Tuesday, March 4, 2008

Open source hardware comes of age

There are two types of people that use the Arduino platform: individuals who previously had limited or no knowledge of electronics, and people with a great deal of knowledge searching for a low-cost community project to get behind.

Meanwhile, there is a third market: a growing group of product designers and prototypers who seeks to build new devices they imagine, but cannot buy in stores. They are the long-tail of builder-consumers. Builder-consumers play two previously conflicting roles in the traditional model of product design and commercialization; they simultaneously build and buy products. In the legacy model of product commercialization, product design teams and firms sought to meet market demands by placing bets on individual products, seeing them through launch, and then marketing them at great expense. After launch, if the product failed to meet expectations, the team was belabored by support and maintenance.

The new model is fundamentally different in three ways. First, Builder-consumers buy and design themselves and in decentralized communities formed online. Second, they build products they themselves want, and so reduce the risk rate of product development failure. Third, Builder-consumers are self-supporting due to latent product expertise, and so reduce the cost of expensive support centers.

The newly emerging market and consumer behavior creates opportunities for new types of companies. Likewise, this also presents threats to established companies that do not respond. Companies seeking to thrive in this new market must find ways to support the connection of consumers. They must facilitate the formation of user communities in product areas, and often times this means playing the role of the technology expert for at least the first few months. Large companies have the potential to create communities by bearing the initial capital cost of large fixed costs, and distributing them to the user communities. Many companies have large capital assets and machine inventory sitting around at low utilization anyway, and exposing to builder-consumer markets is one way of increasing utilization.We see examples of this new business model taking foot across the net. Examples include: PCB design, 3D printing, laser cutting, tee-shirt manufacturing.The economics of builder-consumer markets are different. They are highly fragmented in cost structure. Typically, end-designed products are based on a single, high priced, high technology component otherwise inaccessible or unavailable to the average consumer. Meanwhile, supporting parts are extremely low cost and low price.