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.