Tuesday, 9 September 2014

Open source business model 5/5 – How to use it?

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

Thinking of using it?

1.  What is the objective?

The open source model is one way to tap the crowd.  But be clear on the objective.  Is this the most suitable crowdsourcing tool to apply, among others like the peer-to-peer model?  And note that tapping skills, developing a product, trend tracking or market penetration should each be executed differently.

One key difference is that while the open source model is better at directed activities, say, what features should a product have, the peer-to-peer model is better for listening, say, opinions and ideas to improve a product.  The latter is more likely to produce unhindered input.   Another is that with open source, ownership of the deliverables is in the public domain.

2.  Resources

Do you have the resources to support the initiative?  The preparation can be as simple as a website detailing the project, material for download, then inviting ideas but there is usually more work.  Many involve developing tools comprising information, data, project briefs, blueprints, access tools, sharing tools, discussion platform, etc.  And once you launch it, it’s not auto-pilot.  It’s co-development so you must have a team to engage the community and carry out some of the work.  Most of all, your team must take the lead to guide its development.

Is time a factor?  Obviously you cannot expect results within days.  The open source model takes months to start getting results.

2. Suitability

Why would the crowd take part?  Is the idea interesting, exciting even?  There’ll be little takers otherwise but bear in mind the 0.001% law that even if you think it’ll attract few volunteers, it can add up in the global internet.  If you are unsure, test it.

Does the initiative give something back to the peer community?  It has to.  This should be in terms of social currency if there is no direct benefit.

To succeed, management must keep an open mind.  A traditional top down command-and-control mentality won’t work.

3.  Corporate issues

Is there an intellectual property or copyright issue?  You must be prepared to share the results with others, even competitors.

This method requires management to accept some loss of control.  Can management accept this?

4.  Execution

Plan for it.  The peer crowd is not just going to stampede onto your project.  Make the case to enlist them.

Outreach is required.  Get invited to guest post in blogs popular with the peer group and print media.  Highlight it in your website, use social media channels, etc.  This is the challenging part.

Are the tools easy to use?  Minimise friction in the engagement, make it easy for them to contribute.

Get the processes right.  For developmental projects, remember how this model works - ‘in small steps, do it often’.  That is, release a quick version, don’t try to finish as much of the project as possible before releasing it.  Then release updates often after consolidating the best contributions.  Be consistent, be timely.

The challenge is to devise the initiative in a way that would appeal to the market participants of your industry.  If it does and if you can create social currency, you will have your ‘workforce’.

5.  It is critical to be mindful of the culture

“Those who view the crowd as free labour is doomed to fail”

If you are merely making use of the crowd, it will not work.  Treat them as partners.  What unites all successful efforts is a deep commitment to the community.

The entire effort must be open and transparent.  Never bluff the crowd. 

Get the operating culture correct. Think peer-driven, community-spirited.  It attracts peer crowds for a reason and needs to be treated as such.  At all times show respect.  Handle it with a light touch, guide, never force.  The team should view itself as just another member of the community.

Continual engagement of the community is a must if you are going to get anything useful.  Be responsive, say, to their questions (later this can be self generated) quickly, make as much information available as possible, hold workshops and conferences if the initiative warrants it.

The best ones have a thriving community, many become self organising running on its own most of the time.

Friday, 5 September 2014

Open source business model 4/5 – when can it be used?

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

When can it be used?

Four examples are suggested:

1.     In competitive environments, it is especially impactful for things new; new entrants attempting to enter established turf, existing firms trying to enter new sectors or a new product.  It has been used to disrupt the established and to establish a market presence more quickly.   Think Firefox browser against Microsoft.  The reason is that the open source model is a robust disruptor, catalysed by the potency of ‘free’ as a product and in the production process.  Business models around free, hardly new, has been elevated powerfully in the internet economy.  Potential entrepreneurs with little to lose should watch this space.  Or firms wanting to enter completely new sectors with no baggage.  Or as Sony shows (previous post), it brings competitive advantage too.  And can Google dominate the mobile phone market so quickly without open sourcing Android?  Caveats notwithstanding, consider it if you have an idea you think can disrupt the market and your firm has little baggage in that sector.

2.     Similarly it has been used for market expansion.  Tesla is attempting this by releasing all its designs into the public domain to expand the electric car market more quickly.  It has been used by companies to expand overseas.  A listed local software house I know used it to expand globally at very low costs by releasing its core software free. Although most downloads are by free loaders, 1% to 2% turned into global sales, enough to net this company a few million dollars a year with very little (market development) cost.  In time, it could open international offices in countries where sales justify it.  Compare this to the traditionally method: open a representative office with a single sales staff.  If he succeeds to bring in enough sales, it is expanded into a full office.  Cost is higher.  Interestingly this reverses the old economy’s use of copyright to protect the market, not owning copyrights actually help enter markets.

3.     When you want to tap skills.  Since it is based on the crowd, you can do that to supplement internal ones or more likely new skills that you may not have.  Another reason is for fresh perspectives. Goldcorp, a Canadian mining outfit tapped outside analytical capabilities when internal ones ran out of steam.  It increased gold yields significantly.  When a firm lack skills in a non-core area, the open source model is especially applicable.  BMW used it to help design its GPS system.  This is also one way an established firm can use the open source model.  They can’t use it on their core products if they have to give away the design but they can on peripheral functions.  In software (open source) however, they do.  They run two versions; one for the public and the other as a ‘product’ for sales.  This approach may be useable on some digital services firms.

4.     For market intelligence.  Two scenarios are suggested here.  Because a successful initiative creates a community, you have an engaged industry group.  Tap this peer crowd to gauge interest in your products (how? – 2nd post).  One furniture manufacturer used this method to plan production and inventory levels on their range of furniture reducing the previously high inventory holding cost. It can be used for market research, track industry trends, etc.  The strength with the open source method compared to traditional surveys is that while the latter can only be carried out over a short duration, the former can be sustained over a long period.  And if done correctly, it provides a real-time trend feed!  Anyone in retail reading this?

And of course it’s primary use is for design and development.

The open source model is by no means easy to execute successfully but when it is, it is a powerful method.  In such cases it is usually not a matter of whether the model will work, it is a matter of whether you are willing to release something potentially lucrative into the public that include competitors.

Tuesday, 2 September 2014

Open source business model 3/5 – Why?

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

Why it works?

“No matter who you are, most of the smartest people work for someone else’
 - Bill Joy, co-founder of Sun Microsystems.

For the right employ the opens source model delivers results (see first post) more effectively and for some cases extraordinarily impactful as with Google’s Android.

Since the delivery is based on the crowd and a crowd means more manpower (than your internal staff), deliverable is faster.

With the peers a passionate lot, quality improves.

And when you replace a business process with the crowd, there must be cost savings.

Conventional wisdom tells you that the crowd cannot be better qualified than your paid employees because they go through rigorous selection processes.  I thought this wouldn’t work once but later realise I’ve been looking at it with my old lenses.  We are accustomed to working within our organisation.  We are used to trusting only from within.  But with the internet, the “they” is now global and larger bases normally throw out good candidates.  The peer process does the rest. – you know what peer pressure does.  What’s more, its peer crowd are mostly formed by the passionate, thus better quality ensue.  No?  Why would anyone volunteer on a project when they can spend their spare time elsewhere?  Only those with an interest or are passionate will join the initiative and all managers know these usually produce better work.  Even then, the peer crowd has another way to maintain quality.  They have a self-selecting mechanism, peer ranking, to pick out the best results.

But who would be interested, you may ask?  Those wanting to improve themselves, better their career ie. for social currency (see previous post) or those who see it as a hobby or are simply passionate about the subject.  With the 0.001% law, which is based on the law of large numbers, a small percentage globally will almost certainly take part if a project is interesting.  That makes the peer group sizable enough for serious work.  Cheap connectivity makes it painless to participate.

Why tap the crowd?

“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

It creates value.

·         For expertise; it can be used to supplement internal skills or skills it lacks.  It could be for an adjunct project, for example, a high tech surveillance system for a home builder.  It can be used for things related to skills; design, product/service development, R&D, customer service.  Sony (above) tapped into skills for development and support.
·         For market data; data is created as the peer crowd goes about its work, in discussions, raising issues and solutions, best practices, their likes and dislikes, etc.  Tap into this and you get insights, trends, customer requirements, latest industry developments. 
·         Uniquely when compared to traditional methods, it can provide fresh data, something difficult for any organisation to achieve by itself over long periods.
·         For planning data.  It is only up to your creativity to engender the peer crowd to provide data around your new product; features, what to look out for, improvements, etc.  What’s powerful is that customers are doing the designing themselves! It’s a more effective way to carry out market studies.
·       For reach and when reach is built, you now have a platform for outreach.  Brands have been built, sales channels created.  Business development and marketers better understand how this new socio-environment works though before using it less it damage the imitative and the firm’s reputation.  Indirect is the operative word here.
·       Through the value-of-free, on which it is based, it can be used for market expansion and to penetrate new markets (examples in the next post)
·       It can strengthen the innovation process working with outside peers who provide alternative perspectives and new ideas
·         It lowers costs though this is not normally the aim but for what it can be used for, it almost always cost less.  Similarly it improves overall productivity of the firm and speed things up

But because the deliverables are in the public domain, it can only be selectively used.  Nevertheless for the applicable tasks, it is an extremely powerful yet cheap mechanism.  In fact, the challenge is whether your managers can accept this contrarian method and gets it.  And if your team have the creative smarts to come up with the initiatives.