Few months ago, Platoniq commissioned me a report about business models for Open Hardware, DIY Craft and Fab Labs, for their crowdfunding project Goteo. It is now available on openp2pdesign.org, and it will be soon available in Spanish from Platoniq’s YouCoop website. I’m now reposting it here, since the text is under a Attribution-NonCommercial-ShareAlike 3.0 Unported Creative Commons license.
The idea is to transform it in a collaborative book in the future on openp2pdesign.org.
After the part about Open Hardware and the part about Fab Labs, here’s now the third part, about business models for DIY Craft.

DIY Craft and Microproductions: “traditional” makers

Beside Open Hardware, there is another bottom-up movement that’s slowly growing: the world of do-it-yourself (DIY) and microproductions of craft and fashion design products. There are many people designing and creating handmade product, clothes, bags and accessories, most of them consider it as an hobby, but an increasing number of people are trying to make a living on it, whether alone as an hobby (DIY) or in small groups trying to start small enterprises (microproductions). It’s not a new trend actually: the DIY culture dates back to the ‘60s and ‘70s, and craft has always existed though it was almost replaced by factories and large-scale manufacturing since the Industrial Revolution (at least in the most developed countries).

While at first sight the DIY craft world seems not to be related too much with the Open Culture, at least traditionally, it is now increasingly learning and adopting tools and processes from it, including new technologies into fashion like hardware as well (like the open hardware Lilypad Arduino, for example). As Tim O’Reilly reported in 2008, the Open Source movement underscores how communities can share expertise and build on that knowledge, and the DIY world is adopting this attitude right now. According to him the Maker movement is not just DIY, but the way in which computing is re-engaging with the physical world instead of the virtual, and this is tomorrow’s big business. Open Hardware, DIY craft, fashion microproductions, Open Design are gathering with increasing success into an informal and greater Maker movement, consisting of all the people that learn from doing and share the knowledge about it together in communities. An increasing number of documentaries, books, magazines, tutorials, conferences about managing DIY Crafts projects and businesses has been made available since few years. Maybe one reason of the success of this movement is the recession, that has moved the line between what’s produced at home and what’s purchased in markets. Anyway, selling a consulting or support service or content is the first business model for DIY Craft.

Piracy as a common business model for Fashion Design

The business models of Fashion Design can take a secret form, that has a direct connection with the Open Culture and that can be useful for building new business models for DIY Craft: piracy. Like Shanzai in China, we actually have more innovation and economic revenues when all the actors of a manufacturing ecosystem collaborate and share knowledge and project, and this shows that Open Source and Piracy are indeed a viable business model.
Kal Raustiala and Christopher Sprigman described the importance of copying in the Fashion Design ecosystem really well in their article “The Piracy Paradox: Innovation and Intellectual Property in Fashion Design”: there are no copyright or patent protections in Fashion Design, there are only trademark protections. This means that any wear or fashion product can be copied entirely, except for the brand. The lack of copyright actually accelerates creativity and innovation: one side effects of a culture of copying is the faster establishing of trends and the faster induced obsolescence, leading to more sales and revenue, and to more creativity and innovation (because the life cycle of a fashion design is increasingly shorter). Look for example at Fast Fashion brands like Zara and H&M, which are benefiting from this, copying famous high-end fashion designs and manufacturing them at lower prices (for a different market than the high end one).
Even Johanna Blakley at TEDxUSC 2010 explained what all creative industries can learn from fashion’s free culture (more informations here). Further resources are Chris Sprigman’s podcast and David Bollier’s and Laurie Racine’s report.

Etsy and the Long Tail of user-generated craft

The best example that showcases the business possibilities of the DIY Craft movement is Etsy, a social commerce marketplace conceived by Rob Kalin along with Chris Maguire and Haim Schoppik in early 2005. It has now over 6.2 million members (400,000 of them are sellers) and it’s currently selling 6.5 million items. Gross Merchandise Sales started at $ 166,000 in 2005, were $ 180.6 million in 2009 and in 2010 (September) were $ 206 million. In January 30 2008 Etsy was reported being “almost break-even”, and received $ 27 million in Series D financing.

Etsy’s main business model is creating a marketplace for the long tail of DIY Craft, charging a listing fee of 20 cents for each item and getting 3.5 % of every sale,with the average sale about $ 15 or $ 20. Etsy also has another income from Showcase, Etsy’s advertising program designed for its sellers. By purchasing a 24 hour spot in the Showcase, Etsy sellers highlight their featured items in prominent places on the site to increase shop awareness and boost sales. Prices are $ 15,00 for Holiday and Main Showcase, while for the other showcases the price is $ 7,00.Therefore, there are even doubts if the core business of Etsy is providing a marketplace for handmade goods or rather an advertising business. Moreover, Etsy has its own API to lets developers tap into the Etsy community, building their own Etsy-powered applications for the web, desktop and mobile devices.
In 2007 Etsy was reported being interested in expanding Etsy’s offline ventures: Etsy started running workshops open to local crafters and would like to provide support services, such as business advice and small loans in the future.

There are some criticism of Etsy’s business model, as well, since it seems to be not really a viable model for the makers. Only 4% of Etsy sellers are males, the average seller is a 35 years old woman and is is often a married woman with (or about to have) young children, with a higher-than-average household income, and a good education. Most probably Etsy attracts women with the hope of successfully combining meaningful work with motherhood. Unfortunately, it is very hard to make a living only with Etsy: very few sellers have done it, and the community confirms it. In fact, it seems that Etsy exerts a downward pressure on prices, since all the sellers (that live in different cities) are in direct competition and can’t increase volume (the usual answer to slim margins), because the items are artesanal and not mass-produced.

Megan Auman of craftmba.com suggests that Etsy should be regarded not just as a marketplace, but as a business incubator accelerating the successful development of DIY and Microproduction Craft businesses through an array of business support resources and services. Etsy offers a low-cost entry point into the marketplace, but as a business grows, it should think about leaving Etsy and have a different e-commerce store, a more proper step for building a rising brand (just like White Elephant Vintage did, for example). Moreover, as we said before, prices in Etsy will likely not rise because of the strong competition, and this is another reason for moving out of Etsy when the skills and the sales of a seller improves.

Threadless, crowdsourcing the design while still manufacturing the product

While Threadless cannot be strictly categorized as DIY Craft, it has a very interesting business model that can be taken as an inspiration: crowdsourcing the design and then manufacturing the products.

Threadless is a community-centered online apparel store founded by Jake Nickell and Jacob DeHart in 2000 with just $ 1,000. It is now run by skinnyCorp of Chicago. Members of the Threadless community submit t-shirt designs online; the designs are then put to a public vote. A small percentage of submitted designs are selected for printing and sold through an online store and the winners receive a prize of $ 2,000 in cash, a $ 500 gift certificate (which they may trade in for $ 200 in cash), as well as an additional $ 500 for every reprint. There are even two Threadless stores: Threadless and Threadless Kids, in Chicago.
Anders Sundelin noted that producing a predetermined demand keeps costs low and margins high, and because community members tell the company which t-shirts to produce Threadless never produces unsold t-shirts: this is why it generates more than $ 17,000,000 in annual sales with a 35% profit margin with a growing community. Moreover, Threadless has a subscription revenue stream via the 12 club (a limited edition t-shirt for 12 months) and it has also a Street Team affiliate program members earn points toward future purchases by referring sales or submitting a photo of them with a Threadless t-shirt.

Openwear: Open Source and collaboration for micro productions

If “piracy” (or at least let’s say: “copying”) is a common practice, and crowdsourcing is finding its place in the Fashion Design / DIY Craft scene with Threadless, a complete Open Source Fashion Design is just the next business model. One of the main problems of DIY Craft or micro productions scene, is that it is too fragmented and the number of products created and sold is consequently low: there is the need to make the scene more coherent and help all the actors save time and money with a common and collaborative activity. Openwear.org, for example, is a new community that created few basics open source fashion designs and is going to share with all its members, creating thus a complete open source fashion brand. In this way, all the designers won’t need to start from scratch and will save time and resources for designing new clothes.

Forward to Basics – Openwear Collaborative Collection Workshop from Openwear on Vimeo.

Stitch Tomorrow: Microcredit for Development through Fashion Design

Stitch Tomorrow is a youth-led fashion microfinance initiative from Philippine, aimed at facilitating South East Asian underprivileged teens with summer sessions in order to make them able to create their own fashion lines with clothes made of recycled materials. Stitch Tomorrow offers them education (in fashion and business), capital and resources, design, business and marketing consulting services, participation of the customers in the design and business process. Once these fashion designers can work independently, they gradually pay back Stitch Tomorrow and the interest is used for other teens the following summer.

Sewing Cafes: places for DIY Craft and Microproductions

Just like Fab Labs and Hackerspaces for the Open Hardware (and Design) movement, the DIY and Microproduction Craft movement has its own places for making, experimenting, prototyping, learning and community building: Sewing Cafes. At least since 2006 in cities like New York, Los Angeles and Boston (like Quilter’s Way in West Concord), rent-by-the-hour sewing machine cafes have opened, and now they can be found in many countries across Europe as well. There is the Sweat Shop in Paris, where users can purchase access to a Singer sewing machine (€ 6.00 per hour), the Linkle in Berlin (€ 5.00 per hour). In the UK some examples are Homemade London (£ 10.00 per hour), Make It Glasgow (£ 5.00 for one hour, £ 7.50 for two or £ 10.00 for three) and the Needlebugs sewing café in Manchester, based in a not-for-profit community arts space called Nexus Art Cafe.
There is even a Sewing Cafe in Melbourne, Australia (the Thread Den) and a Sewing Café Locator, though still under construction.
Even Etsy has a community workspace that provides equipment and donated materials where Labs members gather to make items, take and teach workshops, and attend special events. It is a permanent office called the Etsy Labs in New York. The site’s customer support, marketing/PR, business and communications teams operate out here.

A lesson from DIY Craft: microcredit as a tool for building collaborative networks

The necessity to find new business models is getting urgent in DIY and Craft microproductions, since each maker has his/her own business model and they struggle to find a balance in their growth (something hard to understand for them). As Zoe Romano and Bertram Niessen from Openwear pointed out in an interview for openp2pdesign.org, many DIY Craft makers still follow the seasonal rhythm of collections, others are experimenting flexible models. Some people are split between different activities: they are at the same time crafters and crafting teachers, or they design and realize their own collection but, at the same time, they work also for third parts in different positions of the production chain. One of the biggest problems of the DIY Craft movement (especially compared to Open Source and Open Hardware) is the extreme fragmentation of the community: in Open projects communities may be small, but there are definitely more people collaborating together in the same project than in DIY Craft. It’s easier to profit with the long tail of DIY Craft than with a single project, and here we could use microcredit as a tool for community building and for building and managing collaborative networks among the many makers.
Moreover, as reported by Zoe Romano and Bertram Niessen, the b2b DIY Craft scene has a good percentage of transactions based on the bartering of goods and services and the money are mainly left to the direct selling of end products. We should then also consider this aspect, and think about microcredit initiatives within the DIY community and microcredit initiatives even outside it. It could be even just one microcredit initiative but in the end it will work in a different way inside and outside the community, and we should use it to create a stronger collaborative ecosystem.