hardware projects, but it is an interesting company as well and it takes us directly to the Long Tail business models.
Anderson reports that Alibaba, founded in 1999, has become a $12 billion company with $ 45 million registered users worldwide. Over the past three years, more than 1.1 million jobs have been created in China by companies doing e-commerce across Alibaba's platforms.

But manufacturing in China is also a phenomenon called Shanzai: Chinese imitation and pirated brands and goods, particularly electronics, but originally the term described bandits who oppose an authority to perform deeds they see as justified. According to Anderson, the same Shanzai companies are "increasingly driving the manufacturing side of the maker revolution by being fast and flexible enough to work with micro-entrepreneurs".
Today, the Shanzai represent approximately 20% of the mobile phones sold in China annually, and represent 10% of worldwide phone sales in 2009 (especially in Third World countries). Moreover, some manufacturers have become so successful that they are leveraging their own brand now instead of producing pirated products.

What is interesting about Shanzai companies, it's not just that we can use them for manufacturing our Open Hardware projects, but that at the same time they work in a similar way. Albeit pirateing brand products, they have established a culture of sharing information about the products through open BOMs (bills of materials) and other design materials, crediting each other with improvements. The community self-organizes and ostracizes those that violate it. Moreover, they understand and respond to local needs and tastes, establishing and maintaining local manufacturing and distribution bases: Tom Igoe calls it situated manufacturing.

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Visual notes taken by Annalena from MakerBot's presentation at Republica.