Wednesday, February 25, 2009

The First Meeting of the Open Source Economics Council

Thanks to everyone who came out for pizza last night at the Open Source Economics Council! It was really great to meet some new people and extremely interesting to have so many different angles on the topic, all around the same table. I really had no idea that the discussion would take the direction that it did, and to be honest, a little surprised at how heated it got!

Suffice to say I came away with more questions than answers it seems, and as I’m pulling together some of the notes I jotted down from our chat, I wanted to share a couple of the big ones:
  • Since hardware is actually tangible and costs money to build, how do you deal with inventory risk that isn’t sold?
  • If things are cheaper at higher quantities, and there are enough people who want one, how do you achieve scale without having a company?
  • Open source is about collaborating in terms of time, and tools, and in the case of hardware, money. Time and tools are easily shared in the realm of open source software (through systems like Github), but what systems need to be built for open source hardware? How would they be structured?
A few other thoughts I had around this made me start organizing a “wish list” of a few of the things that came up as the big problems open source faces, like what the ideal solution would have to address. Maybe the “Principles of Open Source Hardware Economics” or something…if you’ve got a better name let me know!

Thinking from the standpoint of a community of engineers, the system should:
  • Reduce margins and cost for the community
  • Minimize the risk and opportunity cost of unsold inventory
  • Provide incentives for Open Source projects that do not want to incur transaction cost of establishing a corporation
  • Allow the build and distribution of low-quantity products (e.g. niche applications)
  • Allow the build and distribution of non-scalable products (e.g. non-VC fundable) –these two would be the “scale issue”
  • Align rewards and profits as closely as possible to those who contributed – that sense that of wanting my money to go to the right cause and the right people. John put it really nicely during the discussion, “It’s not about someone making money, but rather that the money being made is going to fund someone doing something, rather than someone doing nothing”. So I’m happy with whoever spent their time, knowledge and energy, to get some of those profits to keep going…but it’s a different feeling when I pay a whole bunch to support the investors behind the people who invested in the builder, because those folks didn’t actually build my gadget.
So ideally the system would:
  • Minimize economic transaction costs to high-paid non-laborer economic types
  • Reduce barriers to contribution
  • Reward innovation and encourage new ideas
  • Encourage project-level (not necessarily firm-level) competition
And it would be set up to attract people who:
  • Participate because they are getting as much or more out as they put in
  • Do it not just to make money and profit off of others for free
  • Have rare, inimitable skills who volunteer their talents for recognition or fun
  • Are willing to build a more sustainable hardware innovation system
  • Are willing to teach others for the gratification of helping others learn new skills
From a structural standpoint, there are systems set up to support time and distribute collaboration, but there’s not really a system for sustainable funding. And since it is the open source economic council, I thought I'd close with some food for thought on funding.

Even now, when "sustainable open source" comes up, it focuses on sustaining a single project rather than the environment. Don't get me wrong, there are certainly ways of making money from open source hardware, but it still feels like all the business models are on a one-off basis, where I build something for someone funding it, and there has to be a secondary purpose for it to get off the ground. I’m starting to go down the path of an open source, community bank or foundation. Something that can sustainably fund open source products or projects and cycles earnings back into the community. I'm really excited and it definitely feels like we're all one step closer to figuring open source economics! Of course, if I learned anything from yesterday, this is just one angle, so if there's something I've missed, I'd love to hear it!


Matt said...

PS - I like how your open source economics principles were applied in real time as everyone pooled together to pay for the pizza! very clever... :)

Matt said...

Hey Justin, I'm going to call your meetings "OSEC" from now on ... can we all fly in on private jets, and then get in trouble with the OSEC congress, and not qualify for bailout funds? :)