How Open Source and Crowdfunding Are Creating a New Business Niche

The convergence of crowdfunding and open source is having some unexpected results.
Posted September 22, 2015
By

Bruce Byfield


A modular laptop built with a Raspberry Pi. An ergonomic, programmable, mechanical keyboard made from slabs of maple, so it looks like a solid-state electric guitar. A device that plugs into a wall socket that allows you to control devices from your smart phone.

What do these and hundreds of other devices – from wearable tech to portable solar chargers – have in common?

First, all of them are being crowdfunded. Second, many are being boot-strapped with open source software. The convergence of these two trends is creating an outburst of mini-entrepreneurship unlike anything ever seen before. In doing so, they are making open hardware -- the long-discussed, seldom seen cousin to open source software -- a reality. Scan the Technology sections of sites like Indiegogo or Kickstarter, and the experience is like browsing through SkyMall or the Lee Valley Tools catalog, except that the products you see are new and often still in development, and you're more likely to want them if you're a technophile.

Exactly how many of these mini-entrepreneurs are active is anybody's guess. However, Indiegogo alone lists hundreds past and present that fit this description, and on any given day you likely to find one or two new ones. However, positioned somewhere between the enthusiastic amateurism of the Maker Movement and the ambitions of venture capitalism, the mini-entrepreneurs are too recent a phenomenon to be tracked, despite their obvious antecedents. Yet even if three-quarters of their projects fail, enough are likely to remain to create a new niche in hardware technology.

The Convergence

The advantages of open source are much the same for the mini-entrepreneurs as for any startups. By using free-licensed code, both can focus on developing their unique code, instead of reproducing what others have already done. The preliminaries have already been done for them.

This advantage can mean that fewer employees are needed, and that more advanced features are included in the latest release. It can also mean a quicker time to market and profitability. Where conventional investors are lucky to receive a return in five years, those with a stake in a company whose products are built on open source might profit two or three years earlier.

More importantly, however, without the convergence of crowdsourcing and open source, many of the mini-entrepreneurs would probably not be operating at all.

In a few cases, the connection is direct. Mini-entrepreneurs like ErgoDox EZ, a keyboard manufacturer, are basically providing a service. Anyone, ErgoDox EX's founder Erez Zuckerman notes, could buy the keys and download the open source software to make their own keyboard. However, to assemble that keyboard would cost over $200, and require over 150 solders -- an effort that many people do not know how to make and would not want to make. In this respect, crowdfunding campaigns like Zuckerman's are like Red Hat, except on an individualistic level, providing services and expertise so that others can benefit from open source.

However, even more mini-entrepreneurs would likely have no chance of going into business for themselves if the convergence didn't exist. Many of them seem potentially profitable, but more on the scale of a local small business, bringing in a few millions each year and employing less than a dozen employees. They are not aiming to be the next Apple or Google, and never claim to be.

This is not the scale that most venture capitalists usually bother with, and, although people have funded their own original projects for decades by borrowing from family and friends, the effort is much easier now that the idea of crowdfunding has emerged.

In fact, if the rise of crowdfunding had never happened, many of the mini- entrepreneurs would probably have only the vaguest sense of how to go about developing their projects. More often than not, their degrees are in computer science or mathematics rather than business administration or economics. Almost all are beginning their projects as amateurs in business, with little experience to attract investors or assistance.

For example, Jesse Vincent of Keyboardio, a long-time contributor to open source, began building his own keyboards because he had bad wrists. Only after showing a few prototypes around coffee shops and receiving enthusiastic interest from an article in Hacker News did Vincent and his partner Kaia Dekker realize "that there might be a business in it."

They were then faced with the need to learn as quickly as possible about hardware manufacturing and business, as they detail on Keyboardio's blog. They had the sense to enlist the expertise of Highway 1, a startup incubator that educates would-be entrepreneurs -- a type of service that occasionally existed before crowdfunding, but has flourished as the barriers to small tech businesses have fallen. Although mini-entrepreneurship remains a gamble, in the last few years, it has become more possible than ever before.

The Arts and Craft Dilemma

Given the similarities to microcredit, mini-entrepreneurship might be seen as a means to help developing countries build their technical infrastructure. That may be happening, but if the obligatory introductory videos to projects are any indication, most of the participants are North American or European.

Far from assisting development, if anything the current round of mini- entrepreneurship appears to be producing luxury goods. Some projects, like the Pi-Top laptop, are reasonably priced for what they are. Far more, however, are priced at a premium.

Purism, for example, is developing laptops that are free from the firmware to the operating system -- but its entry level model is priced at $1,850, over four times the price of an average PC. Add all the top options, and the price is over $3,500.

Such price tags may reflect the difficulties that new hardware manufacturers face in assembling their wares. Unlike established corporations, they are unlikely to be able to make volume purchases, and may even find difficulties finding anyone to sell to them. All the same, such prices may mean that any dreams of changing hardware expectations may be lost in the need to turn a profit.

In this respect, the mini-entrepreneurs may find themselves in a position similar to that of the Arts and Craft Movement around 1900. Originally reacting against mass-production and poor designs, artists of the movement soon found that they needed to charge luxury prices if they wanted to keep their own standards. The mini-entrepreneurs of today could easily find themselves in the same dilemma.

Of course, considering that those who are aware of crowdfunding technology campaigns are likely to work in technology and be well-paid, this dilemma may not be much of a problem. If nothing else, the current situation could allow dozens of people to work for themselves, doing what they love, which would be far from the worst result.

Besides, it is still early days for this mini-entrepreneurship, and much could happen over the next few years. In particular, as some of these new businesses flourish, they may change their pricing, or produce less expensive versions of their products without compromising their intent. For now, all that can be said with any certainty is that, by combining with crowdfunding, open source appears to be changing how business is done in yet another way.




Tags: open source, CrowdFunding


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