4.2 Business Models to Serve Scientists: Open Hardware Buyers (Type 2)
4.2.1 Selling Libre Hardware
This open business model is perhaps the most similar to traditional business models in that the firm fabricates and sells hardware, which happens to have its design fully documented and freely available. Examples in the scientific hardware community include products like OT. One, a $3,000 USD liquid handling robot developed by OpenTrans; or the $649 USD OpenPCR, a PCR machine for DNA detection and extraction. Both of these devices offer a considerable discount to scientists when compared to proprietary versions with comparable functionality. One can sell Libre Hardware either as pre-sales through crowd-funding services, through conventional “brick and mortor” retail stores, or e-shop sales. A good example of how this business model works in practice after the Libre Hardware business is mature can be seen in the success of Aleph Objects, which sells the Lulzbot Open Source software and hardware-based desktop 3D printers (Griffey, 2014). These printers can be used to make a long list of scientific tools themselves including test tube racks, centrifuges, and microscope accessories (Pearce, 2014). The Lulzbot printers are derivatives of earlier RepRap printers: Aleph Objects uses its own 3D printers to fabricate many of the components of their finished product following the RepRap philosophy (Krassenstein, 2015). Although anyone could fabricate a Lulzbot 3D printer using Aleph Objects’ plans, the cost and difficulty would likely be more than simply purchasing the device from the supplier. This model can be seen as a commercial enhancement one as customers have some assurance that an Aleph Object printer will work to specification, which is more than what is guaranteed by self-assembly or rival clones. In exchange for the risk of rival copiers undercutting its market, Aleph Object enjoys lower research and development costs and more rapid deployment of products to market because of the feedback from their users (Zimmermann, 2014). The value of this feedback should not be underestimated, as it is common in many, but not all, Libre Hardware projects for substantial contributions or enhancements to be offered with skills and costs that a single company would not be able to afford (Zimmermann, 2014). This includes developers who may not want to work for a company full time, retired engineers, or those who live in other countries. One method to compete against incumbents in the business world, which is well established, is to utilize innovation, with radical innovation being more profitable (Sheremata, 2004). It has also been shown that collaborative expert networks are of crucial importance in achieving a higher degree of novelty in product innovation (Nieto and Santamaria, 2007). Thus, Aleph Objects enjoys the benefits of a free global engineering base that rapidly innovates on their products as part of the RepRap community. It is not surprising that their Lulzbot Taz 5 was the best overall machine in the “Digital Fabrication Shootout” sponsored by Maker Media – beating all of the proprietary desktop 3D printers analyzed in 2015 (Make, 2015). Thus, an open hardware company can compete on quality, warranty, and other conventional business metrics such as customer service and delivery speed.
There are numerous examples of successful Open Hardware firms. What they have in common is matching their free designs with strong branding. Although there are many Arduino low-cost clones on the market for example, the substantial majority of customers continue to buy from the original provider even at higher costs (Thompson, 2008). The only enforceable IP the original Arduino team reserved was the Arduino brand, which was trademarked and has value to customers because of the reputation and trust the original team garnered from their initial Open Source release and continued support of the community that grew around it (Thompson, 2008). Open Source hardware businesses therefore could protect their brand as one possible strategy. The cost of a trademark is a tiny fraction of the cost of obtaining patent protection, even of a single product in most of the world’s markets. In addition to this model, there is also the possibility of a standard reseller business model. For example, MatterHackers sells Lulzbot Taz 3-D printers on their website (MatterHackers, 2016). Numerous other companies sell one another’s Open Hardware such as Adafruit and Snootlabs as well as online retail stores such as Amazon, Ebay, and Makershed. It is interesting to note that all of these companies are resellers of authentic Arduino boards.
The nature of collaboration in the Libre Hardware community also enables firms to sell products made with others. For example, Sparkfun is well known for collaborating with small companies and individuals to make new products. The firm Evil Mad Scientist Laboratories used this approach when developing its product Egg-Bot, a compact CNC art robot that can draw on spherical or egg-shaped objects. Entrepreneurs wishing to develop a new Libre Hardware product could work with one of these firms to develop derivative products and split the costs to share the revenue with the more established brands.
Firms can also follow a “package model” where they integrate Open Source components into their existing product lines. For example, a semiconductor characterization equipment firm could sell their own version of Backyard Brain’s micro-manipulator meant for neuroscience experiments (Backyard Brains, 2016) in their own larger characterization suite. As more Open Source components were developed as replacements for components in the suite, the entire system could eventually be commercialized as Libre Hardware. The Open Source labeling already has a strong positive connotation among many technology customers, and some have speculated it could be the next organic or fair trade (Gibb, 2014) label. Currently Open Source is becoming increasingly viewed as an ethical bonus as it has value to firms as good will. The Open Source labeling has already resulted in misuse and abuse by some companies that do not develop and release Open Source technologies however. The Open Source Hardware Association is trying to rectify the abuse by providing a certification program.6
It is also possible to use open technologies strategically to create a market by driving open standards. For example, Tesla, the electric car company, recently announced it was “open sourcing” all of its electric vehicle patents (Musk, 2014). Although, technically it was not “open sourcing” since there is no license to back up its promise not to sue other companies using Tesla’s patented technologies it is an important public statement of good will. In this way Tesla is likely to directly benefit from a common, rapidly-evolving technology platform as seen in other open hardware projects, but it could also enhance Tesla’s market as it encourages other companies to start building charging stations and other products that would support Tesla’s growth (Solomon, 2014).
Similarly, a firm can open source the hardware they sell in order to expand the market of other parts of their product line. This is referred to as a “secondary supplier model” (Buitenhuis and Pearce, 2012), which is best suited for established and larger companies with more experience and existing patents. An example of this approach is used by the Nitrate Elimination Corporation (NECi), which is primarily a manufacturer of enzymes for green analytical chemistry. NECi recently collaborated by open sourcing a photometer, which radically undercut the cost of other methods to detect nitrates (Wittbrodt, et al. 2015). In addition to commercializing the photometer themselves, they released the designs under an open license to encourage citizen scientists, makers, and others to fabricate the devices which would assist in expanding the potential market for their enzymes.
As any firm can manufacture Libre Hardware, the most efficient manufacturer will in the end have the lowest price. It is unlikely that NECi, a small enzyme company, will have the least expensive nitrate testing photometer on the market after a few years of international cloning. NECi is protected from this competition as cloners will drive sales of enzymes, which is their primary revenue stream, but other companies that are solely reliant on income from Libre Hardware may be concerned about copycat businesses. Thus, the logic that drives the common fear that “Open Hardware only benefits cloners” is turned on its head. Cloners can actually extend the reach of an Open Hardware brand and their projects far beyond the original innovators productive capacity. In NECi’s case they directly benefit from increased enzyme sales created by cloners.
Cloners can be a threat, however, and there are two approaches to dealing with this threat as an Open Hardware business. The first is to simply harness the Open Hardware community to out innovate the cloners. Sparkfun, a manufacturer of Open Source-based electronics, provides a good example of this model. Their CEO Nathan Seidle explains, “When a company relies too much on their intellectual property they become intellectually unfit – they suffer from IP Obesity. There have been numerous companies in history that have had long periods of prosperity only to be quickly left behind when technology shifted” (Seidle, 2012). Cloners are likely to copy a successful product whether it is open hardware or proprietary. Rather than invest in litigation, Open Hardware companies simply continue to out innovate the cloners and bring better products to the market. In Sparkfun’s case, normally by the time another business clones one of their boards and makes it available on Ebay, Sparfun already has the next version in the pipeline, ensuring that they always have a competitive advantage for customers. The second approach also ignores the impact of cloners by focusing on services (as discussed below). This approach is similar to the “secondary supplier model” as cloners may actually benefit from service sales. Open Source firms obviously are not the only ones to innovate, and proprietary firms can benefit from leveraging profit from IP and investing it into further innovation (e.g. IP can help companies raise capital using standard models, and hire more innovative staff). Proprietary firms are, in general, limited by innovation occurring within the firm however, whereas Open Hardware firms can pull in externally generated innovation (Brunswicker, 2013; Brunswicker and Vanhaverbeke, 2015).
4.2.2 Selling Libre Hardware Services
Libre Hardware designers can also sell their expertise as the inventors of the hardware itself. Using this model, cloners are a net benefit as they ensure that the inventor’s hardware is more widely spread and thus expands the potential customer base for consulting and other services. This open business model is well established in the software world, where, for example, Red Hat has grown to be $1.79 billion/year company (RedHat, 2016) by providing services on top of their FOSS product line. The service model for Open Hardware businesses can be further divided into five strategies.
First, firms can sell a subscription for a package of services around an Open Source product such as Red Hat uses for its customers. It is already routine for scientists to buy service contracts on expensive scientific equipment (e.g. a scanning electron microscope), and designers of such equipment could continue this strategy to provide a firm source of income. This model would be particularly useful at large research centers for industry, government, or academia where there would be many pieces of equipment which need to be maintained. This model could also be used to sell a membership to use specific resources, Libre Hardware equipment and support through the membership fees.
Second, a firm can offer support and training which could include installation, operation, being “on call”, and acute maintenance for repairs or upgrades. There are also numerous revenue streams available for providing training of researchers using Libre Hardware. For example, a firm might write/publish books or magazines about how to build or use Open Hardware (e.g. Make). These can either bring direct revenue (e.g. sale of a magazine) or indirect revenue such as it is used by Instructables, which extracts revenue from advertising. In addition, a firm can offer conferences, courses, certification, workshops, or training on how to build, use, and upkeep Libre Hardware. Open Source Ecology makes use of this model, for example, in their workshops (e.g. in aquaponics greenhouse workshop where participants pay a fee to take the minicourse) (OSE, 2016).
Third, a firm can be based directly on consulting for clients to make more sophisticated versions of Libre Hardware. Even Type 1 scientific groups that are comfortable building Libre Hardware for themselves may not have the time or expertise available to easily enhance the equipment for a customized experiment or for unique scenarios and special cases. In all three types of Open Hardware, scientific customers may appreciate this service. In addition, the original inventors of widely-adopted Libre Hardware are often the first to know of new improvements, derivative versions, and innovations. This knowledge can be an extremely valuable asset to be monetized in a number of ways. This type of service can also include guest lectures and corporate speeches. Finally, this type of service-based business model would match how university laboratories normally operate. A firm could obtain revenue from grants, donations, sponsorship, or public funding to design Libre Hardware to solve specific problems. This funding could be in the form of conventional research grants, but would also include Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) funding in the U.S. The SBIR program encourages small businesses to engage in Federal Research/Research and Development (R/R&D) that has the potential for commercialization. The STTR is another program that expands funding opportunities in the federal research and innovation arena. Central to the program is the expansion of public/private sector partnerships to include the joint venture opportunities for small businesses and non-profit research institutions. In the STTR program, the small business is required to formally collaborate with a research institution in the early phases. Programs such as these are amenable to Open Hardware businesses.
Fourth, a firm can service a “producer coalition” (a coalition/foundation/or consortium model). Such a partnership could be commissioned by a group of manufacturers to solve a specific problem within the field (Bruns, 2001). In FOSS these coalitions are well known (e.g. the Document Foundation, which is an independent self-governing entity that supports LibreOffice). A recent coalition involving educational institutions and more than ten companies in Canada can illustrate how such a business model works in practice for Open Hardware (Pearce, Babasola and Andrews, 2012). Due to the combination of a new large feed-in-tariff for solar photovoltaic (PV) technology in Ontario, driving an enormous increase in PV deployment and the historic relatively intense snow in Canada, there was a concern in the local industry on the effects of snow cover on PV yield (Buitenhuis and Pearce, 2012). PV developers were particularly interested in the optimization their systems. By 2012 there were few published studies that quantified the effects of snowfall on PV and none of them offered estimations of snow-related solar energy losses. The more complete studies using field data that have been done were carefully guarded as IP by PV developers. In order to overcome this proprietary knowledge blockade for all developers and systems owners in Canada, an Open Hardware-enabled PV snow study was initiated (Pearce, Babasola and Andrews, 2012). Ten PV companies donated their equipment for testing with two critical guidelines. First, the aggregate results would be published in an open literature (although the company’s product results would be given to them individually). Second, at the discretion of the corporations, their results would only be referred to in generalized terms in such a way as to make the products non-identifiable in the public realm. These two clauses allowed for an open generalizable model to be created while, at the same time, protecting all of the participating companies from any competitive disadvantage from embarrassing results. In this way, there was a benefit to the firms to participate in the study as none of the companies were either able or willing to single-handedly fund such a comprehensive study individually. By working collectively under a carefully designed set of “memoranda of understanding” (MOUs), however, the study was created and concluded successfully (Andrews et al., 2013).
Finally, a firm can support other Open Hardware firms in their development. For example, Seeed Studio is a hardware innovation business from mainland China which works closely with technology providers of different scales. When an Open Hardware firm has prototypes which are ready to iterate, Seeed helps produce copies from 1 to 1,000 or more using in-house engineering, supply-chain management, agile manufacturing, and distribution in addition to access to investors.