Open Source Business Models

So this week, I’ve been out for a beer with a good friend of mine, which I rarely see.

I told him about some of my ideas to start a business (I am a passionate economics student after all, and that won’t change in the near future). Well, most of my ideas include sharing the plans, or handing a lot of the design process over to the customer himself. He did not understand that at all, his first instinct was closing the ecosystem off.

And that is what most people instinctively want to do, their reaction to open source business models is “Isn’t it impossible to build a business when you are sharing AAAAALL your secrets?”or “Fool! Keep the know-how to yourself!”

And to a certain degree, they are right. Let’s start with some basics and try figuring out what open source can do.

What does a product do? Or rather, what should it do?

It should scratch a costumer’s itch, it should satisfy a need, and by that, give use to the customer. Whether it is the exclusivity when buying a very expensive watch, or a paper-clip keeping a couple of papers together. “Use” is quite an abstract thing.

Who knows best what would be of best use to the costumer?

In many cases, it’s the customer himself! (not all! I won’t go into detail about that though)

Well, the classical approach to designing products usually does not involve the customer as much as you might think. There is a couple ways companies can go about designing new products, I’ll just pick some for better understanding.

Most of them actually DO start with the customer involved, the company does some research on what “itch” the customer has, by conducting a market study (or just trust their “gut-feeling”), and goes about designing the product based on that. The mostly do not involve the customer in HOW to scratch that “itch” though.

There is also the option of inviting some average users to focus group tests, and all kind of other user acceptance tests, where some prototypes get filtered out and the remaining ones are changed on the feedback. This is not a taxative list whatsoever, there is way more stuff you can do, let’s just roll with this regardless.

standard product development process

OVERLY simplified as you might guess

Most of it happens behind closed doors though, and some of the user-input might get lost along the way, or might be ill-designed for the user for some other reasons (there is a lot that can go wrong, and it speaks for the companies that DO get it right!)

What happens if you actually make the user (or a special kind of user) a designer though? That is one of the things Open Source is about.

Just assume that you are sharing your plans for your new….. let’s not go with the robot unicorn this time… for your airplane, yes, for your airplane. Let’s also assume that you are the actual producer of the plane-parts, or indeed, the whole plane afterwards. How would that play out?

You, as a business person set a target market for your product. In this case, hobby/private aircraft.
I
f you’d introduce the new aircraft to the market, it is going to follow this adoption curve here:

adoption curve

a typical adoption curve

This is just an example, it might look very different for every market, but you get the concept, right?

Good. So what you see there right near the origin point is people called “Lead Users”, they want your product before the rest of the market wants it, or even before it knows it wants it. These people get the biggest use out of your product, they have the strongest “itch” to be scratched.

And these are the people that are going to work on your Open Source product. They don’t care about making a profit, they just want their problem solved, and they are willing to contribute something to the product that solves it!

Now. All your plans are online, and you have these smart people in your community already, why don’ they just build the thing themselves? Aren’t they your customers? You are getting rid of your customers!!

Well. No.

And yes.

Let me explain. There is a lot of people besides the “Lead Users” in that market, in fact, the others are the majority. They have a similar problem or urge, just not as strong as the “Lead Users”.

Also, the product plans, are not the only thing you and your company are creating value with. You have the know-how and the resources to actually produce the stuff, which the “Lead Users” might have too, but the rest of the market does not. And these are the people actually buying your product in the end.

Said product actually became way better with the help of the community! And by you actually engaging with that community, you can even build a better community, that keeps making your product better, keeps on doing “word of mouth” marketing, I mean, hell, they worked on the thing, they gotta love it!

word of mouth

yes. this is how I imagine it.

This Community is a KEY component of your business in the end, your competitor might be able to copy your product, but he most likely cannot copy everything that developed around it. Also, your community is probably going to tear him apart publically.

With this power comes some danger too though. You have to be very careful of where your product is going and take good care of your community (It always sounds like talking about a pet…. weird and not intentional, sorry) Since it is “Lead Users” working on it, they might slowly but surely move your product into a very small niche. They have a specific problem, that has not yet been solved by a product, which might have a very good reason.

I hope you could get something out of it, and I hope you did not fall asleep while reading, if you’ve made it this far, it must have interested you to some degree ;)

And feel free to correct me, or give me your opinion!

Peace out, and happy making!

P.S.: I got myself some new plywood and a hydraulic jack to continue my Longboard project, so expect to hear something about that soon ;)

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One thought on “Open Source Business Models

  1. I didn’t actually read this until just now. To continue on where I stopped yesterday: Keep the good work up. Now I am enlightened on how open source can be of advantage – above all in niche markets.

    Still, I prefer to do business “Old style” ;) Niche markets apart – Let’s consider mass production. What counts in such a market structure is the price. So the knowledge transfer that inevitably happens when operating an open source business can effectively destroy your company, e.g. if a lovely chinese copycat producer steals your idea.

    But as I said above: There are a lot of businesses where I am confident that open source can work out just fine :)

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