Tuesday, June 19, 2012

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

This is the forth draft; it will evolve based on your feedback. Come back later for more... 
Last modified on September 02, 2013
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More and more value comes in the form of open products. We have grown accustomed with open communities creating open soft-and hardware. Most of these communities are based on gift economies, i.e. the creators of these open products are not rewarded in a tangible way for their contributions. The classic examples are GNU-Linux and Wikipedia. Recently, we've seen an emergence of different models that brake away from the gift economy, directly rewarding those who invest (time, financial capital, social capital, ...) in open projects.

The first step in this direction can be illustrated by Open Source Ecology. The products they design are entirely open, but they are not for sale. The Open Source Ecology community is not interested in the market economy, their products target DIY communities. Their revenue model is based on donations. 

Open crowdsourcing is a model in which 
designers part of an (open) community are NOT rewarded in proportion to their contributions, in a tangible manner. The organizations who capture the value of  the products don't share the profits with the individuals who help design them. They could be given some symbolic gifts, which don't reflect the entire value added to the product. Arduino is one example of such model, a hybrid between the open (value) network OVN and classical business. 

There are also closed and non-transparent crowdsourcing initiatives in which only a very few participants to the design are rewarded. Contributors are placed in competition against each other. The resultant products 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 and decentralized value network) of commons-based peer design production. It is in fact a mix between a gift economy and a transaction-based, or market economy. SENSORICA produces products to be exchange on the market (in classical terms, is selling products). All revenue generated is redistributed to all contributors in proportion to their contributions, based on a value equation, which is at the heart of the value accounting system



You can find other 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 product emerges because the new digital technology makes possible large scale cooperative design and production, and because it renders these modes of design and production more effective and efficient. The open product is makes economic sense because it costs less to design, to produce, and to use/consume. It offers more value than the closed product. But can it be produced and distributed in a sustainable way? How can we capture value from open innovation to make it 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 products (time, materials, cash...) get rewarded in proportion to their contributions, enough to be able to live good lives. Designing, producing and distributing open products in a sustainable way is what we call the open game.

Here are some objections we hear often:
  • if the product is successful it will be copied by others
  • if the knowledge behind the product is shared openly people will make the product themselves
  • if all the information about the product 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 product. The entity designing, producing and distributing open products 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 product released under this license has the right to use the future work of anyone else who builds on the original open product. 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 product might not be appealing to corporations

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

Corporations are still very little interested in open products, because their model relies on control. They need a monopoly, they favor patents to secure their markets, and they go to a great extent to defend their territory. Moreover, investors aren't ready to take risks on open products, 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 with 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 and organizations. It's all about making valuable things happen at the right moment. 

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 value network model seems to be the most promising one. 

The 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

7 comments:

  1. Hey Tiberius,

    I've been working on similar ideas. In relation to defining the rules of the game, I've been thinking of it as creating a cell culture. In a petri dish you should create some conditions that you think will promote the growth of your cells in a certain way. I think you can and should share your medium recipe. Yes, others will copy it but their medium would not be the same because it is very likely that they will not agree with your plan 100%. I think that in the open game, the more people "copy" your idea, the more options are available and the quicker you reach a viable solution. To me, it sounds like a collaborative prototyping effort.

    I'm working on a proposal to the local Aboriginal peoples where I live because I want 1) to test what I am sharing here with you but 2) and very important, I think the indigenous cultures of the world can teach us how to live without depending on money, how they create value and how they exchange it and of course, the relationships that come out of that. But I assume they do it because they know how to. My idea is to bridge the two worlds by being able to create business models of a (mostly) cashless community, in other words, identify culture mediums.

    Will let you know if you're interested.

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    1. Thanks for your comment Tatiana. I'll revisit my text, because your first paragraph makes me think that I can be misinterpreted. I am all for sharing openly and I encourage others to copy and remix everything made within what I call an "open value network". If this is done in the same spirit everything is fine, because it can go in both all directions. This is how science advances, scientists influencing each others back and forth. But this is NOT always done in the same spirit.
      So the problem is how to make sure that those who participate in the creation of open products get rewarded for their work, in the present (mixed) AND future (hopefully open) economy. How can we make sure that the openness doesn't lead to the exhaustion of creators of open products? How can we make sure that one can provide for an entire family while building open products? How can we build a sustainable open and p2p economy, an environment in which one doesn't need to work for a corporation to survive and do open projects during free time.
      I like cashless communities. I've experienced something like this when I was younger in my mom's village. It feels good, but unfortunately I don't think it can be scaled beyond the Dunbar's number. I think there are informal currencies operating in these types of communities to account no only for simple exchanges (chickens against milk), but also for complex exchanges of intangibles. Everyone in the village is an accountant and can tell you more or less accurately if someone is taking advantage of someone else or if someone is giving a lot more than he takes back. I am for a basket of different types of currencies that map different types of values, and can better represent the complexity of humans as socio-economic agents (without diminishing other important dimensions).

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    2. Dear Tatiana

      You wrote: "I think the indigenous cultures of the world can teach us how to live without depending on money, how they create value and how they exchange it and of course, the relationships that come out of that".

      Let me whole-heartedly support that statement. In Sub-Saharan Africa there is an essentially common traditional philosophy that runs through almost all indigenous cultures. It goes by different names in different places. In South Africa's traditional Zulu and Xhosa cultures it is known as UBUNTU.

      In essence it says ... “I am because WE are”.

      Your pain is my pain, your prosperity is my prosperity, your salvation is my salvation.

      It sets out to build and maintain a true sense of ‘community’ through compassion, reciprocity, dignity, harmony, and humanity. Through mutual-support and a positive outlook we overcome hardship and misery together.

      UBUNTU asks us to think of the individual not as a solitary, self-sufficient entity who exists independent to the rest of society ... but rather as individual human beings in RELATION to the rest of creation. UBUNTU considers our interconnectedness, our common humanity and our shared wisdom and know-how.

      The Cartesian conception of individuality fails to acknowledge this, and instead exaggerates the solitary aspects of human existence while largely ignoring the relationship aspects.

      Collectivism makes the same mistake, only on a larger scale. For the collectivist, society is nothing but a collection of separately existing, detached individuals (Dirk, 1998).

      Ubuntu is neither collectivist (socialist/communist) nor individualist (capitalist). Instead it is COLLABORATIONIST, relying on a flexible group of people working together towards a shared goal and for their common good. The focus shifts from solitary to solidarity, from independence to interdependence and from individuality vis-à-vis community to individuality à la community (Dirk, 1998).


      UBUNTU encourages participation and sets out to build consensus and a common vision accepted by all who are involved.

      A blueprint surely for the New Economy?

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  2. I am writing this mainly because you mention the text evolving based on feedback. I like the text as it clearly involves a lot of research, thinking, and gives a complete view of the picture. So I am just giving a reader's perspective when reading it. The text has many strengths but I will comment only on what I think could be clarified.

    Some issues are not as complete as I personally would expect to read, and that I am curious to know more about. In particular, this relates to "The problem we need to solve" It does not seem to me that the objections (and "if the product is successful".... if the knowledge behind...") were sufficiently addressed. Here are some points on this.

    You talk about a complex value proposition that cannot be easily replicated and MUST be delivered fast. I would agree that with this IP is irrelevant. But in practice it seems to me that to do that, you almost need heroes. I can only think of very organzations that would fit in this complex value proposition, and most of them are corporate or even "small closed businesses" (regardless of any IP). So I would like some more details on that, perhaps examples.

    On planned obsolescence... I think that if the product is open it does not mean it cannot "break down" or become useless, whether of not the consumer participates in it. Many corporations make high quality products that last long. Also, as soon as the "planned obsolecesce" corporations realize that consumers will not buy products that they perceive will soon become obsolete (then, overall, reducing the profits) they will likely "unplan" it. I do not see why a corporation cannot make modular products as well. In general, they will do what is perceived to generate more money, and they like to walk the fine line between developing customer loyalty and customer rip-off.

    Branding appears to appeal to a very specific niche. The product still has to be of perceived superior quality and/or relatively lower price to competitors. Unfortunately, not even human rights "wannabees," put their money on ethics, ecology, or transparency, no matter how much they like to talk about it. It's nice, but it' secondary. So I would focus on everything that means lower price and higher quality for the consumer.

    "Network effects
    The offer must generate network effects. We are talking here about an ecosystem of modular, interoperable and complementary products. These products will reinforce each other." - you need to explain this more... and how to do it. On the top of my head I can only think of Google and Apple who can do this well... and they are corporations.

    "In other words, open and modular products cannot be simply copied by classical business organizations, which design on a very different philosophy." (why not? explain this, not clear yet)

    I hope these are helpful.

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    1. Thanks for challenging the ideas put forward in this post Fernando. I will think about it and I will try to respond as a comment, and after I will integrate these new arguments into the main text.

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    2. Cool, I am very much looking forward to reading the next version and comments. If you have questions about what I wrote please don't hesitate.

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  3. This comment has been removed by the author.

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