Business Models for Open Source Hardware

1. Open Hardware Business Models! Workshop @ Open Hardware Summit 2014 – extended version! Benjamin Tincq @btincq Léo Benichou @LeoBenichou Photo by Altzone (Wikimedia Commons)

2. Open Source Hardware (OSHW)! is a term for tangible artifacts — machines, devices, or other physical things — whose design has been released to the public in such a way that anyone can make, modify, distribute, and use those things.!

3. electronics! furniture! clothing! machine tools! bikes! energy! cars! agriculture! biology! architecture! aerospace! cameras!

4. Great! But how do you make it sustainable?! ! ! Can the business models! of open source software! be applied to hardware?! ! ! You guessed it: No.! For at least the 3 following reasons.!

5. (sorry Jeremy)! REASON #1! Hardware Economics! ! While the marginal cost of producing one unit in software certainly nears zero, it is far from being the reality in hardware.! ! à It certainly is not for a hardware startup that needs to make (or outsourcing the making of) small batches of its product.! ! à Even with fully automated processes, materials and space will always cost money.!

6. REASON #2! Supply Chains! ! Software supply chains are easy: you build a product, distribute it online, and users access it from anywhere (ok, it’s a bit more complex than this in practice, but you get the point).! ! In hardware, you may manage multiple suppliers and third party manufacturers, as coordinate several organizational functions with their speciﬁc skill sets : R&D, product design, electronics, mechanics, distribution, services, ...! picture: screenshot from sourcemap.org!

7. REASON #3! Quality & Safety! ! It’s hard to hurt yourself with software, but it’s more more probable with a hardware product. This is why we have regulation, safety norms, labels and quality certiﬁcations.! ! But putting in place the quality and safety testing required to sell a hardware product can be tough and expensive, especially for products such as a car or machine tools.! picture: modular view of the Wikispeed car, courtesy of wikispeed.org!

8. One (classic) tool: the! Business Model Canvas!

9. The Business Model Canvas is a (now classic)! Stragegy facilitation tool, which helps to visualize! How an organization produces, delivers and! capture value. more info: http://businessmodelgeneration.com! canvas source: http://strategyzer.com!

10. #1 Component :! The Value Proposition! à In OSHW, it can be much more than the product! VPs can appeal to different customer! segments DIY KNOW-HOW & EXPERIENCE SERVICE (aka “Solution”) ECOSYSTEM & INTERMEDIATION PRODUCT / KIT à  cheaper! à  more innovative! à  no parts sourcing!

11. VPs make up the! revenue streams! DIY KNOW-HOW & EXPERIENCE SERVICE (aka “Solution”) ECOSYSTEM & INTERMEDIATION PRODUCT / KIT à  cheaper! à  more innovative! à  no parts sourcing! PRODUCT SALES SERVICE SALES

12. DIY KNOW-HOW & EXPERIENCE SERVICE (aka “Solution”) ECOSYSTEM & INTERMEDIATION PRODUCT / KIT à  cheaper! à  more innovative! à  no parts sourcing! PRODUCT SALES SERVICE SALES DESIGN TEAMS PARTS / MATERIALS FACILITIES & MACHINES MANUFACTURING VPs are delivered through activities and resources that make up a cost structure!

13. 6 archetypes of! OSHW business models!

14. DESIGN CENTRIC MANUFACT. CENTRIC SERVICES EXPERTISE & EXPERIENCE BASED STANDARDIZE & LEVERAGE PLATFORM MODEL

16. DESIGN CENTRIC!#1 The most common model in open source hardware. The organization is focused on product design and R&D, while manufacturing is handled by another party:! ! •  Case 1 : third party suppliers provide parts that the designer can sell assembled or, more often, as a kit (ex: OpenROV, Open Energy Monitor)! •  Case 2 : a partner manufactures ﬁnished products that will be distributed under the brand of the project (ex: Arduino)! •  Case 3 : a prospective model inspired by free software, envisions an ecosystem of manufacturers selling their own products based on shared designs managed by a open hardware foundation (ex: Wikihouse, Dronecode)! In this model, brand and community are key strategic assets.

17. à  Product design, prototyping and community management are the core activities handled by the Arduino company! ! à  Manufacturing is outsourced (Smart Projects in Italy is the main partner, while Sparkfun and Gravitech based in the USA manufacture speciﬁc models)! ! à  Distribution is done through the partners (who paid a fee to Arduino) and via the Arduino online store! ! à  The core assets of Arduino are a strong brand (which is trademarked) and a vibrant community! Arduino is the most popular, successful and versatile! open hardware platform for creative electronics.! Founded in 2005 in Italy, now powering all the open hardware movement!

18. CONSULTING & CUSTOMIZATION COMMUNITY SUPPORT CHEAP, EASY TO USE ELECTRONICS à  you don’t have to assemble yourself! DIRECT SALES (ONLINE) SALES FEE THROUGH PARTNER PEOPLE OUTSOURCING HOBBYISTS, ENTREPRENEURS, STUDENTS, ACADEMIA, … COMPANIES MAKING ARDUINO-BASED PRODUCTS & DERIV PRODUCT DESIGN COMMUNITY MANAGEMENT MANUFACTURING PARTNERS COMMUNITY MANUFACTURING PARTNERS ONLINE STORE COMMUNITY FACILITIES CONSULTING / SERVICES (the Arduino brand)!

19. Example: XYZ Cargo is an open source construction system for! modular cargo bikes, with a CC-BY-NC part.! ! The core of the system rely on “XYZ nodes” that are available only in a Creative Commons! Non-Commercial license, so only their creators (N55 agency) can commercialize them.! “PARTIALLY OPEN” PRODUCTS! à CC-BY-NC licenses (equivalent to Dual Licensing in free software)! à Products with an “Open Core” (ex: DIY Drones / 3D Robotics) ! #1 BIS pictures: source XYZ Cargo

20. DESIGN CENTRIC MANUFACT. CENTRIC SERVICES EXPERTISE & EXPERIENCE BASED PLATFORM MODEL STANDARDIZE & LEVERAGE

21. MANUFACTURING CENTRIC!#2 In this model, the organization’s core value proposition is to manufacture and distribute open hardware products for an affordable price. In addition to the brand and customer community, industrial efﬁciency is a key asset.! ! Depending on the industry, the diversity and renewal of the product catalog can also be a key differentiator, especially in the ﬁeld of open electronics, of which this model is very typical (ex: Sparkfun, Adadruit, Snootlab, …)!

22. Sparkfun distributes online :! à Products they designed! à Products they assembled, but did not design (ex: Arduino Pro)! à Products designed and made by a third party (ex: Arduino Uno)! Sparkfun Electronics is a manufacturer and online retail store for open source electronics.! ! In 2013 : $75M revenue, 600K customers, 135 employees, 431 products.! 6 weeks on average to clone their products à focuses them on constant innovation.! picture: photo from sparkfun.com!

23. (… ) “We have achieved a landmark One Day production time of the CEB Press in 2012, and we intend to bring down the production time down to 1 day for each of the other machines.” OSE LifeTrac! $9K (Production Cost)! 5075M Utility Tractor! $44K (Retail Price)! vs! pictures: source Open Source Ecology (left) and John Deere (right)!

24. DESIGN CENTRIC MANUFACT. CENTRIC SERVICES EXPERTISE & EXPERIENCE BASED PLATFORM MODEL STANDARDIZE & LEVERAGE

25. EXPERTISE & EXPERIENCE BASED!#3 This model is directly inspired from the free software industry, in which the most popular business model consist in monetizing expertise and service.! ! In Open Hardware, this can translate into:! ! à  DIY Workshops to teach students how to make the product by themselves  (ex: Tripalium teaches how to build the Piggott wind turbine)! ! à  Selling not only a product, but also the “experience” of building it yourself, together with the project team (ex: Wikispeed)! ! à  Consulting Services for companies to customize or build derivatives of your product (ex: Arduino) or learn your processes (ex: Wikispeed)!

26. Tripalium is an association that promotes  open source wind turbine construction.! ! The knowledge (blueprints and tutorials in french for making a Piggott wind turbine) is shared for free by Tripalium.! ! Two members organize one-week workshops, during which students learn how to build their own turbine. All participants pay to attend, and one of they pay a higher fee to keep the wind turbine in the end.! Wikispeed is an ultra-efﬁcient, modular! open source car that achieves 100 MPG.! ! Wikispeed customers not only buy a car, they also buy the “experience” of building it themselves, together with the Wikispeed team.! ! Wikispeed core members also provide consulting services to industrial companies (Boing, John Deere, …) on agile manufacturing techniques.! picture: source http://wikispeed.org! picture: source http://tripalium.org!

27. DESIGN CENTRIC MANUFACT. CENTRIC PRODUCT SERVICE SYSTEMS EXPERTISE & EXPERIENCE BASED PLATFORM MODEL STANDARDIZE & LEVERAGE

28. The Product-Service System (PSS) model rose to prominence in 1959 when Xerox introduced the “pay-per-copy” printing model. It is now spreading throughout industries in the light of trends such as the sharing economy and the circular economy.! ! This model is still prospective in Open Hardware but has untapped potential :! à  Data-driven Services for connected hardware / internet of things …! à  Subscription Model with spare parts for repair and upgrade …! à  Product As A Service to access it rather than owning it …! PRODUCT-SERVICE SYSTEMS! PROSPECTIVE #4

29. Philips Pay-Per-Lux – 2014! From selling light bulbs to selling light (for businesses)! Xerox Pay-Per-Copy – 1959! Printing As A service (subscription)! ToolPool – 2013! Stores lending tool for free while selling supplies! Zipcar – 2000! Car As A Service (subscription + pay per use)! Fitbit Tracker – 2007! Product with information service (quantiﬁed self)! CLASSIC P.S.S. EXAMPLES OUTSIDE OSHW!

31. This model consist in opening one key product, which can be proﬁtable in itself, but whose openness serves mostly to make the associated technology a de facto standard in the industry. This openness strategy enables the organization to leverage other capabilities adapted to that standard.! ! One key example in the software industry would be Google’s Android OS.! STANDARDIZE & LEVERAGE!#5

32. Charging Stations! Jun 2014! Charging Stations! Dec 2015! Tesla Motors opening its patents.! ! Opening Electric Vehicle Patents = huge market for batteries and charging stations! (ok, technically there Tesla uses no clear OH license, but you get the point)!

34. In this ﬁnal model, inspired by the platformization of the digital economy, the core of the value proposition is to organize an ecosystem of industry players (designers, manufacturers, resellers, customers, prosumers, brands, …) around one key open hardware technology or design platform.! ! Key examples in the open hardware movement include OpenDesk and OSVehicle, with an increasing interest from many project holders to adapt it to other products.! PLATFORM MODEL!#6

35. OpenDesk is a marketplace for open design ofﬁce furniture.! ! Users can download source ﬁles to make the product DIY, or have it made by a local makerspace. Payment is split between the designer, the makerspace and the OpenDesk platform.! picture: screenshots from http://opendesk.cc!

36. 5. PARTNERSHIPS! OSVehicle is an open source vehicle platform.! ! OSV has developed the Tabby motor and chassis, and the UrbanTabby car.! They are now building an ecosystem of players to make up a “participative value chain” in which the value is distributed in a fair way to all participants (designers, fabbers, distributors, assemblers, …)! picture: source OSVehicle (left) and Simone Cicero (right)!

37. NOW IT’S YOUR TURN!!

38. Work on your OSHW project (or a project you like), try to map its current business model, and play with some of its components to make a new one.! ! Think of the 6 archetypes, or ﬁnd out new ones!!

39. BTW, if you are interested in how open hardware! can address sustainability and climate issues,! we have a project that might interest you.! ! It is an accelerator for open source sustainability.! We call it POC21 aka Proof Of Concept 21.! ! Check it out: http://poc21.cc! & http://bitly.com/POC21slidesEN! ! Thanks!!

40. THANKS!! Benjamin Tincq ! benjamin@ouishare.net! @btincq! Léo Benichou! leo@ouishare.net! @leobenichou!