[Discuss] OSHW & Economics

Tue Nov 19 00:21:00 UTC 2013

Thanks for your thoughts! See below...
Also note that I am not an economist, but I am one of main architects
behind the OVN model
<http://valuenetwork.referata.com/wiki/Main_Page>applied to OSHW and a
co-founder of
www.sensorica.co]

On Mon, Nov 18, 2013 at 12:12 PM, Mario Gómez <mxgxw.alpha at gmail.com> wrote:

> OSHW & economics?
>
> Disclaimer: I'm not an economist and I only have basic notions of
> economics, so please correct me if there is any economist on the list.
>
> With Open Source Software is pretty straightforward to create a economy
> based on services where the "final product" doesn't have a direct monetary
> value but the services associated to it (support, customization,
> implementation, etc). This works OK this way because even if the
> development cost are high the reproduction of the final result is always
> near to zero, this means that with enough time (and people) using a OSS
> software the real cost of each individual copy start to decrease to a
> minimum for each user.
>
> So you cannot base your businness on selling the software per se but the
> services associated to it. For example if developing a OSS software
> solution costs $1000, assuming a reproduction cost of 0 and you have 1000
> users that means that the real value of the software is $1 by user.
>

I would say 1$ is the *value as cost*. *Market value* is defined by those
who need it.

> But those 1000 users would need support and if we assume that we sell the
> software to our users at $1 but also offer associated services to $5  that
> means that a bussiness based on services could have more oportunities to
> get profits by offering support solutions and associated services than
> selling just the software (see for example RedHat).
>

Service is custom, per-user, therefore it cannot be copied and transferred,
therefore revenue scales with the number of clients.

> But the OSHW always have an associated cost and there is no way that a
> small OSHW proyect can compete with an asian manufacturer for example. I
> mean, with the right facilities, any manufacturer could take an OSHW design
> and reproduce at just a small fraction of the costs that the original
> designer had.
>

I don't agree in general. It depends on the type of product. If we're
talking about *high tech products*, innovation becomes important, the ones
who stay alive are those who can *innovate and bring to market fast*. OSHW
is more dynamic, because open communities are hyperinnovative. There is one
problem OSH communities are trying to solve, which is to develop capacity
of production, distribution and service. This is precisely what we're
trying to achieve with SENSORICA <http://sensorica.co/>. Low tech products
have a different lifecycle, one good design can stay popular for many
years. Good design (for low tech) can also drive up demand, help
differentiate a brand, and create customer loyalty. An open community of
designers who co-design might be more creative. But this leads to
consumerism, because people are incited to discard old products for new
ones, with very small differences in functionality, because of new design
and fashion. I don't really like that...
So yes, every manufacturer can copy, but if the product has a fast
evolution the copier will always be one step behind and be disadvantaged in
the marketplace. Again, *the open game is about rapid innovation and speed
to market*.

> And obviously in a world were the predominant way of think is to generate
> maximum profits, if for example, I'm offering a custom solution based on a
> OSHW platform then obviously I would end choosing the provider with the
> lowest price, even if isn't not the original designer, even if that is
> against the OSHW philosophy and good practices.
>

There is an implicit assumption here that the chinese manufacturer can
manufacture and distribute at lower cost... That is in part because OSH
communities haven't develop effective production and distribution
mechanisms that are compatible with the new mode of innovation, which is
commons-based. In other words, *commons-based peer production* is not yet
optimized.
SENSORICA is also developing relationships with Chinese manufacturers, who
will see in our network a stream of innovation. We are also trying to
implement p2p production systems, but at the same time we're integrating
available manufacturing capacity. Now this manufacturing capacity is there.
If we can influence the ethics behind chinese manufacturing and find a way
to make production sustainable (because let's face it, we can't fabricate
everything local yet) why not working with the Chinese? They are not aliens
from another planet or people that we need to despise.

However, this kind of mentality could be a deterrent for someone to work on
> OSHW projects, and this is the same problem that originally was behind the
> creation of patents that had the objetive of protect the "inventor".
>

I don't think so... There are many reasons why open products are superior.
The openness of a product is not in the product itself and we need to
consider these dimensions. It's in the community around it, in the
philosophy that drives its design (to be modular, shareable, ethical,
reliable, etc.). We just bought a 3D printer and we opted for an open
source one, because the product will have a longer life and  because it is
easy to get support when you have an entire community behind the product.
See my post on How to play the open
game...<http://multitudeproject.blogspot.ca/2012/06/how-to-play-open-game-in-present-and.html>for
more.

>
> But I'll give you another example of a good side of this: Imagine a third
> world country with income levels less than $100 at month. A simple Arduino
> could cost a third of that income, but a equivalent product manufactured in
> asia (I'm not talking about counterfeits) could cost just $10, that means
> that this versión at a lower cost at the end of the day increases the
> posibilities for the people on this countries to access this kind of
> technology. Making the access to the technology more "democratic".
>

Yes, but that doesn't benefit the designer.

> In Software is just the developer the one that could be "harmed" if they
> don't offer support to their own work because once the software is finished
> there isn't any external factors that prevent them to offer a solution to
> their clients, and even if there are other companies offering the same
> support services they all play in the same "field".
>
> But in hardware, how a OSHW company could survive if there is an
> "external" factor associated to the cost of manufacture that cannot be
> reduced for manufacturing in small quantities?
>

> How the OSHW philosophy conciliates with the simple fact that the "makers"
> need something to eat at the end of the day?
>

That's why we're developing SENSORICA. The solution is more complex than
just the product. Think in terms of networks, and even networks of
networks. The product comes after with new mechanisms for value extraction.
I think the problem you're having, and most people out there have, is to
look at a complex problem in a very simple way, and use arguments that are
valid in the old paradigm to justify things that belong to the new
paradigm. I propose a holistic approach.  Once you grasp the new paradigm
everything starts to make sense again. There are many dimensions to the
problem and many factors who contribute to the economic success OSHW. Today
we see a lot of hybrid models, some of them work well, others don't. Slowly
but surely entities like SENSORICA emerge that constitute a more complete
implementation of commons-based peer production, with no half measures or
inconsistencies. See also Open Source Hardware meets the p2p
economy<http://multitudeproject.blogspot.ca/2013/04/open-source-hardware-meets-p2p-economy.html>
.

> For software we already know what's the answer: a service-based economy.
> But for software I don't know what could result in the long run.
>
> I would say that companies like SparkFun and Adafruit are really good
> examples of how this can work in the real world, not only offering their
> products but also the support and the knowledge about how to use them.
>

They are just hybrid, or transitional models. See Open Source Hardware
meets the p2p economy<http://multitudeproject.blogspot.ca/2013/04/open-source-hardware-meets-p2p-economy.html>
.

> However this companies are pretty "new", and they sell physical things
> rather than support. But you can find easily on eBay or DX exact copies of
> their products with the same functionality at just a fraction of the cost.
> If we follow the market rules, then the people is going to start choosing
> the lower cost alternatives (because the value of something is how much the
> market is willing to pay for it and not their real manufacturing cost)
> making more hard for this kind of companies survive in the long run unless
> they start to manufacture their products overseas.
>

First, this problem belongs to the current economic system. It is created
by the economic imbalance. Some people are poor and willing to do the work
for a lot less. I am not against giving these people work and an
opportunity to improve their standard of living and get access to education
and technology, as long as we keep an eye on sustainability and as along as
we don't make a conscious effort to keep them down as a continuous source
of cheap labor. We need to partner with these people not to consider them
as a threat, and I believe that the Open Value Network model generates an
environment in which everyone in the world has a place to create value and
benefit from it, turning these problems into advantages.

> I know that this is not a problem with the OSHW philosophy but the current
> "global economy" and "global markets". How is possible that something that
> is manufactured at the other side of the globe has a lower cost than
> something manufactured locally even if the latter doesn't provide any value
> to the local comunity?
>
> I would think that the main problem is that current economy model doesn't
> take in consideration the added value for the people but only the
> "material" costs, including the sad fact that in this model treats people
> as just another material, lower wages mean cheaper production costs and
> more profits for the business.
>

Exactly, humans are resources like animals and machines in the current
system. But we cannot change the system by only educating people and making
them sensitive to these ethical issues. The system has a life of its own
and exerts tremendous pressure on every individual. The system can only
change if something something fundamental changes in the way we design,
product and distribute value. The transition from feudalism to capitalism
was put in motion not by philosophers or revolutionaries. It was a process
of metamorphosis set in motion by a new technology, the steam engine. The
Internet is operating similar transformations, which are far more reaching
in my opinion. OSS, OSHW are manifestations of these natural movements and
commons-based peer production encapsulates new relations of production, is
the new mode of production that crystallizes. In my opinion, this will
further drive culture and governance (politics).

> I would think that OSHW is not a manufacturing revolution, but more a way
> to question ourselfs if the current models really benefit anyone except the
> business. I would be willing to pay more for something if I know that it
> gives any kind to benefit to the community and the "inventors", but sadly I
> would think that is not the way of thinking of most of the world.
>

Don't lose hope! Please watch the end of my TEDx
video<http://youtu.be/Ixgp8_B9g5A>
.

>
> Any ideas, suggestions, someone from SparkFun or Adafruit that could share
> their experience, any economist?
>
> I'll leave this discussion open for anyone that wants to share his toughts
> about this interesting topic.
>
> Regards,
> Mario.
>
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>

-- 
t!b! <http://www.google.com/profiles/tiberius.brastaviceanu>
co-founder of SENSORICA <http://www.sensorica.co>,
an open, decentralized and self-organizing
value network (an open enterprise)

founder of Multitude Project <https://sites.google.com/site/multitude2008/>

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