VIDEO 9 – Square 6: ‘Value Extraction (Money Income Sources)’
From a Video Series about ‘Open Source Business Models for Circular Economy’ – produced for the Open Source Circular Economy Days (OSCEdays). See our original post on Open Source Circular Economy Days for the complete set of resources: tool downloads, explanations, videos, script, links.
(6) VALUE EXTRACTION (or INCOME SOURCES)
Where does the money come from?
With information added to the squares 1 2 3 4 5 you have now everything in place to start to think about extracting value. Or in other words: Define revenue streams.
Some people when discussing Open Source Business Models only look for income sources. But this is the most boring part of everything. Because the income sources are no different from the income sources of other businesses. Well the only opportunity you don’t have is licensing out patents of course.
Now. The income sources are manifold. I’ll give you some examples. Smart people will be able to think of more.
It is clear that you can activate several income sources at the same time. As many companies do.
Here is the list.
- Sell Physical Products – Like SparkFun or Arduino or many other open hardware companies do. High quality well made and useful physical objects will always find customers. SparkFun sells in their shop products they made themselves but also products made by others.
- Sell Services produced with Open Source – If you provide a service like energy for example. Why not use open source hardware to produce it? This might enable you to produce it cheaper and better. Because you can benefit from the advantages of Open Source. An example for this – is the “Open Compute Project” – where companies like Facebook Google Apple Intel and others develop together data centers – as open source hardware. [https://en.wikipedia.org/wiki/Open_Compute_Project]. Because these companies don’t compete on the level of servers. They compete on the level of quality in the services they provide using servers.
Another angle on this is three:
- Sell The Service – Of Individual Installations or Customizations – You can sell extra services like customizations or installations. Everyone can find out how to install and customize a WordPress page. But for a really good looking page you’ll hire a wordpress professional. An often told story is that in the early Arduino days the founders were also hired for professional prototyping. And because they could benefit from the already growing Arduino ecosystem they were often unbeatable fast and creative. As said earlier. Open Source is not DIY. In most cases you’ll hire a professional. To set it up correctly and nice.
Four; and one more angle on services:
- Sell The Service or Meanings to use Open Source – As I told you in video number 3 Auttomatic the company behind WordPress makes an income with professional hosting. This makes it easier for people to directly start with WordPress. Another example is I Fixit [LINK]. I Fixit is a website and company that provides tutorials how to repair things for example Smart phones. The tutorials are free and open on the I Fixit website. Everyone can study them. And I Fixit makes an income by selling tools. Sophisticated tools you need to repair sophisticated devices like smart phones. Their open tutorials enable repairing. And their tools make it happen.
Income source Five:
- Usage Fees – Access over ownership. Rent out or lease out your products. Or your space or your machines. The web is full of open source files for objects to 3d print. And also with tutorials how to use a 3d printer. But why should you have a 3d printer in your home? So you go to your local fablab and pay a fee to use their printer. And this is just one of many many possible examples for usages fees.
- Sell Education or Consulting – Education and consulting is always worth something. Offer workshops trainings or individual consulting. And think about certifying the skills of people – like RedHat is doing as I explained in the video about Channels Of Exchange.
- Sell Premium Things – Sometimes companies have a core product that is open. But they have also some extra things that are not. For example: The sewing machine is open. But a very sophisticated needle for it is not. And to share a real example: You can buy premium themes for WordPress from different companies that are closed source. They run on WordPress but they provide extra features you have to pay for. You can find a number of other premium services of WordPress by clicking on the link provided in the resources for this video. [LINK: http://www.labnol.org/internet/blogging/how-wordpress-makes-money/7576/5 ]
- ”Franchising” – As I explained in Video number 2 – In Open Source the brand is still protected. It is an important asset for trust. If you take care of your brand and the quality it stands for others might want to use it. Allow them to use it after you checked the quality they produce.
- Sell Event Tickets – Open things are a good reason to celebrate and connect around them. Provide the space and infrastructure and people might be willing to buy tickets drinks and more.
- Research Grants – Many innovative companies are part of funded research consortiums. And it is a fact that public funders are more and more leaning towards openness. The European Union for example pushes hard towards open science. And we have good reasons to expect that in the future this will be the case in other areas too. “Publicly funded research should be publicly available” is what more and more people think and say. So going the Open Source road will raise your chances here.
- Donations – Not a usual income source for companies. But for some projects a donation button or the use of a service like Patreon or Flattr might be a good option to generate some income.
- Advertising – Shared resources create attention. And attention is worth something. Maybe elegant ways for advertising can be found. At Mifactori [http://mifactori.de] we provide detailed documentation for our products including a complete Bill Of Materials. In the Bill Of Materials we link to the sources: Where have we bought the parts. Nuts and Bolts for example. We received an email from someone asking us if we could imagine in the documentation of our next product to link to their page for the nuts and bolts. And they offered us money to do this. And although the communication stopped. And we don’t do it right now. I think it could be a viable option for the future. We will be transparent about it then of course.
- The Foundation or Consortium Model – This is a bit more complex to understand than the other points before. The Foundation or Consortium Model we find several times in the world of software. One example is the Document Foundation. The Document Foundation takes care of “Libre Office” – a very well working Open Source alternative to Microsoft Word. Foundations like the Document Foundation often have large companies as members. Google for example. Those members pay large members fees. And they make also other contributions like hiring a full time developer to work on the open source project.
Why are these companies become members of these foundations? Because they have a strong interest that the software exists. Google for example has a strong interest that an alternative to Microsoft Word exists.
And the Open Source operating system Ubuntu for example has also a strong interest that an Open Source alternative to Microsoft Word exists.
As members they help to ensure that the software exists. But they don’t have to take on the whole complex project alone. Foundations help to create synergies.
Another way to create synergies are consortiums. In a consortium several companies join together to do one shared project. And Open Source can be a great collaboration methodology for this.
As part of a consortium and to a lower extend as member of a foundation you can influence the project. All in all foundations and consortiums are viable ways to fund Open Source projects.
One more thing to mention here is cooperatives. Cooperatives are also a group of people or companies that collaborate with each other not through the market. And create synergies in different ways. I’ll add more about cooperatives in the resources for the video.
Ok. So much for the income sources. If you know more please add to the resources.
This was the last video in the video series about “Open Source Business Models for Circular Economy” produced in the context of the “Open Source Circular Economy Days”.
I invite you to work with the tool I presented.
I think it became clear that it’s not going from square 1 to square 6 and being done. You have to jump back and forth between the different squares. Add things. Take things out. Add them again. And so on.
Till you finally drew a picture that looks like something that might work.
Still you might find that figuring out and Open Source Business Model can be tricky. But figuring out new Business Models is always a bit tricky open or not. And the circular economy needs new businesses.
And if you can’t find the right angle now. What to do then?
I’d say just publish the information! This might enable others to find a working open business model. And if they found it you can probably plug in and become a part of a growing ecosystem. Enable others to do what you can’t. That is the Open Source spirit!
Start the collaboration. Be pioneers!
Ok. Thanks for watching. And one last time: Please visit the resources for this video to find out more give feedback ask questions and contribute to the discussion. Help to make this tool better.
And I invite you also to visit my personal website – Lars Zimmermann Dot De – [http://larszimmermann.de] to find similar stuff or to find out how you can support me or to partner up.
Have a nice day.