Open Source Business, Part One

Posted on September 13, 2005 by Dave Pollard

NatEnterpriseThere is as yet no consistent definition of Open Source Business. I’ve used the criteria for ‘Open Source’ from wikipedia to come up with this definition:

A radically transparent organization which (a) operates through open collaborative partnerships with customers, employees, suppliers, and the communities in which it does business, (b) shares its sources of information, designs, specifications and processes with them, and (c) allows open participation in and makes public all decisions it makes, all operating information, and all documents it produces, on a creative commons basis.

I think most businesses would be inclined to like the “open collaborative partnerships” part but be less enthusiastic about the “radically transparent” part. How can you have competitive advantage if your competitors have access to everything you do? But if you have a true and open partnership, that entails transparency, and you can’t have transparency that stops at the competitors’ door. It seems to me it’s all or nothing.

So the real question is whether a radically transparent business can make money. In order for a competitor to exploit an Open Source Business, it needs to do more than just have access to all its information, it needs to operationalize that information. That takes time, money, equipment and supplies, and some expertise. How much of an entrance barrier are those things? To a small business, they’re substantial, but for a large, multi-national corporation, not so much. But the large corporation will only be interested if there’s volume and profit in it. So the Open Source Business (OSB) can choose to do something small and unscalable, or to make very little profit, and thus keep the competitors at bay.

For that reason, I suspect that OSB isn’t for those who aspire to be millionaires. But suppose the objective of your business isn’t to make a profit, but to make a living. The OSB might work just fine.

By making a living, I mean getting what you want out of the business. Joy. Personal satisfaction. Enough money to keep you going. Whatever it is that does it for you. That’s what Natural Enterprise is all about. But it’s not the way most businesses today operate. A business that operates not for profit, but for the satisfaction of its workers, as they define it, is an anomaly in the market economy, a vehicle of the Gift Economy. Such enterprises probably cannot be hierarchical or large — this would make them unmanageable. But there is no reason that a successful OSB in one community couldn’t be a model for dozens, or thousands, of similar OSBs offering similar products or services in other communities. Replication rather than growth.

I’ve stated before my belief that because Open Source allows the simple and complete transfer of bits for no incremental cost, software and content will inevitably become free as Open Source gains acceptance and as technology makes their protection impossible. Companies that make money from software and from content (including books, music, news, and videos) will have to find innovative new ways to generate revenue — such as getting into hardware businesses as well (consumers are willing to pay a lot for an iPod but next to nothing for the ephemeral content it plays), and by offering customized services (like the bands and writers who are giving their CDs and books away to promote their concerts and consulting services).

So suppose you have an idea for a new medical device that images and diagnoses problems with your musculoskeletal system and then performs therapy on the problem areas. As an OSB you would collaborate with medical device manufacturers, with business advisers, with physiotherapists and doctors, and with patients, among others, sharing all knowledge, research, designs, methodologies and surveys under creative commons licenses (so big competitors cannot patent them before you can get up and running). Your business will probably make its money selling the devices themselves and offering the training and services in using them. You won’t make money on licensing the design, hardware configuration or software of the devices, since these would be Open Source developments available to anyone. You will not make a lot of money on each device, to keep the price level below that which would attract larger corporations to enter the market. But you’ll make enough to keep the business going and healthy, and enough to allow the device to improve with the collective information from all the partners who will be testing and using it. Those partners will be your free, viral, marketing arm, so no advertising and promotion costs will be needed. Other OSBs will probably spring up selling similar units into markets you don’t have the resources to cover. But that’s fine. Most of the investment will have been gifts of time from a wide variety of interested and knowledgeable people, and you’ll have done well enough aggregating that knowledge into a successful little business. And customers will receive the benefits of your OSB’s work at a much lower price than would have been the case if it had been developed by a public corporation which spent a fortune on promotion and whose shareholders demanded a high ROI. And arguably the product will continue to evolve and improve more quickly than if it were ‘owned’ by a big company with a high investment in last year’s model and hence an aversion to further innovation.

Next week, in Part Two on this subject, I’ll take a look at which industries would seem to offer the best niches for OSBs, and describe some ways that existing organizations might be able to make the bold transition to OSB form.
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4 Responses to Open Source Business, Part One

  2. Dale Asberry says:
    September 14, 2005 at 09:55

    You mentioned that an OSB would be non-hierarchical, however, in OSS, the projects have elements of hierarchy. They span the range from shephards herding cats to cloisters of power hungry zealots. At a minimum, OS projects need a shephard with a vision gently guiding the direction.

  3. medaille says:
    September 14, 2005 at 16:22

    First to Michael Pokocky, I think a relationship is something that has to build up over time as comfort levels and trust between the parties grow. It sounds like you were expecting more out of the relationship than he was. I assume that he has a hard time maintaining close relationships with all of his readers as that would consume more time than he has. But that’s an outsiders opinion with very little background information.Now for my comment on Dave’s post today:To me, the interesting thing about open source software is that it is completely backwards compared to what most companies are. I think that it is backwards in the sense that is a community centered organization instead of a self centered organization. I think that a capitalistic society and the companies it creates are self centered as are most people and groups that have been taught under a western style civilization. Just to make myself clear and create some definitions, I meant that community centered groups focus on improvement for all (people, animals, plants, environments, etc) entities that it can influence. And self centered groups focus improvement only on the group or self itself, although it will focus on parts of the group or other entities if and only if it help out the group.Under those assumptions, the implications are pretty strong as well as varied. In a community centered organization, which would include your definition of a natural enterprise, a company would be defined as a group of people whose goal is to provide a usefull service or product to the entire community (society), while maintaining adequate resources for the individuals under it. Under a self centered organization, the goal is to take as much as possible from the group and hoard it for oneself either based on greed, selfish wants, or fear of the lack of abundance in the future. I worded the last sentence the way I did because all three of those are critical flaws, which apply to most people, who believe in the Christian God, which I am somewhat familiar with. In most cases our companies would be the shareholders, and all employees would be considered other self centered groups. I think with some thought that relationship is pretty self-evident despite the fact that most people and companies try to assume that there is a loyalty between the parties and that they have each others best interest at heart.I think that the big implication is that there is a direct culture clash between the self centered nature of our “companies” and the community centered nature of an open source organization. I say this because from reading some of your posts it seems like you innately get that there is a clash between their cultures, but are trying to find a way to merge the two despite their differences. I think that the best solution is to change the overall culture of our society to one of a community centered model. This would also change the definition and culture of a “company” from the self centered model to the community centered model because our companies’ cultures are a subset of their owners culture which is a subset of our society’s culture. So I think your idea of natural enterprise is doomed to struggle since the culture of the sub-components (people and companies) are different than the culture of the whole.When you and Dale are talking about heirarchy, it sounds like you mean the way the group or company is organized with a pyramid of power. I have this thought that in a community centered group, power is distributed in a manner that is most efficient at allocating resources and energy so as to benefit the community (which again can be bigger than just the group) whereas as in a self-centered organization the resources are allocated such that it benefits the company (shareholders not the employees).In my mind, ultimately, the community is the whole world (or universe or whatever your definition of everything is). The goal of all members of that community (we are all members by definition regardless of how much people want differently) is for continuation and the betterment of the community. All sub-communities act with the super-community’s interest first. I think that a shift to this style of culture would eliminate many problems. It should eliminate the tragedy of the commons, and would help to eliminate problems such as poverty, and dramatic pollution that are the result of self centered actions. Now I’m pretty sure that some people reading this post will be confused and think that by community-centered I mean something along the lines of the communistic governments that we’ve already seen in action. I submit that those governments weren’t actually community centered at all and were really an illusion that fooled a lot of people to give up their power to those in control (who were self centered). In a community centered organization, there must be some mechanism to ensure that the power is utilized by the structure for the structure (meaning all creatures) instead of being collected and used by those in power for their own self centered reasons. In nature this occurs, because personal power cannot be easily transferred and collected. Technology has allowed for the greater ease in the transferrence of power and our governments are designed to mask this transfer of power. However, the myth that technology is the savior is one that is not worth pursuing. What is considered nature or natural is a method of dividing the available resources (meaning for most intensive purposes sunlight that hits the earth) in a manner which best suits all members of the community. Technology is nothing if it doesn’t manage the available resources as nature does, because at some point in time nature will redistribute the resources to benefit all member of the community. This means that either the members of the community will dwindle until the only members left are those that use the technology or the community will self regulate to maintain all members equally depending on if the community decides to allow its members to be self centered or community centered. I find this interesting, because it allows whatever we agree to be the truth to come forward as the reality. Either people choose to think that people (creatures) are fundamentally self centered (Social Darwinism) and we end up with a race to a single individual that survives and is most fit and uses all the resources available, or people choose to think that people (creatures) are fundamentally community centered and we end up with a sustainable Earth. Maybe we were self centered but need to transition to being community centered, which I find sort of amusing because it opens up the possibility for spiritual development or evolution instead of stating that people or creatures are static.I realize that I’m getting off topic a little bit, but my mind is tying different thoughts together as I type and this is a convenient method of recording those thoughts. To me the big question is how do you make the transition from a society that is self centered to one that is community centered? Ultimately, natural enterprise as you defined it is a go between that is a bit of both, or more so a community centered culture that could be used as a base to help make the transitition to allow the super-culture to also make the change. Something that I think needs to happen that would help strengthen the ease and speed of the transition is that a variety of medium sized community centered cultures need to coagulate together as the larger the cultures you have the easier it is for their subcultures to operate as a community centered culture and the greater ease you would have at defending yourself against falling into self centered actions. These medium sized cultures would be a haven for those with sub cultures of the same orientation (self or community), community centered in the case which I have been discussing.This post was kind of a collection of some thoughts I’ve been thinking. I think I managed to post things that related fairly well with your original post. I would like to here some feedback to see if any of that makes sense though as sometimes it is difficult to transfer thoughts into words that are comprehendable.

  4. Mark Ranford says:
    September 18, 2005 at 14:20

    Hi Dave, Thanks for another great post! In your first paragraph you start by looking for definitions and the definition you derived from OSS brings good insight and is an excellent base for defining an OSB, however I do feel that it doesnt really go far enough. As it stands it still assumes that there is a traditional legal buisness entity with traditional owners, perhaps shareholders that have decisive control over the OSB. My perspective is that OSB should refer to a a self organizing business of the same nature as the self organizing OS communties. In other words an OSB shouldnt be owned by any entity, but instead is just a fluid community of individuals. At the end of the day I’d like to think that Open Source is ultimately all about the individual, individuals as consumers of the OS output and individuals as contributors to the OS output. That doesnt mean that the OS community isnt able to self organize and appear to be a force of its own, just that there isnt a single owner in th traditional sense. My feeling is that the key concept in OS that is truly different and truly intriging to us is not so much relating to the outputs (ie OS , applications or encyclopedias) but rather to do with the nature of organization. From that perspective letting traditional business entities claim the banner OS business is really diluting and down grading the wonderful energy that oS is all about.I actually posted a couple of blog posts on OSB myself a couple of weeks back which takes this tack, Id like to think that you might be able to push your own definition in that direction more. It may be that there needs to be thrashed outt a position somewhere in between. Certainly Im thinking that there may need to be some conceptual (legal?) boundary that help maintain the OSB as a viable long term entity, the boundary may simply be some definition of what it means to be a member of the OSB. Whatever I think there is good food for thought here somewhere between thetwo, and well worth developing further. If you wish to check the definition/angle on OSB that I was taking, please visit: http://braindump.iuplog.com/default.asp?item=98949A couple of final points :With OSB I believe the most powerful thing of all is that we may have a mechanism to drive traditional business to start really delivering value by using OSBs to drive them out of the easy pickings. With OSB we can really lower the barriers to entry for entrepreneurs, because OSBs would be the perfect place for people to get some experience and polish thier skills wthout having to invest large sums or gain funding or prove their skills beforehand. In fact OSBs would be a great step for people before heading out on their own entrepreneurial non-OSB ventures. It would be a proving ground for both ideas and people.All the best, MarkCheers, Mark

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