How to play the open game in the present and future economy

This is the fifth draft; it will evolve based on your feedback.
First published on 6/19/12. Last modified on Oct 10, 2024.

Come back later for more...  

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More and more solutions to our problems today come in the form of open artifacts, i.e open source software and hardware, created by online communities and networks. Traditionally, most of these communities have relied on voluntary participation or some type of gift economy, i.e. the developers do not expect a direct or immediate tangible reward for their contributions. These open artifacts have been regarded as marginal, mostly intended for amateurs and hobbyists. How can one expect serious things to come out from loose organizations that don't use the prescribed governance and methodologies, and don't have access to large budgets? At least that was the unadvised belief, until we realized that critical infrastructure, like the Internet, runs mostly on open source software, created and maintained by these unorthodox organizations. The helicopter drone, Ingenuity, which is part of the Perseverance mission to the planet Mars, operates on Linux, which is an open source operating system. Bitcoin, runs on open source software and is maintained by an open group of people, who can be practically anyone with a computer and an Internet connection. Since the launch in 2009, no one has succeeded in hacking Bitcoin, despite the astronomical reward, ranging in the tens of billions of dollars, if we only consider the abandoned accounts of Satoshi Nakamoto, the creator of the network. So some open artifacts developed by unorthodox organizations are pretty serious. There are also lots of crappy ones, as there are crappy products offered by serious companies.

Developing open artifacts (based on open source technologies) relying on unorthodox organizations and being able to make a living is what I call playing the open game.

There are a few important components to the open game... 

 

First, there's the nature of the solution, or more precisely, its intellectual property regime. Open source means that no one can create a temporary economic monopoly on a particular solution, as it is the case with products based on patented technologies. The immediate reaction of some people is: how can one make money developing open source technologies. My first reaction to this question is to point to the obvious: 

• IBM has invested billions of US dollars in Linux and other open source technologies. ref
• Google has gained mobile dominance by opening Android, the mobile operating system. 
• Tesla has engaged in a hybrid IP strategy, open source patented.  

It is obviously possible to generate wealth while developing open source technologies, if the business model is not simple and linear. Then one can dive into some examples to understand the second order and even the third order positive effects on the overall business. In other words, in most cases, whatever is open source is not the product, but by open sourcing some technology in the IP portfolio, these companies produce some effects within their ecosystem, which they can harvest or leverage for their core business. In the case of Google, opening Android increased its adoption rate, while propagating some core Google functionalities, thus putting Google services in billions of mobile devices, which then could be monetized using Google's core business model. We also see a second order kickback pattern with online services like Google and Facebook for example, where free access is given to a digital service (search or connecting and interacting with people), while making money from selling users' generated data or attention. So we need to stop thinking about business as a simple and linear process, product-exchange. 

Now, the previous examples are easier to understand for most people, since they can relate the story to their own work experience. But what about people who develop Tiki for example, an open source wiki CMS groupware? The model here is most probably less known by commons people, but it is the best known by those who use open source technologies. The wealth generation model is similar to Red Hat, the poster child, based on support, training, and consulting services around the core open artifact, which is offered for free. 

 

At this point, I find that is it important to raise to your awareness the fact that the wealth generation model is not the same when the technology is software or hardware. It is beyond the scope of this post to dive deeper into this distinction, but if you're interested, we can discuss in the comments.

We can go even further into more esoteric wealth generation models, some of which are not even well understood by people who participate in the development of open source technologies. You have probably vaguely sensed by know that I deliberately use the term open artifact instead of product and the expression wealth generation instead of business model. The reason for that is to avoid, as much as possible, what I call cognitive interference. When we say product people think about commodity, something that you can buy/sell on the market. But you cannot sell the Linux operating system, because the open source license gives the right to anyone to make a copy, use and modify. In this IP regime, it becomes an abundant, non-rivalrous resource, like the air that we breath. One cannot sell it, its price is zero according to the law of supply and demand. Even though, unlike the air, we need to deploy efforts to produce functional software, once it is made, its costs of reproduction (copy/paste) and distribution (download) are negligible. This is not the same for open source hardware, which has higher costs for reproduction and distribution. But since everyone has access to the design, anyone can make it too. I also like to say that open artifacts disseminate, they are not distributed as products through the market. In other words, software can be found online and downloaded by people and in the case of hardware, anyone can download the model and make it themselves, which has become much easier nowadays, with the use of digital fabrication techniques (3D printing, CNC, etc.). So what about the expression wealth generation? When we say wealth most people think about money and I want to avoid this association. In more esoteric models, people are seeking other forms of wealth, for what they are, or for a later transmutation into money. For example, someone may want to contribute to an open source project to learn new skills, to develop new relations with people that have specific skills or share specific values, or to build reputation.

 

 

The second component of the open game story is the type of organization that produces the open artifact.

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Recently, we have witnessed the emergence of new economic models that brake away from the gift economy, directly rewarding those who contribute (with time, financial capital, social capital, ...) to open projects. The open artifact is gradually becoming sustainable. The first step in this direction can be illustrated by Open Source Ecology, which designs open hardware for farming, construction and manufacturing. The designs are  entirely open and free, but the Open Source Ecology community is not interested in commodification, i.e. market exchanges, their designs made with DIY (Do It Yourself) in mind, destined to be produced by the user, or very close to the point of use. In the case of Open Source Ecology their model for subsistence is based on revenues in fiat currency, from donations or educational services.

Open crowdsourcing is another model in which designers, part of an (open) community, are rewarded to complete a project. This scheme doesn't only rely on donations or voluntary participation, since those who contribute are rewarded in exchange with some symbolic gifts (tokens of recognition), reputation tokens, job opportunities, etc. Arduino is an example of such model, a hybrid between the open (value) network OVN and a traditional business, which relies on a vast community of enthusiasts to propose new designs, find and eliminate bugs, engage in promotion, etc. 

There are also closed and non-transparent crowdsourcing initiatives, such as prizes, in which only the best contributors are rewarded. Contributors are often placed in competition against each other. The resultant designs or artifacts are closed and remain under the control of the initiator. We are definitely against this new form of human exploitation, as you can see in this post. 

Sensorica is based on a more radical model, referred to as an open value network (OVN), which implements commons-based peer design production. It is in fact a mix between a gift economy and a transaction-based, or market economy. Sensorica can produces open artifacts that can either be exchange on the market or disseminated as DIY open designs. Various forms of rewards (including revenue from market exchanges or donations) are redistributed to all contributors in proportion to their contributions, based on a Benefit Redistribution Algorithm, which is at the heart of the Network Resource Planning and Contribution Accounting system (NRP-CAS). 

You can find other peer production models on p2p foundation and openp2pdesign.

This shift in the way we create solutions to our problems and distribute them is known as the transition from the present-old economy to the new economy, to a p2p economy. This is in fact the economic side of the multitude constructive revolution.

In today's world, the costs of innovation has dropped dramatically because more and more people are able to exchange ideas online and use computer-aided design and simulation. Moreover, open source communities allow a wider distribution of costs and wider sharing of the risk. This is why open innovation is booming.

The open artifact emerges because the new digital technology makes possible large scale collaboration and makes peer production effective and efficient. The open artifact makes economic sense because it costs less to design, to produce, and to use/consume. It is more valuable than the closed product. But can it really be produced in a sustainable way? How can we make open innovation and peer production sustainable?

The problem we need to solve

One of the main hurdles during this economic transition is to design a strategy to play the open game. We need to make sure that those who invest in open solutions (time, materials, cash...) get rewarded for their contributions, enough to be able to live good lives. Designing, producing and distributing open solutions in a sustainable way is what we call the open game.

Here are some objections we hear often:

• if the proposed solution is successful, it will be copied by others
• if the knowledge behind the solution is shared openly, people will make it themselves
• if all the information about the solution is available one can't maximize profits
• ...

On the product side

Playing the open game is not just about releasing all the information and knowledge about the solution. The entity designing, producing and distributing open solutions MUST create a COMPLEX value proposition that cannot be easily replicated, and MUST be able to deliver fast. 

Open value networks are very well positioned to do precisely that. The complex value proposition is... complex, and has many dimensions. 

Licensing

First, we need to realize that games require rules. A lot of efforts have been spent on drafting licenses for open products (see example from p2p foundation). But most of these licenses are, in some sense, as good as patents, i.e. as good as YOU can defend them. 

The Creative Commons attribution-share alike license is a spacial case, and can be considered as one of the most important tool in the open game. It has this property of transmission: 

"Share Alike — If you alter, transform, or build upon this work, you may distribute the resulting work only under the same or similar license to this one." 

This means that the creator of the open solution released under this license has the right to use the future work of anyone else who builds on the original open solution. In other words, if I design X and someone else takes it and makes XY, this someone cannot close (or patent) XY, and I have the right to take XY and make XYZ, without the need to ask permission. If this someone is not happy about it he can bring me to court, and I can demonstrate that X, which was originally licensed as CC BY-SA is part of XY, and part of XYZ. From my own perspective, this is not a defensive game. I don't have to protect my work. I build on someone else's work who built on my original work without permission, and I defend my right to do so only if this someone decides to take offensive action against me. 

Moreover, the CC BY-SA license sets up a win-win game, because everyone can build on everyone else's work. The most creative and hard-working have an advantage. Note that everyone has commercial rights. 

Your open solution might not be appealing to corporations

Another factor that naturally plays in the favour of the creators of open solutions are the differences between the corporate culture and the open culture. 

Corporations are still very little interested in open solutions, because their model relies on control. They need a monopoly to secure future revenue in order to recover their high R&D sunk costs and to satisfy their investors. They do that by using intellectual property to block access to market, and they go to a great extent to defend their territory. Moreover, investors aren't ready to take risks on open solutions, which forces entrepreneurs in need for funding to close their technologies. Most corporations still prefer to develop closed products, but here and there we see them testing the waters of openness. So there is a risk that a large company makes use of an open product (developed by an open community) and leverages its market penetration to capture a large portion of the rewards normally/ethically destined for the developers of the initial open product. But most of the time they chose not to do it.

[I suppose we all agree that we should reward creators and hard-working man and woman who take risks to improve our lives. Some hard-core open-minded individuals claim that we should phase out money and run the entire world on a gift economy. I am all for alternative open and transparent currencies, but I believe that the previous proposition, "running the world on a gift economy" is nonsense. In my opinion, a pure gift economy can't deal effectively with free riders and vandals.]    

Branding and product characteristics

The offer must be ethical and ecological. Openness and transparency can be leveraged here because nothing can be hidden, and consumers will have confidence. The product must be perpetual, i.e. not planned for obsolescence (see SENSORICA product design philosophy). Bugs cannot be hidden for long in open products. Perpetual products are appealing because they are ecological (they are not replaced as often as closed products) and offer back-compatibility. They also engender a long-term relationship with the consumer, which is an economic advantage for the producer. Note that a perpetual product is a modular product that can be updated regularly, by changing different modules. A PC (personal computer) comes close to this definition. Furthermore, open products are lower-cost because they reuse and remix other open technologies. 
Open organizations occupy the moral high ground and can easily integrate the customer into their ecosystem. 

Network effects

The offer must generate network effects. We are talking here about an ecosystem of modular, interoperable and complementary products that reinforce eachothers. Moreover, products must be inherently shareable and socializable. This creates communities around products, which in themselves are another layer of value added. Corporations already do that very well, especially for consumers electronics like smart phones.  

Production

On the production side, the consumer must be given great freedom to customize the product, by transferring some manufacturing processes to him. The emergence of 3D printing and CNC go in that direction. The product should be centered around the core technology and the consumer should be allowed to design and do the rest, if he wants and if he can. Think about IKEA-type products, which are modular and easy to assemble. Add to that the ability to modify and 3D-print non-functional parts of the product (like the casing, handles, etc). This puts some constraints on design; it needs to get smarter. See telemanufacturing on SENSORICA.

Open products are also modular can be easily updated, they are NOT programmed for obsolescence or made difficult to modify. This makes them incompatible with closed products (designed with control in mind). In other words, open and modular products cannot be simply copied by classical business organizations, which design on a very different philosophy.

Service

Servicing a product needs to be transparent, to allow the consumer to follow the process and to intervene at critical moments. See the draft of SENSORICA service system.
Services around the product must go along the lines of customization, sharing and socialization.

Infrastructure

Playing the open game is about being first to market, about efficiency and effectiveness. There are no built-in protective mechanisms. This game favors innovative and hard working individuals. It's all about creating value and timing. 

First to market requires fast innovation (not just generating ideas, but valuable and marketable product-ideas), capacity for production and distribution, ability to provide assistance and other services, etc. This is a game that is played at a large scale, which requires a new type of organization, based on a new kind of infrastructure. The open value network model seems to be the most promising one. 

The open value network model is designed to sustain an open, decentralized and adaptable type of organization that can fulfill all the above conditions. We believe that this type of organization can grow hyper-innovative, taking into consideration its infrastructure. It can offer a shorter product cycle and can sustain a very complex, diverse, and dynamic ecosystem of products. Early adopters and devoted customers are not only invited to give feedback for further innovation and design (like in the case of Sparkfun and Arduino), they are actually invited to be part of the value network and to share the benefits. Suppliers also have the possibility to integrate the value network, i.e. to go beyond the simple supplier-customer relation, a relation of exchange of tangibles. The value network grows by affiliation and is able to rapidly integrate new capacity and to deploy it in a dynamic manner. 

The infrastructure of an open innovation enterprise must become an attractor. It must offer powerful incentives for talented individuals and small organizations to use it, in order to put their ideas into practice, fast. See more about open value networks infrastructure.

more to come...

By t!b!

By AllOfUs