Business models for Fab Labs

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 here’s now the second part, about business models for Fab Labs.

Fab Labs and other places for designing and making collaboratively

As we have seen in the previous post, Open Hardware and similar Open projects can grow as communities inside specific places like hackerspaces. Such places are interesting because they are, at the same time, enablers of open and collaborative projects, and business models for them. In this post I will cover Fab Labs, as the most evolved and potentially big places (they could in fact also host hackerspaces) for collaborative projects, and their business models.
Lead by Neil Gershenfeld, the Fab Lab program is part of the MIT’s Center for Bits and Atoms (CBA) and it broadly explores how the content of information relates to its physical representation and can be embodied in or abstracted from: the intersection between information theory and industrial design. A Fab Lab (digital fabrication (fabbing laboratory) is a small-scale workshop with an array of computer controlled tools that cover several different length scales and various materials, democratizing manufacturing technologies previously available only for expensive mass production.
So far Fab Labs have been opened in rural India, northern Norway, various European countries, Afghanistan, Ghana, Boston and Costa Rica. Fab Lab outreach projects are being explored with a growing group of institutional partners and countries including Panama, Trinidad, South Africa, the National Academies, the Indian Department of Science and Technology, and the Africa-America Institute. The official list of FabLabs is hosted here, while other lists can be found here:


View Fab Labs on Earth in a larger map

There is no formal procedure on how to become a Fab Lab and the process is monitored by the MIT. All the labs around the world are in contact with each other through a common video conferencing system hosted at the MIT which is used for ad-hoc meetings, scheduled conferences and the delivery of the Fab Academy training programme.

Funding a Fab Lab: how much does it cost?

CNN reported that the Center for Bits and Atoms was funded with $14 million by the National Science Foundation in 2001. Anyway, starting a Fab Lab should be much cheaper: Fab Lab Afghanistan (in its wiki) and allbusiness.com reported that a full Fab Lab currently costs about $50,000-$55,000 in equipment and materials without MIT’s involvement. Other sources like ideasexist.com and aps.org reported that a Fab Lab should costs only about $20,000.
In 2009, the Center for a Stateless Society proposed to organize a Fab Lab using open-source tools such as the [email protected] 3D printer, with resulting costs between $2,000 and $5,000 total. Bart Bakker of Utrecht, Netherlands built one for under € 3000. Another initiative called Replab.org proposed the construction of an open source Fab Lab that costs $12,500.
Tools lists are available on the Center for Bits and Atoms website here and here; there is even a task list for managing a Fab Lab as well.

Running a Fab Lab: Business Models

Even the official Fab Lab Charter (drafted in 2007) recognize that Fab Labs could adopt a business model for commercial activities and roughly defines some guidelines for such models:

Business: commercial activities can be incubated in fab labs but they must not conflict with open access, they should grow beyond rather than within the lab, and they are expected to benefit the inventors, labs, and networks that contribute to their success.


Fab Lab Iceland reports 4 business models for Fab Labs:

  1. The Enabler business model: launch new Labs or provide maintenance, supply chain or similar services for existing Labs.
  2. The Education business model: a global distributed model of education through Fab Labs (with the Fab Academy) where global experts in particular topics can deliver training from local Fab Labs or even from universities/businesses via the Fab Lab video conferencing network. P2P learning among users is also a part of this business model.
  3. The Incubator business model: provide infrastructure for entrepreneurs to turn their Fab Lab creations into sustainable businesses. The incubator provides back-office infrastructure, promotion & marketing, seed capital, the leverage of the Fab Lab network and other venture infrastructure to enable the entrepreneur to focus on her areas of expertise.
  4. The Replicated / Network business model: provide a product, service or curriculum that operates by utilizing the infrastructure, staff and expertise of a local Fab Lab. Such opportunities can be replicated, sold by and executed at many (or all) local Labs, with sustainable revenue at each location. The leverage of all Labs in the network simultaneously promoting and delivering the business creates strength and reach for the brand.

The most complete research about the business models of Fab Labs so far comes from Peter Troxler, especially in his paper Commons-based Peer Production of Physical Goods — Is There Room for a Hybrid Innovation Ecology? (presented at the 3rd Free Culture Research Conference, October 2010 Berlin). Troxler found that in the current Fab Lab practice there is no single business model and the literature about it is quite poor. Studying 10 Fab Labs (out of 45), Troxler discovered that the labs were primarily offering infrastructures to students, and they were relatively passive in reaching out to other potential users (general public, companies, researchers). Usually Fab Labs are hosted at schools, research or innovation centres or are independent entities: funding comes from outside, from public sources or from their hosting institution while revenue from sponsoring or from users so far remained the exception; however, Fab Labs are requested to become self-sustaining within 2 to 4 years, but none of the labs studied had yet reached this stage. Most of the Fab Labs had their own employees, and a few were run by a faculty of their host university or were supported by volunteers.
Fab Labs usually use their own Internet presence as a marketing strategy; few of them actively engage in PR, and these ones attract also non-students as users. Furthermore, they had so far created a limited innovation ecosystem with few network and industry partners and few, if any sponsors, which got used rather rarely.
All labs indicated their main business model was providing access to infrastructure that users would have no access to otherwise, but most of then indicated that giving access to knowledge of the Fab Lab network and giving access to experts were equally part of their value proposition. Troxler pointed out then that there are two main business models (or value propositions) possible, namely Fab Labs providing facilities and Fab Labs providing innovation support.

Troxler further developed the concept of Fab Labs as innovation center within another paper, written together with Patricia Wolf: Bending The Rules: The Fab Lab Innovation Ecology presented at the 11th International CINet Conference, September 2010 Zurich. In this paper they identified four possible business models (Table 1.), among the intersections of open and closed intellectual property and Fab Lab as facility or as innovation support. Specifically, they propose the Fab Lab innovation ecology (a network of partners) as the most interesting, a Fab Lab with open intellectual property and aimed at facilitating innovation: more design thinking and stimulating innovation than just providing access and training. The primary clientele of this model are innovators, companies (particularly SMEs) and researchers, while the general public is not really important. Revenue will come from projects, services provided and partners engaging with the lab, rather than per hour or membership fees and possible sales of products or IP. The Fab Lab innovation ecosystem add the linking with a network of knowledge and experience to cheap manufacturing technologies, creating value by capturing experience and feeding it back into the network.

Table 1.
Business models for Fab Labs
Four business models for Fab Labs. (Source: Troxler, Wolf, 2010)
Lab as facilityInnovation Lab
Open IPtypical Fab Lab approachFab Lab innovation ecology
Closed IPtraditional machine shoptypical innovation consultancy

Fab Labs as showcase of brand values: Absolut Lab

But Fab Labs can now be opened by big brands as a marketing strategy: Absolut Vodka (the third largest brand of alcoholic spirits in the world) opened the Absolut Lab for visionary thinkers in Madrid since in September 2010

ABSOLUT LAB for Visionary Thinkers. from ABSOLUT NETWORK on Vimeo.

In 2008 Absolut Spain realized that the brand’s image was still strong but static and people were less and less associating it with creativity, something that the brand had been building since the ‘80s with its advertising campaigns and art commissioning. Absolut Spain then commissioned Strike Agency, a Spanish coolhunting firm, a great event for reviving the brand’s image. Strike Agency instead proposed a long-term project, aimed at improving the brand’s image as creative, visionary and socially conscious.
It is a project with no prospects of short-term financial returns and interested only in strenghtening the brand’s image according to its values. Furthermore, Absolut Lab doesn’t want to get money from the projects developed but charges fees for participating in workshops, and so far prices range from 50 € for a one week workshop to 180 € for a 3 days workshop.
The educational offer will be developed by ESADE Creapolis, an innovation business park based on open innovation and run by the prestigious university ESADE.

FabFund: bringing distributed manufacturing technologies to companies

Since Fab Labs have so far been dependent on fundings and have been rarely self-sufficient, Gershenfeld’s brother Alan and fellow venture capitalist Michael Angst founded a for-profit project called Fab Fund in 2007. The wiki at Fab Lab Iceland describes Fab Fund as:

a double-bottom line investment fund that seeks market financial returns through investments that empower individuals to create small enterprises and sustainable-livelihood businesses. The Fab Fund focuses exclusively on products and services that enable or are enabled by the democratizing effect of personal fabrication.

Fab Fund is a sort of “micro-venture capitalism“: its $200,000 capital has been invested in for-profit businesses that prototype or manufacture their products in Fab Labs around the world, in order to make distributed manufacturing a viable business model. The fabcompany.com website is currently down and the status of this project is unknown; anyway it seems that the Fab Academy program is currently collaborating with Fab Fund “to help global capital find local inventors and local inventions find global markets”.

Distributed Fabbing: other similar business models

Beside Fab Labs, there are more initiatives about distributed manufacturing and that are worth considering. This initiatives show different business models that can also be used within Fab Labs.

Shapeways is a company that started within the Lifestyle Incubator of Philips at the beginning of 2009 (they then decided to be independent from Philips). With Shapeways, users can 3d print their projects or selling and buying them in a marketplace (user themselves can decide the markup of sold projects: some of them gets $1,000 in profit every month). The price of a product depends on the actual volume (cm³) of material used and includes shipping (some materials have startup costs ranging from $ 1.50 to $ 5.00; most orders are between $50 and $150 but the minimum order amount is $25 per order. Shapeways’s growth has allowed them to drop prices to a third of what they were at their start: they want to be a low-margin business in order to leverage their community.
The company generated 244,000 € in revenue over 2009, but at the same time it lost 1,400,000 €. In September 2010 Shapeways received a $ 5,000,000 fund from VC Index Ventures and Union Square Ventures (the same firm that backed Twitter and Etsy) in order to open a manufacturing facility and headquarter in the USA.

Ponoko, a New Zealand company that started in 2007, is a marketplace for fabbing, sharing, selling, and buying products with laser cutting, 3d printing (with many materials) and hardware in the same project. Ponoko started offering only laser cutting, and the other technologies have been added in 2010. 5 digital factories in Wellington, San Francisco, Berlin, Milan and London were established in 2008: each hub is locally owned and operated; therefore pricing, materials, support, delivery and business terms may vary between them.
Ponoko gets paid based on the cost of the materials plus $2 for every minute the laser cutter is used. Ponoko now offers a Prime month subscription (at $ 39,00 per month), which has more advantages, services and lower prices compared to the Free account (though Prime is only available for orders made at the NZ and US making hubs). Unlike Shapeways, Ponoko does not require any setup fees or minimum order size. In 2009, Ponoko was reported to have a revenue of $250,000 a year.

100k Garages is a community of workshops with digital fabrication tools (most of them are located in the USA and Europe), supported by machine manufacturer ShopBot and the digital fabrication service Ponoko. 100k Garages provides a marketplace for professional manufacturing services with zero fees (transactions amongs designers and fabbers are in US $), rather than offering shop access to makers. A similar but non-commercial(and open source) service called MAKERFACTORY has opened recently.

TechShop is a chain of member-based workshops in the USA equipped with typical machine shop tools (welding stations, laser cutters, milling machines) and corresponding design software. Access to the workshop is through monthly ($ 125) or yearly membership ($ 1200) for individual membership, but there are also student, family, corporate or one day memberships available. TechShop also offers services like Personal Prototyping, Personal Consulting and Personal Training at $95.00/hour, with a 2-hour minimum (up to 3 additional attendees to Personal Training are permitted at $30/hour each one).

A lesson from Fab Labs: microcredit as a tool for enabling other projects

The main importance of Fab Labs (and hackerspaces and so on) is that they are enablers of Open and Collaborative projects. A whole community benefits from them, not only single makers: therefore places like these should be always at the core of business models for open and collaborative communities. Education, consulting and other services are the most common business models for makers, and they need them as well for producing and making their project at the same time. A community of makers that self-organizes could start microcredit initiatives (within and from outside the community) that specifically target, enable and incubate new projects with technologies, knowledge and marketplace access trying to enable a whole ecosystem instead of few projects without connections.

3 Comments Business models for Fab Labs

  1. Avatarhappyseaurchin

    I knew we should have hit absolut
    michel!

    i’d like to give it a go sometime
    if someone will second me…

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