Steve Bosserman on Economic Sustainability in a world of Open Design

This article by Steve Bosserman is about the best that I have read about the issue of sustainability in a world of open design.

It’s an article which should be read slowly, it is a slow buildup of simple but intricate arguments, and has the illustrative graphics to match.

I want to retrace my own understanding of it.

First, the broad context is this: open and free has been moving historically from content (now a mainstream reality) to software (open source software, not fully mainstream, but consolidating as we speak), to design in general (an emerging reality right now).

The issue is the following: this free (as in free speech) but also zero dollar approach, centered around common value production, does not have it’s own means of sustainability. And critically, advertising will not be able to fill the enormous gap between the exponential rise in common value production, and the linear monetization of attention through advertising. Also, critically, we do not (as yet, and perhaps never), live in a society which has a clear mechanism for funding common value production.

So what needs to be done?

Here are the steps in Steve’s reasoning.

1) Differentiating between open and closed content/code/design, and free/paid approaches, yields for quadrants:

a) Quadrant 1 = Open and free: you can download content, software code or open designs for free; and the more successful of these initiatives will derive income from advertising, selling the attention. The problem remains that many will not be able to do this

b) Quadrant 2 = Open and paid: why would you pay for open code? The short answer is you wouldn’t, unless it is augmented by differential value that is scarce and also useful in your particular context; in this context you are paying for these added value practices that come together with the free code, not the code itself

c) Quadrant 3= Closed and free: this is a classic commercial strategy; you give the primary commodity for free (say, free cell phones), because it helps you to sell secondary commodities (say mobile phone connectivity)

d) Quadrant 4 = Closed and paid: the classic business model that we are all familiar with and which relies on state-protected intellectual rights monopolies. This is the model that is being most severely undermined by the free replicability of information. This means that it is not just the hackers and consumers that threaten such a business model, but your own competitors. In any sector, there will always be a pioneering company that decides to give the primary commodity for free, or gives away the source code, deriving income from secondary modalities, leaving the traditional closed rights holders in the cold, and making this model unsustainable in the long run.

Interpreting an important point insight from Steve, I would add the following observation: 1) entities in the open and paid quadrant live from their Practices; 2) entities in the closed and paid live from their intellectual Assets; 3) and entities in the closed and free quadrant live from their Portfolio of secondary services.

To the topic of making the open and free design model sustainable, Steve adds that the only sectors which can do this consistently, will be the public and nonprofit sector, who have a generalized income that makes it possible. That means that, in the absence of a generalized income for common value production, the open and free sector, must somehow move closer to open and paid.

The key issue, if we do not want to kill off the open and free availability of content/code/design, is to differentiate between the immaterial production of the design, and the material production of the objects.

This is precisely what Marcin Jakubowski is trying to realize with his Factor E Farm project, and the very reason I have called it the most important social experiment of our time.

Marcin’s first realization, the CEB machine code-named, “The Liberator

Steve, echoing Marcin, stresses the radical competitive nature of such a project, because only the labour needs to be paid in an open source design project, such products can compete even with Chinese and Burmese slave labour. That labour needs to be paid only once, since the result is always available to all.

Marcin explains:

Why should low product cost be feasible? Because we have a lean operation with little overhead, and if funded, we have low-cost production capacity that can match even slave goods and mass production. The new economic age is here. We are not talking of many hundreds of thousands of capitalization requirements for similar enterprise. We are talking of open-source-fed production facilities that will cost on the order of $10k to build. There is cascading cost reduction, for example as we use our CEB to build the facility, or the solar turbine to power it.

As such, ‘capitalization costs’ are ‘zero’- fundraising covers the cost. So far, we’ve operated 100% on voluntary contributions. R&D costs are zero – they are distributed collaboratively. All the costs are zero zero zero, outside of materials and labor. We capture the value of labor – but even if we charge $100/hour for the CEB – with optimized fabrication time predicted to be 20 hours per machine – that is still $3500 for a machine – factor 8 lower than the competition, as you can check for yourself.รข

His Liberator machine will cost $3,500 to produce, and can be sold with profit at $5,000 (in October) while the nearest proprietary competitor sells for $26.000

However, crucial in Marcin’s strategy is still that the first phase needs to be covered by contributions, but he proposes to solve this with distributed funding from supporters, an avenue which is only open to open design projects, as noboby would voluntary fund through donations a proprietary project. There is also a plan for post-production income through an open franchising system, in which the original producers can earn money by teaching others how to use and produce these machines in turn.

Steve Bosserman concludes:

Marcin’s model illustrates how to strike the critical balance between giving it away and making money. As he mentions, the R&D costs for the CEB machine are zero because they are distributed collaboratively and the results are open source and freely accessible for all. This is anchoring against the “common value” boundary. Setting the price for the machine at $3700 covers the cost of materials and fabrication and if set at $5000 it generates a reasonable profit that can be reinvested or used as further compensation. When compared to $25000 for a competitive model from AECT, this clearly bumps up into the “differentiated value” boundary.

Marcin envisions using the Internet to widely disseminate information about the CEB machine, take orders, expand operations, offer training, initiate “open franchises”, distribute manufacturing capacity, and prompt further “localization”. These represent ways to play in the space between the boundaries where some activities are done for nothing and others garner compensation. It is that agility to remain pliable in the intervening space that IS the sound business model to stay on track. This is a lesson suitable for any business to consider.

4 Comments Steve Bosserman on Economic Sustainability in a world of Open Design

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