Even if our understanding is limited, we’ve all heard of open source software. Less talked about—and even less understood—is the analogous movement to open up hardware that is fundamentally re-aligning the market environment for many mainstream products. In the context here, open sourcing hardware is not the attempt to make a royalty-free, mass market product, but rather a conscious and deliberate strategy for sharing intellectual property in ways that drive greater innovation. This type of open hardware is different from the majority of open source software in that it is predicated on traditional measures of value and a solid, profit-based business model.
For open source hardware profit is more than a “nice to have”
Compared to open source software, open hardware is more demanding of profits because it results in a tangible good that has real production costs. Manufacturing requires capital, and capital demands profits. The need to provide a return on capital means that “true” open source hardware products that conform to the spirit of the Open Source Definition are rare.
However, there are many examples of the type of commercially viable open hardware strategy epitomized by the original IBM PC and iRobot’s consumer vacuums. In each case the original product was extended and enhanced by independent third-parties. This concept is embodied to some degree in every product with a robust ecosystem, so the fundamental concept is not new.
What has changed is that as with specific information that can now be “narrowcast” to very specific audiences, many types of hardware products can now be economically tailored for smaller markets—even “markets of one.” While tinkerers and geeks have long cobbled together their own hybrid solutions by combining parts from multiple products, in order to scale, this “Frankenstein” approach must give way to a methodical component-based approach. The wide use of hackable software and firmware to control core functionality often makes open source hardware an attractive and practical business model for differentiation and reaching niche markets.
Enter the Configurator
Since most end users have neither the talent nor the inclination to hack consumer devices, and manufacturers lack the resources to address more than a limited number of individual market needs, open hardware will spur the development of a new class of VARs that I dub “configurators.” Configurators will offer their customers the type of customized products available today only to geeks and do-it-yourselfers. However, the products will come with service and warranties to appeal to mainstream users. This process of reaching smaller and more diverse markets is an application of the “Long Tail” phenomenon popularized by Chris Anderson.
While there are several routes to open source hardware, the intent is always the same: transform products into modular solutions by enabling third-parties to add on to an existing product or by isolating specific capabilities for integration with other products or technologies. Some common ways to “open” up hardware include:
- Design – publish any of several types of technical design information for key components of the product, ranging from pin-outs to PCB layout to ASIC design.
- Specifications – publish technical specifications for the product so someone can build a product like it.
- Bill of materials – publish exactly what is needed to build the product.
- Firmware – open source the firmware that controls the product so third-parties can enable new capabilities.
- APIs – publish interface specifications so third-parties can connect to the product and integrate it with other capabilities.
New go to market strategy needed
Today, product managers are responsible for ideation and definition. In the future, the product manager’s role will focus on aggregation and filtering. Think editor more than creator. Users will decide what the product is; product managers will enable users with various capabilities. Product managers won’t define static products, but rather enable dynamic use of the available development capabilities.
Many hardware companies will gravitate toward providing tools or components, creating a shift in the hardware vendor’s core customers. Today, HP builds a printer; Sony builds a camera; iRobot builds a vacuum cleaner. In each case the product is “complete” and sold to the consumer. This will change in ways that are already apparent at iRobot. With an open API, the Roomba vacuum has become a platform for additional controls and sensors. There is even a book and website, “Hacking Roomba,” to serve this growing community.
These types of changes in the products sold, how they are used, and how the products get to market in turn necessitate a re-thinking of a company’s entire go to market strategy, including: pricing, segmentation, value proposition, sales channels, and messaging.
Key changes to the go to market strategy include:
| Consideration | Key Changes to Reflect in GTM |
| Customer | A new layer in the customer value chain is created to configure products, so who the manufacturer sells to will change.
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| Value proposition | Customers will think more in terms of needs and problems than finished solutions as today’s products become platforms for a variety of applications and solutions.
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| Sales channel | Nature of the market ecosystem will change dramatically. May need more partners to support the range of mash ups, … or perhaps fewer explicit partners because of a need to work with “everyone.”
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| Pricing and revenue collection | If these elements are not intelligently managed, the result will be commodity profits. Manage them too aggressively, and one may end up with nothing as the profits migrate to where the value is created. |
Like the more familiar VARs, configurators will build the market by standing behind their products with service and warranties. Best of all, since the configurator model is well suited for serving specialized market niches, manufacturers (and the overall economy) will benefit from an explosion in the number of innovative new products serving a range of needs that big companies focused on broad markets are unable—or unwilling—to address today. Innovative small companies that could never compete head-to-head with Sony or HP will find they can build a thriving business standing on the shoulders of these giants. While individual configurators are likely to be smaller than today’s resellers, the breadth of the aggregate market served will be much greater. Where there once was one product, now there will be several—or even dozens—incorporating some or all of the components of the original product. The win for Sony, HP or iRobot is a significantly expanded market for horizontal technologies.
Open source hardware in the future
The open source hardware movement creates many new opportunities for companies, but also necessitates re-thinking how companies operate, organize, and go to market. While changes to the go to market plan are the most visible, there will be significant changes in other parts of the business as well. The many ways available for implementing open source hardware makes it harder to characterize than open source software, but the capital-driven need for profits will tend to the business models more robust.
- Horizontal technology addressing a single (or a few) vertical markets. A robot vacuum is fundamentally an autonomous platform adapted for vacuuming. A vacuum is but one of many potential payloads for such a platform.
- Highly fragmented customer requirements. Few companies are able to effectively address more than a handful of customer profiles. This doesn’t mean that with modification their technology can’t serve many other types of customers if there is a better way to go to market.
- Ability to “hack” standard configurations to create added value capabilities. Modifying the base product platform has to be economical or the benefits will be insufficient.
While we can’t yet know exactly how open hardware is going to change our world, understanding the forces shaping the change will prepare us for a future that will differ from the present in many important ways. As we hear increasing amounts of talk about open source hardware in the coming months and years, it’s good to keep in mind the prescient words of Bill Gates in 1997:
“There’s a tendency to overestimate how much things will change in two years and underestimate how much change will occur over 10 years. But there are some things we can say with a reasonable degree of certainty.”
Tags: business model, hardware, open source
Another good post. I always enjoy reading your material.