Seems like you can't go anywhere these days without hearing about open source something. In particular, hardware is breaking out on the open source scene -- the second Open Hardware Summit is happening next month in New York, and though I can't make it this year, it promises to be a huge happening. But along with the increased visibility has come an increased urgency for the open hardware community to find out how they will make money off of these designs. The question usually goes something like: If you share your designs, won't you just get undersold by someone who can make your design for cheaper? Isn't protected IP the only way to make money off of an idea in the marketplace? These are good questions, so I thought I'd chime in with my take. Basically, the idea is that market knowledge is more valuable than design knowledge.
In order to understand what I mean, it's easiest to think about an analogy with the DJ industry.
DJs create music. But they don't do it by using instruments. Instead, they curate a night-long musical experience by juxtaposing songs against one another. Sometimes, they modify the songs, or even mash them together to create novel musical arrangements. But the important thing is, they aren't creating IP. Granted, some DJs do evolve to the point where they are creating unique songs, and even albums; Let's disregard these for now. The vast majority of DJs, the tens of thousands of artists who make clubs, raves, and parties work on saturday night all over the world, are selling something that, while not open source, could be re-performed completely without penalty (copyright does not extend to performances, only recordings of performances).
So, in this case, how are DJs making money? And, more importantly, why do some make more than others?
Let's look first at why people pay DJs: They provide a service. In most cases, this service isn't fun to do yourself (some of you may have been asked to "man the iTunes" at a party, only to discover that it severely limits the potential for fun). And, additionally, it requires some skill (again, you may have experienced that one friend who always wants to play "Lady in Red" at the worst time, or plays the same song 10 times in one night). Provide the service, don't screw up, get paid. Easy.
Some discussions about open hardware hinge on it being for commodity items -- things like USDA Grade 1 Corn, which has a specific density and prevalence of foreign particles, but has no other characteristics which matter (like taste), because the industry which has grown up around this corn (the synthetic food industry) doesn't care about other characteristics. It's true, most existing "open source" objects -- screws, bolts, resistors, lightbulbs, copper wire, etc -- are so simple that they are basically commodities: one screw really is pretty much the same as another. But DJ sets are decidedly not commodities -- As stated above, some are much more valuable than others, even though they are composed of the same raw materials (the same top 40 pop songs).
What sets DJs apart from each other (and lets some charge more) is their ability to read the interests of a crowd in a club, and curate a product (a dance set) that will satisfy the needs of that crowd.
Think about this. Almost anybody could DJ a wedding (my wedding literally had a DJ in a box, with my Uncle-in-laws Neal and Nate swapping out tracks). This works, because the collection of people at a wedding is so broad that there is really only one sort of average song list that will make everybody fell good (Sweet Caroline, We are family, All the single ladies for the bouquet toss... You know you did it.)
But imagine of the crowd was much more coherent, and much more "nichey". Then, Neal or Nate would probably be out of their depth. What does a goth-night crowd at a Seattle gay bar want to hear? What about a rave in an abandoned subway tunnel in Pittsburgh? Or what about a Korean war platoon's 50 year anniversary of shipping out? All of these groups have very specific needs, which aren't easily apparent, unless you are a member yourself, or you are deeply committed to understanding them. And, as silly as they might sound to you, all of these groups actually exist, and are willing to pay real money to have their needs met. You can bet that once they find a DJ that works, they pay them to stick around.
So, how does this get back to Open hardware? You might argue that music isn't open sourced, and that DJs have to pay usage fees to the originators of the music. That's true for now, but imagine a subtle shift in the music industry (one that is already happening) in which bands also make money off curated services which are not duplicable - shows. In this world, mp3s are used as a sort of calling card, for the tours and merchandise that make the actual money. In this world, there is still an incentive for a musician to write a song or compose a piece of music, because it can increase their notoriety, which will increase their ability to get shows at venues.
Now imagine this world with the DJs. Maybe some of the DJs even create some unique music modules to add into their set. But remember, they are making money based on how well they know their crowd, and how well they curate for that crowd, not based on what music they can play.
In this world, it makes more sense to share than to protect. here's why. A DJ survives by being able to adapt to the tastes of their crowd. When the crowd changes, they need material with which to be able to match the interests of the crowd. More material means more flexibility, and a better chance of success. And, since value comes from understanding of the group, not from access to music (you can press play, why aren't you a DJ?) then sharing doesn't necessarily have to empower the competition.
Now, this is a hypothetical example, and maybe it's not convincing, so let me give another one: Lateral Gene Transfer. We all know that bacteria can pass genes from one generation to another, just like we pass genes to our children. But did you know that bacteria exchange genes laterally, across species? In their landmark 2000 Paper in Nature, and many subsequent corroborations, Ochman et. all gave evidence that bacteria were able to share the genetic codes that conferred antibiotic resistance (and other properties) across strains of bacteria which did not engage in traditional sexual exchange of genetic material. Later papers suggested that similar mechanisms could be present in Eucaryotic cells (like our own, and those of other "higher organisms").
Why, in the highly competitive world of cellular biology, would organisms evolve mechanisms for sharing their most advantage-giving "trade secrets"? Or, if mitosis naturally resulted in genetic sharing, why hadn't mechanisms which protected the "IP" been evolved? Bacteria evolve specialised proteins to carry out specific tasks in specialized environmental niches. The "knowledge" that a bacterial strain gains over time while residing in a niche is greater than any one gene it contains, or even a collection of genes. You could call this hard-won specificity "intuition". In this case, it seems that the possibility of augmenting this intuition with ideas shared by the group is worth sharing your own ideas -- but not, as it turns out, your intuition.
I think the answer to the open hardware debate is this: Ideas aren't worth anything without context. Matching context with an idea, or a curated set of ideas, is a job for intuition. You can't download intuition. You can't centralize it, since the most valuable niches are the most specific and small, and there are too many of them. Even if you have the best idea in the world, it's unlikely that you have access to that niche to monetize it. And even if you have the best intuition in the world, you'll be lost without the appropriate pieces to curate together to meet that need.
I think that people (mostly large, centralized organizations, and those who work for them) will always cling to this IP idea. But makers around the world (and you know I only really care about you guys) want to have flexibility, resilience, and capabilities of bacteria -- which outnumber humans trillions to one, and can still eat things, make chemicals, and live in places that we are only starting to discover -- then we need to open it all. Intuition, not IP.
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