[ox-en] four business models
- From: "Michel Bauwens" <michelsub2004 gmail.com>
- Date: Thu, 21 Feb 2008 12:01:03 +0700
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From
http://blog.p2pfoundation.net/steve-bosserman-on-economic-sustainability-in-a-world-of-open-design/2008/02/19
:
This article<http://www.newmediaexplorer.org/steve_bosserman/2008/02/09/giving_it_away_making_money.htm>by
Steve Bosserman is about the best that I have read about the issue of
sustainability in a world of open design.
It's an article which should be read slowly, it is a slow buildup of simple
but intricate arguments, and has the illustrative graphics to match.
I want to retrace my own understanding of it.
First, the broad context is this: open and free has been moving historically
from content (now a mainstream reality) to software (open source software,
not fully mainstream, but consolidating as we
speak<http://www.nytimes.com/2008/02/09/technology/09free.html>),
to design in general (an emerging reality right
now<http://p2pfoundation.net/Category:Design>
).
The issue is the following: *this free (as in free speech) but also zero
dollar approach, centered around common value production, does not have it's
own means of sustainability. And critically, advertising will not be able to
fill the enormous gap between the exponential rise in common value
production, and the linear monetization of attention through advertising*.
Also, critically, we do not (as yet, and perhaps never), live in a society
which has a clear mechanism for funding common value production.
*So what needs to be done?*
Here are the steps in Steve's reasoning.
1) Differentiating between open and closed content/code/design, and
free/paid approaches, yields for quadrants:
a) *Quadrant 1 = Open and free:* you can download content, software code or
open designs for free; and the more successful of these initiatives will
derive income from advertising, selling the attention. The problem remains
that many will not be able to do this
b) *Quadrant 2 = Open and paid*: why would you pay for open code? The short
answer is you wouldn't, unless it is augmented by differential value that is
scarce and also useful in your particular context; in this context you are
paying for these added value practices that come together with the free
code, not the code itself
c) *Quadrant 3= Closed and free*: this is a classic commercial strategy; you
give the primary commodity for free (say, free cell phones), because it
helps you to sell secondary commodities (say mobile phone connectivity)
d) *Quadrant 4 = Closed and paid*: the classic business model that we are
all familiar with and which relies on state-protected intellectual rights
monopolies. This is the model that is being most severely undermined by the
free replicability of information. This means that it is not just the
hackers and consumers that threaten such a business model, but your own
competitors. In any sector, there will always be a pioneering company that
decides to give the primary commodity for free, or gives away the source
code, deriving income from secondary modalities, leaving the traditional
closed rights holders in the cold, and making this model unsustainable in
the long run.
Interpreting an important point insight from Steve, I would add the
following observation: 1) entities in the open and paid quadrant live from
their *Practices*; 2) entities in the closed and paid live from their
intellectual *Assets*; 3) and entities in the closed and free quadrant live
from their *Portfolio* of secondary services.
To the topic of making the open and free design model sustainable, Steve
adds that the only sectors which can do this consistently, will be the
public and nonprofit sector, who have a generalized income that makes it
possible. That means that, in the absence of a generalized income for common
value production, the open and free sector, must somehow move closer to open
and paid.
The key issue, if we do not want to kill off the open and free availability
of content/code/design, is to differentiate between the immaterial
production of the design, and the material production of the objects.
This is precisely what Marcin Jakubowski is trying to realize with his
Factor E Farm project, and the very reason I have called it the most
important social experiment of our time.
Marcin's first realization, the CEB machine code-named, "The
Liberator<http://openfarmtech.org/index.php?title=CEB_Press>"
Steve, echoing Marcin, stresses the radical competitive nature of such a
project, because only the labour needs to be paid in an open source design
project, such products can compete even with Chinese and Burmese slave
labour. That labour needs to be paid only once, since the result is always
available to all.
Marcin explains <http://groups.yahoo.com/group/globalvillages/message/3296>:
"*Why should low product cost be feasible? Because we have a lean operation
with little overhead, and if funded, we have low-cost production capacity
that can match even slave goods and mass production. The new economic age is
here. We are not talking of many hundreds of thousands of capitalization
requirements for similar enterprise. We are talking of open-source-fed
production facilities that will cost on the order of $10k to build. There is
cascading cost reduction, for example as we use our CEB to build the
facility, or the solar turbine to power it.*
*As such, 'capitalization costs' are 'zero'- fundraising covers the cost. So
far, we've operated 100% on voluntary contributions. R&D costs are zero -
they are distributed collaboratively. All the costs are zero zero zero,
outside of materials and labor. We capture the value of labor - but even if
we charge $100/hour for the CEB - with optimized fabrication time predicted
to be 20 hours per machine - that is still $3500 for a machine - factor 8
lower than the competition, as you can check for yourself*."
His Liberator machine will cost $3,500 to produce, and can be sold with
profit at $5,000 (in October) while the nearest proprietary
competitor<http://www.leadingedgegroupinc.com/aect_2001.php>sells for
$26.000
However, crucial in Marcin's strategy is still that the first phase needs to
be covered by contributions, but he proposes to solve this with distributed
funding from supporters, an avenue which is only open to open design
projects, as noboby would voluntary fund through donations a proprietary
project. There is also a plan for post-production income through an open
franchising system, in which the original producers can earn money by
teaching others how to use and produce these machines in turn.
*Steve Bosserman concludes*:
"*Marcin's model illustrates how to strike the critical balance between
giving it away and making money. As he mentions, the R&D costs for the CEB
machine are zero because they are distributed collaboratively and the
results are open source and freely accessible for all. This is anchoring
against the "common value" boundary. Setting the price for the machine at
$3700 covers the cost of materials and fabrication and if set at $5000 it
generates a reasonable profit that can be reinvested or used as further
compensation. When compared to $25000 for a competitive model from AECT,
this clearly bumps up into the "differentiated value" boundary.*
*Marcin envisions using the Internet to widely disseminate information about
the CEB machine, take orders, expand operations, offer training, initiate
"open franchises", distribute manufacturing capacity, and prompt further
"localization". These represent ways to play in the space between the
boundaries where some activities are done for nothing and others garner
compensation. It is that agility to remain pliable in the intervening space
that IS the sound business model to stay on track. This is a lesson suitable
for any business to consider. *"
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