Wednesday, 27 August 2014

Open source business model; not about software anymore 1/5 - Why use it?

This is not about software.  But open source as an emerging business tool.

“Steed, based in Shenzhen is one of the world’s biggest manufacturer of open-source hardware.  When a maker asks Steed to build a circuit board, the firm keeps a copy of the design which can then be used without charge by other customers. Steeed is not alone so much so that this form of manufacturing is dubbed ‘open-source manufacturing’ there”
– Economist, 18 Jan. 2014

While the software movement branded ‘open source’, the idea of the RFC conceived (1969) when the internet was being design, formed it.  Now, after more than 50 years, begun as a process then applied by software engineers and gradually by progressives in businesses, it can now be codified into a tool for broader business use.  Egged on by the new-ish internet economy, it offers disruptive opportunities for the new and old industries alike.

In an RFC (Request For Comments), specifications of the internet were conceived, written up and circulated, requesting for comments.  The final, say, domain name system was invariable the result of numerous engineers’ input globally.

This post posits that it has become an emerging cog of internet commerce, albeit in its infancy.

What can a company use the open source model for?

It can work for just about anything to do with design; shoes, cars, devices, etc.  And through design, indirectly for marketing, sales and even tracking trends.  The latter uniquely can be done in real-time over long periods, something traditional methods can’t.  It can double up as a means for finding top talent.

Content, digital products and services are a natural for the open source model.  Through the developmental process it can lead to market development, penetration and expansion.  Likewise, physical products can too by wrapping things digital like information or software around it.  3D printer manufacturers can deploy this.

Because the open source model is built around communities, in this case, of peers, it can provide powerful insights by tapping into this crowd, made up mostly of enthusiasts from the industry.  Think market intelligence, think branding. And identifying potential high performance staff.

It’s use as a competitive tool, say to introduce a new product in a crowded market, is covered in the 4th post.  Its impactful for things new.

Business operations can benefit if applied correctly as this example shows.

“Contributing directly to the open source community has cut maintenance costs at Sony Mobile and allowed it to speed up some product releases by two to four weeks, a competitive advantage that can translate to millions of dollars in new revenue.”
                                                                                    - the Wall Street Journal, 9 may 2014

Specific examples and more ideas are suggested throughout these series of posts.

As an aside, note that many business objectives (above) are achieved indirectly whence once business is all about being direct. Like native ads which is not in-your-face unlike traditional media advertisements.  You may have noticed this indirect technique used by many new-economy firms.

This first post is about what it can be used for, the second explains the model, the third why it works, the fourth suggest when it can be used and the last explains how to use it.

As a business model, it has been used by a furniture manufacturer to reduce inventory, a shoe shop for customer research, a software firm for business expansion and a niche car manufacturer as its core business model. Recently Tesla Motors also announced it is open sourcing all its designs.  Here it is to develop an industry more quickly.

It is used for sales, marketing, R&D, product development, market research, customer service.  It has been used to expand a business globally, to develop a brand.  Cleverly applied, it can even be used for long term business development and to improve productivity.

It is as applicable to the software industry as it is to architects or consumer businesses.  It has even been used to improve yields in mining.  It is useable by the large but is especially impactful for small businesses or those trying to get into crowded spaces.

It is not only used by tech firms but the traditional with the internet the common factor to reach the peer crowd.

It has even influenced the current generation of tech startups.

Lean startups operate in a constant feedback loop that involves building something, measuring how users react, learning form the results then starting all over again until they reach what is known as ‘product-market fit’.  The lean startup is about continuously improving an (online) offering.  It involves customer development (as opposed to product development) to get out of the building and find out what people really needs.  Startups start with a ‘minimum viable product’ to gauge the audience’s interest.  They always test their assumptions aiming for ‘validated learning’. And if their strategy doesn’t work, they should ‘pivot’, in essence, throw in the towel and start again with a different product.  Sure, it’s used conventionally but in lean startups, it is used to develop the core business, that is, primary while traditional firms use on the side.  It is the same process as the open source model explained in the next post.

Firms using open source for business today are the minority but that’s how mother innovation does things.  It will have an impact on mainstream businesses.  For software though, it’s further down the curve, it’s in the process of remaking the industry.

Summarising the benefits

With the caveat that this model is not what we are used to, of managers not being able to exert absolute control over the production process, it can if applied correctly for the right application:

·         supplement skills a company lacks
·       help with R&D, designing, product development and indirectly with marketing, brand building, sales and to quicken adoption
·         develop better products by involving customers as co-developers
·         potentially offer better service since it can assist in customer support
·         reduce costs
·         be used for market penetration, market expansion
·         be used to tap ideas, bring in fresh perspective, tap opinions, gauge customer needs test an idea and thus market research, customer survey and something difficult for traditional businesses to execute – capturing real-time trends
·         improve innovations

How the open source model achieves these are described in the next few posts.