This is part of a serious of blogposts about the REMODEL programme at The Danish Design Centre

We have now stepped into Phase 4 of the REMODEL programme and have thereby reached the half-way marker. This brings the 10 Danish manufacturing companies, who are exploring new business strategies and models based on open source principles, to the level where they start to have an overview what it takes to go open and harness the full potential of inviting users and customers to join the community surrounding their product and to take an active, contributing role by becoming co-creators.

Up until now – in the first three phases of REMODEL – we have mostly been laying down the foundation for understanding what open source is and how it can potentially be applied to not only software and virtual products, but also on physical products and hardware. With this understanding more firmly in place it is now time to dig deeper and start imagining how the open source mechanisms can be applied concretely in business strategy of the companies’ products.

Phase 4 – Building community and your system map

In this 4th phase of the REMODEL program the companies started to lay the foundation for establishing a community around their product. First they mapped their existing eco-system of stakeholders – from users (or customers) to collaborators, partners and external influencers – before diving into re-imagining what the full scope of the “system” around their product needs to look like in order to potentially create and maintain a community of co-creators to boost innovation and product development. This is done through an exercise called “the system map” – developed by Nicola Morelli of Aalborg University – which helps map money flows, assets building, human resources needed and other critical factors the companies need to put efforts into facilitating (and engaging with), as well as how all these connect to each other. In essence, you visualize the apparatus needed to develop, manufacture and sell the product including all the elements and their interconnectedness. One key exercise we have added in the REMODEL program is then to subsequently identify which of these elements could be open sourced in order to optimize value creation. Here is an example of what that looks like:

What did we learn? Open sourcing hardware is complex

Major learnings are really starting to pour in from the work done by the 10 companies as they have reached this phase of the program. For instance, it is becoming more and more apparent that open sourcing hardware is much more complicated than open sourcing software. One on hand because these days most physical products comprise of several elements that are not physical, ie. services, software or other virtual elements that are essential to the application of the physical product but not directly a part of it. For instance online platforms, data streams and even services, which may just as well be opened. But does that this make the product itself open? Concretely, in the REMODEL program, we have included a reworked version the Open-o-meter tool, made by Jerémy Bonvoisin, NAME and NAME, which does a really good job at defining exactly what makes physical products open.

But it performs less well in dealing with these non-physical elements as mentioned before. This made it hard at first for several of the companies to identify firmly what they should open and how to do it. One company said: “We realized suddenly how the Open-o-meter is mostly for products and not services or channels,” and then continued: “However the mindset and approach it represented was pretty clear and we could use that to discuss more broadly what we could open both in hardware and non-hardware terms.”

The secret sauce? Not the open source bit, but rather the magic of building community

It is also becoming clear in the work of several of the companies that simply opening up single elements of the product does not actually contribute a lot of measurable increase in value creation. The real trick lies in the community building element of the business strategy; namely how to motivate users to engage with those open elements. The classic “build it and they will come”-principle only goes a little way in crafting a radically new business model. Instead it is the social design of the engagement that make up the secret sauce. This is also why the idea of making “system maps”, as briefly described above, makes a lot of sense because this exercise prompts the companies to consider the relationship between the opened elements and the users and actually design the interaction needed. For instance, what kind of channels or platforms need to be set up (or found elsewhere) to enable meaningful knowledge and idea exchange – and even concrete co-creation activities? And how do we get people to understand the opportunities now being made possible – and engage?

The system map exercise did a brilliant job in igniting creativity in this space. But that doesn’t mean it was easy. One company expressed it very bluntly:

“Honestly, the system map was a true pain in the ass in the beginning as we could not really make it work. Instead we tried to make some sketches on paper, and once they were done we tried again. Second time around it materialized!”. In general the system map was not only really helpful in talking through the different elements surrounding the product (and their interconnection), but it was also very useful to see where value actually appears in the system. Perhaps most importantly: All companies said how fun it was. In contrast to other similar exercises like the Business Models Canvas, which – while very useful in many ways and contexts – was rather quickly discarded in our early REMODEL tests with companies last year because it, quite frankly, was a bit of a drag to complete according to the companies. So kudos to Morelli and his team for making business strategy work playful and fun.

Here is an example of one of the early stage system maps made by one of the companies:

This has also opened up lots of discussion around value creation in the companies: What kind of value is it that the opening of certain (or all) elements can yield? Profit is of course one of the ways the value of any business model can be measured, but is direct increase in turnover the most attractive value a new business model can create? For instance, if you have to balance the cost of creating a stable and active community of, say, a thousand highly competent co-creators against the direct profit it will create in short term will probably not be lucrative. But the subsequent increase in innovation pace, boost in competitiveness and the direct relationship with your core customers in order to learn about their needs and habits in real-time might present something far more valuable. Also in terms of profits down the line. So value really can be measured in many other ways. We’ll get back to that later.

Overall we have now started to get our fingers dirty and are really excited to dive into the challenges of opening up manufacturing and harnessing the business value of open source hardware. Stay tuned for next week!

This is the third blog post of the REMODEL programme. Read number one and number two here.

Learn more

Curious to follow the REMODEL program in more depth? Read more here or sign up for the newsletter. Eager to discuss? Join the conversation on Twitter under the #remodelDK hashtag or contact Danish Design Centre Programme Director Christian Villum on [email protected]

Originally published in danskdesigncenter.dk

The post REMODEL, week 4: What happened and what have we learned appeared first on P2P Foundation.

This is part of a serious of blogposts about the REMODEL programme at The Danish Design Centre

The first three work packages of the REMODEL design sprint – which we call phases – took the companies from having little or no prior knowledge of the concept of open source towards discovering and understanding the basic principles as well as prompted them to start to imagine how that could be used in their own business.

Could the open sourcing of enzyme research in Novozymes or outdoor furniture from OUT-SIDER accelerate innovation? Could open sourcing parts of Grundfos’ water pump systems or TagTomat’s urban systems open up brand new markets? These and many more questions were on the table as the ten companies got ready to dive into the REMODEL programme.

Phase 1: Discovering open source

The companies started out by learning the basics of open source principles by getting insights into some successful manufacturing companies who apply open principles already – in varying degrees. We used Tesla to exemplify a company which is only slightly open (and not open source by definition). Then we used OpenDesk as an example of a company which is partially open, and finally, we used Ultimaker to highlight how it works when a company is almost fully open.

These examples showed how going open can make up the foundation of a financially sustainable business strategy in different ways, as well as highlighted how being less open can actually limit a great business potential. This caused some very interesting discussions in many of the companies.

Phase 2: Imagining going open

In the second week, the companies started diving into imagining what it would look like if they were to open source a product from their existing portfolio (or parts/elements of it). They also started looking into and selecting who their most important users are, through user stories, and, more importantly, started envisioning what might motivate these users to engage with their potentially open product in order to become co-creators. An interesting side bonus, unrelated to the open source theme, was that several of the companies explained how there were actually disagreements about which segments make up the companies key target audiences. So this provided a good opportunity to discuss some very basic tenets of the business foundation – as well to align around them.

Phase 3: Visualising user journeys

Next, they started transforming one of their key user stories into more detailed storyboards that described the kind of interaction this user would have with the now open product. They also started to identify key elements in that interaction and discussed how to open some of these elements (for instance designs, data, documentation, etc.). These open key elements work as cornerstones in open business models and are the assets which communities of co-creators can potentially engage.

What have we learned from following the companies on their journeys through this first third of the REMODEL programme? It is still early stage, but already now (even before we have even gotten really deep into the realm of user testing, community building and more complex issues like licenses) that opening up products can be a little complex. However across the board of companies spirits are high; maybe even higher than at the outset of the programme: It is clear that they are starting to get a glimpse of the immense power embedded in creating the kind of radical user involvement and co-creation that open sourcing allows.

Stay tuned for the coming updates as the companies dive deeper into the intricacies of opening their products and building new business models for the Internet-age.

This is the second blog post of the REMODEL programme. Read the first one here.

Learn more

Curious to follow the REMODEL program in more depth? Read more here or sign up for the newsletter. Eager to discuss? Join the conversation on Twitter under the #remodelDK hashtag or contact Danish Design Centre Programme Director Christian Villum on [email protected]

Originally published in danskdesigncenter.dk

The post REMODEL: The first three weeks, what have we learned? appeared first on P2P Foundation.

That’s no exaggeration or any hypothetical. Its as real as it gets with numbers, with actual people and small businesses to prove it.

In the past two decades, Open Source has become an immense ecosystem which empowers its participants and liberates them from their constraints in all respects – not only from proprietary, controlled platforms but also especially financially.

Let’s examine how big has Open Source become first, and then look into how people are making money in a sharing economy.

A wide, wide world

Today, Open Source now has many business models to make money and develop in sustainable fashion. You are not obliged to await donations anymore. One of the many Open Source business models will surely fit your application and your future vision about your business.

To top that, the Open Source ecosystem is now huge. It became so huge that its not far off to say that it is practically the entirety of Internet. From server infrastructure to application space, Open Source has become the new norm of I.T.

The choice for OS for servers is today Linux. Not only tech giants like Google run their applications on Linux server farms, but also Linux is de facto OS practically in all datacenters/hosting corporations which provide Internet space to end-users. You will be hard pressed to find a IIS host today.

Linux has even gotten into devices – leave aside handheld devices in which Linux based OSes became ubiquitous – Linux is being used in many more places ranging from Smart TVs to Home Routers as well.

What’s even more stunning, an entire ~80% of Websites/applications on Internet run on Open Source PHP, ~20% of all websites on Internet are on WordPress, and ~20% of Ecommerce websites are built with one single plugin for WordPress, WooCommerce. WordPress uses GPLv3, which is even more hardcore copyleft than GPL.

Real people making real money in a huge ecosystem

Even without talking about the Ecommerce/Business conducted on WordPress platform, solely the WordPress ecosystem of Themes, Plugins, Services sports over $1 billion dollar market by itself.

540M Active Plugins Makes WordPress a Billion Dollar Market

Together with Themes, it becomes a massive ecosystem:

Just How Big is WordPress Exactly?;

And this is actual cold hard cash – not valuations or estimates, with no investors, no financial schemes. And majority of those who are making money are single programmers, working alone solely on WordPress:

2014 in review – Pippins Plugins;

Pippin Williams, a lone programmer who just recently took on a few team members, made over $700,000 in revenue in 2014. Majority of this money is profit, and it is cold hard cash. A year earlier he broke the $300,000 revenue mark alone. And he did that with only 50,000 active installations of his plugin, Easy Digital Downloads.;

Small software corporations which produce WordPress themes are making multi-million dollars every year.

Leading Premium WordPress Theme Providers Compared;

Whereas WPMU Dev, as a major Plugin development company, is on par.

How Real Businesses Are Making Very Real Money Using WordPress? and the Numbers to Prove It

As easily demonstrated above, Open Source is doing whoop-ass amounts of cash for its developers, and users are quite, quite happy. No programmer in no institution can imagine what Pippin did, by single handedly reaching $700,000 in revenues from tens of thousands of direct-user customers and have a thriving software business – not in Google, not anywhere in Silicon Valley, not in Academia. Yeah, if you are very lucky, you may come up with a ground-breaking piece of software and then get some investors to pay you some good hard cash, but as what you can understand from the trend in current venture capital business, it will either take ~10 years to get there, if you ever get there at all. You won’t get there working for Apple, for sure. The catch here is that there are many like Pippin, even though not everyone makes $700,000/year.

But how does this work? Which business model?

Taking WordPress as an example, its mainly SaaS, with variations:

You can give away your software free, and charge for premium version and its updates.

Many small WordPress businesses use this format. It works pretty well. Free version is posted on WordPress org, and this ends up being advertising/distribution for free. You get thousands of users, whereas a decent percentage of them convert into Premium users because they want specialized/professional features that are required for their particular activity. The free users create an ecosystem of support and also market the product through word of mouth.

The updates are subscriptions, they are charged generally yearly – so its recurring revenue – not one time sale. The software constantly funds itself.

You can give your software free, and sell addons

Recently this is the most popular – the software is given away free, and many addons exist for specialized purposes. Users customize their installation as they need, allowing them minimum cost and maximum specialized functionality for their purpose. Incidentally the addon revenues become significant – because dozens of addons surpass the value from which you could sell a premium version. And its less bloated as well. You can serve paid and free addons at the same time.

Like Premium version method, the addons are also on a subscription basis, with users paying yearly for updates and new features. Its recurring revenue. This is the method Pippin’s Plugins used with Easy Digital Downloads.

You can give a free plugin which provides a specific SaaS

Like how Automattic’s own Akismet plugin does – the free plugin enables a SaaS service – spam control, accounting, any kind of API, social login – whatever you can imagine.

Naturally it is charged as a subscription, making the revenue recurring.

You will give support service in addition to above

All of the items above will incur support needs. Developers generally provide both community support through forums, and premium priority support. Support revenue becomes considerable – Pippin William’s plugin Easy Digital Downloads sells support subscriptions for $299/year, for example. This is a business oriented plugin, hence the complicated-ness and the high price. But in general in WordPress ecosystem the average support subscription ranges from anywhere in between 1 to 3 months to 1 year, with support price being $45 on average. You can offer $45/month support subscription as well as $45/year support subscription depending on the complexity of your plugin.

Premium services, development

These are no joke either – even with free plugins, a vast range of custom development requests materialize and these can very well supply a small software house with projects for a long time. Surely, for this option to be viable, your plugin needs to be widely used or be a very niche plugin and needs to have a sufficiently complex application. But it happens.

Automattic, the company behind WordPress, provides managed enterprise level WordPress hosting for major names like CNN, Reuters, Forbes, New York Times.

Notable WordPress Users

Moreover, WordPress hosting is a specialized hosting area, with the average monthly hosting fee being around $20 to $45 – much higher than average web hosting industry rates. Many plugin developers offer hosted version of their plugin as well.

Donations and Sponsors

This works if you are big project like Linux. For medium projects it can have some impact, but it is mostly nonexistent when it comes to small scale.

Anything else that you can imagine

There are many more Open Source business models than what we examined here.

The spectrum and amount of activity in a large open source ecosystem are massive. Thus, any way to legally make money from anything you can imagine is legitimate. What is not known not practiced today, is discovered as a method tomorrow – just like how free + paid addon model was virtually unknown until a few pioneers applied it to much success. Tomorrow there will be new models discovered, new methods applied. A lively, thriving ecosystem is something that develops, enlarges and maintains itself. While enlarging, it also creates its own sub-spaces and sub-specializations, like how it happened with WordPress security, hosting, theme development, plugin development, site administration and the like.

Open Source is an ever-developing world which constantly creates new opportunities as people who participate create new things.

As demonstrated, there are multiple ways to make a lot of money with Open Source today, and they work pretty well. As the ecosystem grew in the past decade, the amount of jobs or customers did not decline – they increased. More developers enlarge the ecosystem, which makes it easier for more users to enter the ecosystem and do whatever they want in it. Many Open Source applications spawned an expertise area in themselves, moreover they spawned expertise areas inside themselves – WordPress Theme development, WordPress Plugin development, WordPress hosting, Administration are all their own specialties for example. Its the nature of software – as it grows and becomes more complex, it creates worlds inside itself.

Of course, not every Open Source ecosystem is as large as Linux or WordPress. However, innumerable projects exist, which have sizable ecosystems that create considerable revenue for their developers – ranging from shopping cart applications to CMSes. These developers make as much money as they could make working for any corporate behemoth as a wage slave. And their jobs are not on the line at any given moment like a corporate developer who could be laid off at the whim of any exec or any economic downturn. Throughout economic crisis, the Open Source ecosystems stayed mostly untouched – millions of websites offering immense array of services still needed their software and needed them working in good condition.

So, you can make money with Open Source. And good money, at that.

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