[Discuss] OSHW & Economics

Tue Nov 26 16:27:15 UTC 2013

On Mon, Nov 18, 2013 at 10:12 AM, Mario Gómez <mxgxw.alpha at gmail.com> wrote:

> OSHW & economics?
>
> With Open Source Software is pretty straightforward...So you cannot base
> your businness on selling the software per se but the services associated
> to it...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).
>
> 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.
>
The fact that it always costs money to replicate/distribute/use the
physical object of an open source hardware project (if not the digital
source) is an important point. However, there are more factors that affect
competition. For example, most of the customers who CAN buy outside of the
shady Asian clone market, DO. They just trust more reputable manufacturers
more.

"*Arduino noticed that copycat versions of its board made in China and
Taiwan were being sold online. Yet sales through the main Arduino store
were still increasing dramatically. Why? Partly because many Asian
knockoffs were poor quality, rife with soldering errors and flimsy pin
connections*."
http://www.wired.com/techbiz/startups/magazine/16-11/ff_openmanufacturing?currentPage=all

A big part of the reason Asian cloners are a threat is that they don't have
to worry about the IP/employee/contract laws the rest of us follow.
However, that also means that their market is less trustworthy on average.
Sometimes hardware is poorly designed/constructed, sometimes there are
translation errors, sometimes the descriptions outright lie, sometimes
shipping takes several months, and good luck getting customer service. It's
more wild west...or east..whatever.

Most customers will pay a premium for confidence in the outcome of a
transaction.  The mere fact that something is cheaper can often be an
incentive to avoid it; the assumption being that it is lower quality.

Open source hardware developers can use that to their advantage. They can
be actively enaged with their customers. They can build up good will, and
earn trust, far better than the anonymous mass of cloners competing on
price alone.

>
> 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.
>

I'm not so sure about that. The number one motivator for open source
developers is the enjoyment of solving a challenge. When they solve a
challenge so well that they can sell it, and decide to go that route, they
have to make the activity self-sustaining but I'm not sure that they fully
transition over to worrying about maximum profits. There don't seem to be
enough of them to collect data on, yet.

Additionally, there's no such thing as one monolithic market. I'll use
Makerbot as an example. They are moving "up market" as fast as possible.
They want to sell expensive printers because they have to pay Americans
working in Brooklyn. They CAN'T sell to the "low end" of the 3D printer
market because it wouldn't be profitable given their production/overhead
costs. So they have little reason to care if their printers are cloned and
sold cheaper because that's not poaching any of their business. They never
would have sold to the people buying the cheap knockoffs anyway.

"*I did not bother taking pictures of all the clones. I have little
sympathy for Makerbot (aside from the usual reasons) since they decided to
save a few pennies and outsource all their injection molded parts to China.
This gives the design by far the lowest barriers to entry for a small,
local company looking to make a quick buck by cloning a printer without
investing in tooling. All they have to do is buy the **Replicator II
source*<http://item.taobao.com/item.htm?id=20483403054>*
and they can get the **same custom parts from the same
factory*<http://item.taobao.com/item.htm?id=26018240438>*.
This is why printers like the Flashforge are basically indistinguishable
from the Replicator II*"
http://forums.reprap.org/read.php?1,271647

Since the open source hardware developers tend to be on the creative side,
their strengths lie in high-quality products rather than low-price
products. They can play to that strength without worrying about the other
stuff because they couldn't have covered the whole market anyway. Someone
buying a single cheap clone probably wouldn't have bought the original
because they know enough to be able to work with products/producers of
questionable quality. Someone buying a whole raft of clones because they
need a lot and can only afford the total price of the cheap versions
wouldn't have bought the original because it wasn't produced in high enough
volume.

>
>
> 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?
>
>
By definition, if the market for the thing is large enough to justify cheap
mass production, then the creator has had a chance to position themselves
as the leader. Whether or not they succeeded is just a standard business
problem which is not unique to open source. Actually, I suspect it's easier
in open source because there's such a strong community. Whoever invented
the thing in the first place is naturally positioned to be the lead
developer. By the time the project is successful enough to attract cloner
attention there will already be a vibrant community and they will be
naturally inclinded to orbit around the original creator, who presumably
has been leading the development that resulted in a successful project.

> How the OSHW philosophy conciliates with the simple fact that the "makers"
> need something to eat at the end of the day?
>
>
Well, officially the open source hardware definition doesn't care. The
whole point of the philosophy is that you aren't allowed to retain the
legal rights that are normally so valuable. That's why most open source
work seems to be a hobby; it's something people do when they're not paying
the bills. Transitioning from a hobby to a small business is a challenge
that is not unique to open source.

> 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.
>

I don't see why manufacturing overseas would contradict the open source
hardware definition, in letter or in spirit. There does seem to be a
low-level, sporadic discussion about whether or not the manufacturing
process should be part of what is considered "source."

>
> 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?
>

Because shipping is actually a pretty small cost, especially when things
are in bulk. So it's cheaper to make something where the people work for
less money.

That's not even a "globalization" thing. A hundred years ago it was cheaper
to mine ore in America, ship it to China where it was refined into steel,
and then ship it back to America. People are expensive; sailing isn't.

>
> 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.
>

You're willing to pay a premium for business that is more ethical. That's
not unique to open source. The open source philosophy is really only about
development. Marketing, production, logistics, management, human resource,
etc are all the same.

>
> Regards,
> Mario.
>

That being said, here are some examples I turned up regarding how open
source companies can be profitable.

"*If your business needs mass adoption to succeed, then open source can be
an effective way to get your product into more peoples’ hands. Just be sure
you’ve got corresponding, valuable services or complementary products at
the ready to monetize...Often companies will pair open source technologies
with paid solutions. In Mobify’s case, we give away the tools and materials
so users can build their own mobile websites, and we make money when they
launch those websites on our platform*"
http://blogs.hbr.org/2013/01/yes-you-can-make-money-with-op/

"-* reduce marketing costs: Releasing all or part of the product as an open
source package can attract users who will use the product and discover what
it does. The product speaks for itself and brings in the users, then the
sales force steps in when it's time to upsell...Sometimes the extra may be
a feature that increases stability for enterprise clients that want their
software to run smoothly 24/7. Others offer privacy and force users of the
open source version to broadcast their work to the world*
*- reduce support costs: Have a problem? Here's a stack of code. Figure it
out for yourself*
*- reduce development costs: Now imagine there's an open source version
that does half of what you need already...In some situations, a group of
companies can rally around an open source code base, with each contributing
a fraction of the development costs*
*- reduce compatibility costs:  If the library or tool is growing, the new
features may not be compatible with the company's proprietary tools. But if
the company writes a big chunk of the new features, they'll be able to
ensure it fits their needs*"
http://www.infoworld.com/print/228428

"-* sell finished products based on open source work so that most customers
don't have to understand them to use them*
*- write books, articles or blogs sharing your expertise in the
subject...or just consult*
*- sell accessories that build off of the community, like t-shirts and
coffee mugs*
*- run a hackerspace*"
http://opensource.about.com/od/Open-Source-Hardware/a/5-Ways-To-Make-Money-With-Open-Source-Hardware.htm

It seems like a proven path to revenue is to develop an open source project
to the point where it is a practical choice for existing companies to use
in their for-profit work. Then, continue to nurture the open source work of
the community, but charge for "non-hobby" features like increased security
and/or reliability.
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