Open source hardware in Digital Transformation strategy

David Lastra

8 January 2017

In a world build around industrial patents and ownership, it’s not difficult to find companies that have adopted digital transformation strategy based on the philosophy of open source hardware, i.e. publishing and sharing all the inventions that they develop. From electronic components, LED, cars, and cameras, to the description of industrial processes, such as the recycling of plastic or irrigation methods using sensors, open source hardware is still a very wide and constantly changing concept.

While the nature of hardware is different from software, especially with regards to the unavoidable direct costs associated, it is still possible to establish profitable business models in the open source environment, and many companies have based their growth on this. Within this model, the technological design, components, tools and documents are open and are publicly available thus allowing anyone to study, modify, distribute, reproduce, and sell them, or generate new hardware based on the original.  

Hardware as a service, not a product

The increase in sensors and IoT connected devices, robots, drones, 3D printers, etc. is defining the next stage of development of the Web 2.0. This hardware revolution has been accompanied by the emergence of thousands of new independent hardware manufacturers, and is culturally, increasingly widespread by the DIY (Do-It-Yourself) individual, who seeks to create his own products – customized, economical, and easily repairable. Cheaper technologies for design, modeling, and manufacturing were previously only available to large manufacturers with R+D+I (research, technological development and innovation) centers, but today, these are available to any potential inventor (or “hacker”) of new products.

Collaborative design tools such as Upverter, where one can learn from the collective knowledge of a large developer community; sites like Indiegogo where one can find initial funding for a project through crowd funding; or marketplaces such as Tindie that serve as a showcase for independent hardware manufacturers to reach consumers and business clients all over the world, are some of the many websites on which an entrepreneur can begin to build upon good business ideas.

If we look at the value chain associated with hardware products, we will find companies that are creating new business models based on open source code.

Design: This is the most common model in open source hardware. The company focuses on product design and R & D, while the manufacturing is dependent on a third-party (OpenRov, Open Energy Monitor, Arduino). In this model, the brand and the community are the key strategic assets.

Manufacturing: In this model, the company’s main value proposition is manufacturing and distributing open source hardware products at affordable prices (SparkFun, Adafruit, Snootlab).

Experience: This consists of the monetization of knowledge through training or consultancy services (Wikispeed).

Services: subscription models, pay-per-use, data sales, etc.

Standardization: This involves the release of a key patent and making it open source, in order to seek leverage through other business forms. One example, and a particularly high-impact case, is Tesla Motors, which released their electric vehicle patents, in order to enter the huge market of batteries and charging stations.

Both established companies and new organizations are basing their digital strategy on new business models, far removed from the world of patents, by releasing all their knowledge in order to improve their products, and offer new services.

Tesla: How to move from being a niche-business to a technological revolutionary

Tesla Motors was founded with the culture of a small Silicon Valley technology company, promoting incremental iteration and the flexibility of “agile development,” while growing to the extent that each new challenge required, as defined by the concept of the “lean startup.” Consequently, their electric cars were subject to early adopters and technology lovers.

In June 2014, they announced that all their technology would become open source, thus allowing anyone that wanted to make their own version of the electric car on the Tesla Motors platform, to do so legally.

This decision made by Tesla Motors went far beyond short-term strategy and beyond altruism; rather, they were beginning to achieve growth and long-term establishment by significantly differentiating themselves from traditional automobile companies.

Multiply the technological return with a much lower investment: those that use the technology platform donate their achievements to the “community” and it also benefits the manufacturer. The owner of the platform is also the biggest asset: in terms of authorship, strategic decisions that guide the management of the project, the strategic position as a business of “services” and not of “things.” Not only are costs saved, but the increased use of technology also incites the possibility to create new business environments as demand dictates.

The digital transformation of the agricultural sector through open source hardware

Open Source Ecology: this is a network of farmers, engineers and developers of free hardware, whose objective is to design a new generation of universally accessible industrial machinery, to encourage progress with the least possible environmental impact. Among this network’s projects is the development of a low cost tractor; open source hardware called LifeTrac; and different agricultural tools.

The Third Industrial Revolution

“A third revolution is now under way,” wrote The Economist in April 2012, “It will allow people to do things more economically, in much smaller quantities, with greater flexibility and less labor, thanks to new materials, new processes such as 3D printing, easy-to-use robots, and new collaborative manufacturing services available through the Internet.”

Without a doubt, open source hardware is changing the world. The new factories will be formed by a small group of technically advanced people, who will have workshops and physical stores in one central environment, while they acquire the most of their contacts and sales through the Internet. The world’s factories are shifting from mass manufacture towards more personalized and individualized production, where quality and connectivity to other products will be the essential requirements that we all demand.