[iDC] The ethical circuit

Sat Feb 23 03:38:12 UTC 2008

	     This is my second intervention to Johan's posting on value, itself a reaction to Adam's contribution. It discusses the subversion of IP as central strategy for accumulation, and is itself a commentary on an original article by Steve Bosserman, which you can find here at

http://www.newmediaexplorer.org/steve_bosserman/2008/02/09/giving_it_away_making_money.htm . It's worth looking up for the accompangnying graphs,

Commentary:

This article by Steve Bosserman   is about the best that I have read about the issue of sustainability in a world of open design.

It’s an article which should be read slowly, it is a slow buildup of
simple but intricate arguments, and has the illustrative graphics to
match.
I want to retrace my own understanding of it.

First, the broad context is this: open and free has been movinghistorically from content (now a mainstream reality) to software (opensource software, not fully mainstream, but consolidating as we speak), to design in general (an emerging reality right now).

The issue is the following: this free (as in free speech)
but also zero dollar approach, centered around common value production,
does not have it’s own means of sustainability. And critically,
advertising will not be able to fill the enormous gap between the
exponential rise in common value production, and the linear
monetization of attention through advertising. Also,critically, we do not (as yet, and perhaps never), live in a societywhich has a clear mechanism for funding common value production.

So what needs to be done?

Here are the steps in Steve’s reasoning.

1)	Differentiating between open and closed content/code/design, and free/paid approaches, yields for quadrants:

a)	Quadrant 1 = Open and free: you can downloadcontent, software code or open designs for free; and the moresuccessful of these initiatives will derive income from advertising,selling the attention. The problem remains that many will not be ableto do this

b)	Quadrant 2 = Open and paid: why would you payfor open code? The short answer is you wouldn’t, unless it is augmentedby differential value that is scarce and also useful in your particularcontext; in this context you are paying for these added value practicesthat come together with the free code, not the code itself
c)	Quadrant 3= Closed and free: this is a classiccommercial strategy; you give the primary commodity for free (say, freecell phones), because it helps you to sell secondary commodities (saymobile phone connectivity)

d)	Quadrant 4 = Closed and paid: the classicbusiness model that we are all familiar with and which relies onstate-protected intellectual rights monopolies. This is the model thatis being most severely undermined by the free replicability ofinformation. This means that it is not just the hackers and consumersthat threaten such a business model, but your own competitors. In anysector, there will always be a pioneering company that decides to givethe primary commodity for free, or gives away the source code, derivingincome from secondary modalities, leaving the traditional closed rightsholders in the cold, and making this model unsustainable in the longrun.

Interpreting an important point insight from Steve, I would add thefollowing observation: 1) entities in the open and paid quadrant livefrom their Practices; 2) entities in the closed and paid live from their intellectual Assets; 3) and entities in the closed and free quadrant live from their Portfolio of secondary services.

To the topic of making the open and free design model sustainable,
Steve adds that the only sectors which can do this consistently, will
be the public and nonprofit sector, who have a generalized income that
makes it possible. That means that, in the absence of a generalized
income for common value production, the open and free sector, must
somehow move closer to open and paid.

The key issue, if we do not want to kill off the open and free
availability of content/code/design, is to differentiate between the
immaterial production of the design, and the material production of the
objects.

This is precisely what Marcin Jakubowski is trying to realize with
his Factor E Farm project, and the very reason I have called it the
most important social experiment of our time.

Marcin’s  first realization, the CEB machine code-named, “The Liberator”  
Steve, echoing Marcin, stresses the radical competitive nature of
such a project, because only the labour needs to be paid in an open
source design project, such products can compete even with Chinese and
Burmese slave labour. That labour needs to be paid only once, since the
result is always available to all.

Marcin explains:

“Why should low product cost be feasible? Because we have a lean
operation with little overhead, and if funded, we have low-cost
production capacity that can match even slave goods and mass
production. The new economic age is here. We are not talking of many
hundreds of thousands of capitalization requirements for similar
enterprise. We are talking of open-source-fed production facilities
that will cost on the order of $10k to build. There is cascading cost
reduction, for example as we use our CEB to build the facility, or the
solar turbine to power it.

As such, ‘capitalization costs’ are ‘zero’- fundraising covers
the cost. So far, we’ve operated 100% on voluntary contributions.
R&D costs are zero - they are distributed collaboratively. All the
costs are zero zero zero, outside of materials and labor. We capture
the value of labor - but even if we charge $100/hour for the CEB - with
optimized fabrication time predicted to be 20 hours per machine - that
is still $3500 for a machine - factor 8 lower than the competition, as
you can check for yourself.”

His Liberator machine will cost $3,500 to produce, and can be sold with profit at $5,000  (in October) while the nearest proprietary  competitor sells for $26.000

However, crucial in Marcin’s strategy is still that the first phase
needs to be covered by contributions, but he proposes to solve this
with distributed funding from supporters, an avenue which is only open
to open design projects, as noboby would voluntary fund through
donations a proprietary project. There is also a plan for
post-production income through an open franchising system, in which the
original producers can earn money by teaching others how to use and
produce these machines in turn.

Steve Bosserman concludes:

“Marcin’s model illustrates how to strike the critical balance
between giving it away and making money. As he mentions, the R&D
costs for the CEB machine are zero because they are distributed
collaboratively and the results are open source and freely accessible
for all. This is anchoring against the “common value” boundary. Setting
the price for the machine at $3700 covers the cost of materials and
fabrication and if set at $5000 it generates a reasonable profit that
can be reinvested or used as further compensation. When compared to
$25000 for a competitive model from AECT, this clearly bumps up into
the “differentiated value” boundary.

Marcin envisions using the Internet to widely disseminate
information about the CEB machine, take orders, expand operations,
offer training, initiate “open franchises”, distribute manufacturing
capacity, and prompt further “localization”. These represent ways to
play in the space between the boundaries where some activities are done
for nothing and others garner compensation. It is that agility to
remain pliable in the intervening space that IS the sound business
model to stay on track. This is a lesson suitable for any business to
consider. ”

The above comes from here: http://blog.p2pfoundation.net/steve-bosserman-on-economic-sustainability-in-a-world-of-open-design/2008/02/19

The P2P Foundation researches, documents and promotes peer to peer alternatives.

Wiki and Encyclopedia, at http://p2pfoundation.net; Blog, at http://blog.p2pfoundation.net; Newsletter, at http://integralvisioning.org/index.php?topic=p2p 

Basic essay at http://www.ctheory.net/articles.aspx?id=499; interview at  http://poynder.blogspot.com/2006/09/p2p-very-core-of-world-to-come.html; video interview, at http://www.masternewmedia.org/news/2006/09/29/network_collaboration_peer_to_peer.htm

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