Saturday, November 1, 2014

Governance and legal structure for commons-based peer production

In my opinion, governance and legal structures for commons-based peer production (CBPP) are still moving a lot these days. We are still far from having something that is fully compatible with CBPP practices, to make CBPP a coherent system. At the same time, the trained eye can observe rapid progress.

CBPP communities that create exchange value (products and services to be distributed/exchanged on the market) are usually hybrid or mixed structures. The most obvious examples are systems like Arduino, which are comprised of a classical structure (the Arduino company) in the middle of an open OSHW community. The Arduino company incorporates functions for production and distribution, but it also plays an important role of facilitation and coordination of the open OSWH network around it. The 3D robotics (the company) and DIY Drones (the community) ecosystem is arranged in the same way. See Open source hardware meets the p2p economy blog post.

Other CBPP communities are organized as cooperatives. This choice is justified by the more democratic nature of these types of organizations. I expressed my opinions on this structure in the Are Coops Outdated in a Network Age article.

My observation of this relatively new field is that in order to insure stable production and distribution and to offer good services for the products distributed, CBPP initiatives have resorted to tested and proven classical methods and processes, embodied by classical types of organizations (the corporation and the co op being the most popular ones). Thus, most CBPP systems are divided into two major components: one that takes care of innovation on one side, which takes the form of an open community (decentralized, fluid, dynamic) and one that takes care of production, distribution and servicing on the other, which takes the form of a classical organization. The problem is that classical organizations are not fully compatible with CBPP. For example, their accounting and redistribution/reward systems cannot include everyone who participates in value creation. This has led to what I call the candy economy, as I explain in this post. If we want to push the CBPP logic we need be more inclusive (allow access not only to innovation processes, but also to production, distribution and servicing), and to extend redistribution to everyone involved in value creation. All the functions incorporated in corporations need to become distributed, to go long tail.

Formulating a solution starts with a new notion of property - nondominium. See original document and see the concept on p2p foundation. Access to resources becomes more important than ownership.

The custodian
Within the current legal system resources used by a CBPP community affiliates can be passed to a custodian. The custodian signs a nondominium agreement, which essentially guarantees the allocation of these resources according to a charter given by the community. In this arrangement community affiliates are alleviated from the responsibility that comes with the management of physical spaces, equipment and tools. More concretely, the custodian covers the risk associated with the use of material assets; it pays insurance for example. Moreover, the custodian can offer other types of services that reduce the organizational or bureaucratic overhead of ventures (projects). For example, the custodian offers a bank account to project members, where they can deposit their crowdfunding rewards and from which they can pay for resources.

The open community
The community can take the form of a non-registered association (there is legal code for it in Canada and other commonwealth countries), which remains fluid and dynamic and can operate in the long tail mode.

The exchange firm
In order to interface with the market the community creates Exchange firms, which are limited liability moral entities (corporations). Their main role is to take on the legal liability for the product. The Exchange firm is only a legal interface with the market and it signs an agreement to distribute the revenue to all participants in a venture (project) according to the value equation. The Exchange firm charges a fee to cover its costs and the risk associated with the liability it carries.

Product development, market development, distribution and servicing are all functions and processes within the the open community.

Levels of governance

Governance at the project level: Within the non-registered association, projects are governed individually. Affiliates sign a Governance agreement and a Value Equation agreement. The Value Equation agreement describes how contributions are evaluated relatively to each other and how they are turned into equity.

Governance at the network level: Some decisions are taken at the network level and they concern general issues, like a % from revenue for infrastructure maintenance and development, the branding of the network, its general mission, etc.

Governance at the network of networks level: At this level we deal with interfaces between affiliated networks (communities), interoperability (protocols and standards), etc.

See more about governance on the OVN wiki
See more on SENSORICA’s Agreements and governance page.

Normative systems

In April 2014 I proposed a p2p governance and normative system, which I believe is more coherent with CBPP. 


By AllOfUs

Thursday, September 18, 2014

Capitalism fights us now

This post was motivated by a documentary that you can watch on Youtube: Counterfeiting. 

First, they don't take you seriously. Later, they laugh at you. Then they fight you, and after you win. I think the new economy (call it multitude or p2p) is one step away from going mainstream.
When society reaches a tipping point, all the absurdities of the old system become apparent. This time around, our global society is undergoing profound transformations because the new technology introduces new possibilities, which in turn affect the way we produce and distribute value. But the conflict between those invested in the old system and the proponents of change opens along ethical issues and values. When did we start to call sharing of designs, counterfeiting?
If you read history books you will not be able to miss the importance of diffusion of technology across continents. Marco Polo is depicted as a hero, because he embarked on a 24 year long and very dangerous voyage from Venice to China and back, and enriched Europe with new technology from the East.  How can a culture consider Marco Polo a hero because he copied the Chinese, but at the same time consider the Chinese thieves, because they copy technology and designs from the west? There is nothing important to understand there, other than the fact that our modern society is undergoing a crisis, a major transformation.
Copying and sharing are essential to development. If an economy starts to vilify essential things like copying and sharing, it is just a matter of time before it collapses, because by denying essentials it will start to accumulate ineficiencies.

Friday, January 3, 2014

Why do we need a value accounting system?

First, we need to make a distinction between a value accounting system and a value exchange system.

Suppose we have 3 individuals picking cherries in the same basket. The value accounting system keeps track of how many cherries everyone puts in the basket, so that when they sell it on the market they know how to distribute the money, in proportion to everyone's work. It describes how value added by multiple contributors amalgamates during co-creation processes.

Once exchange value is created, i.e. once the basket is full and ready to go to market, it can be exchanged using a value exchange system: barter, currency, etc.

So the value accounting system is not a currency. It doesn't refer to a transaction, to an exchange. Our 3 individuals picking cherries are not exchanging anything among themselves or with another entity while they are picking the cherries. They are just adding stuff into the same basket. The exchange might come later, once their product is ready for the market.

A value creation process that requires more than one individual can be based on the following 3 arrangements or a combination of those:
  • stigmergic coordination- Ex. Wikipedia, where contributors don't have aligned goals, don't maintain a relationship other than being contributing members to Wikipedia 
  • cooperation - Ex. any corporation, where very often the goals and interests of employees are not aligned with the owners. 
  • collaboration - Ex. 3 individuals picking cherries, requires a large degree of alignment in goals.
The traditional capitalist economy is mostly about ''cooperation'', which doesn't require an alignment in interests. Value creation is sustained through an exchange process, where workers exchange time spent on different tasks against wages. The exchange process transfers risk from the workers to the owner of capital, but at the same time the workers are stripped of their rights to the output of their labor. Workers cooperate (despite some inconveniences and misalignment in interests and goals) with the owners of capital in value creation processes because there exists an economic dependency between the two groups. Worker need money, which is turn is a predominant means of acquisition of basic necessities. On the other side, owners of capital need labor to generate more wealth. The problem is that this economic dependency is not symmetrical and makes the system prone to abuse, therefore the existence of unions to counterbalance the tendency for exploitation. 

The Open Value Network (OVN) model describes a blend between the 3 arrangements mentioned above, mostly coordination and some stigmergic collaboration. In this model, no one works for anyone else. All labor is transferred into fluid equity through a value accounting system, which grants ownership to the participant member to a percentage of the future revenue generated for the lifetime of the product created, if a product is the goal of the project, and if the project reaches maturity. At the same time, we also need to understand that risk is shared among all contributors, which is not a bad arrangement if it is distributed on a wide basis and diversified. The value equation is the algorithm used to assign fluid equity to every participant based on contributions. Contributions are considered claims for equity.

The normal and the long tail modes of production

normal mode of production
In the traditional capitalist economy wages should be regulated by the free labor market, if we make abstraction of all sorts of mechanisms through which this market can be biased (labor unions and governmental intervention included). The market is responsible for the difference in salary between an engineer and a clerk. The notion of job implies that the salary is predetermined before the worker starts working (with possibility to increase the salary based on performance, to stimulate good performance). Since the amount of $ per hours of work is pre-established, the capital owner needs to make sure that the worker produces enough value during the work hours. Therefore, a new role is needed within the organization to guarantee this, the beloved project manager. Traditional organizations spend a lot of energy doing time management, because usually the interest of the worker is not perfectly aligned with the interest of the capital owner. The worker only cooperates with the owner of capital. Thus, classical organizations operate on the normal mode of production (from the ''normal curve'' or ''bell curve''), where the number of workers is minimized, most workers produce something around a maximum of value, and those who produce maximum value produce in fact most of the value. Very few workers produce a lot less than the norm, because they are eliminated (i.e. fired). Very few produce a lot more, because there are no incentives and the association with the mission of the classical enterprise is weak, since the sense of belonging is usually low (usually fabricated by the HR department), since the sense of ownership is absent, etc.

long tail mode of production
An open enterprise is open to participation, which means that anyone can add value. Moreover, it is decentralized in terms of allocation of resources and uses a horizontal governance system. An OVN operates on the log tail mode of production, which means that a very large number of individuals are responsible of value creation, only a very small percentage of those create maximum value, the great majority of them create very little value, and most of the value is created by those who contribute very little. A prearrangement on revenue is impossible in this context. First, because the process of value creation is very dynamic and relations of production cannot be contract-based. Second, the process involves a great number of individuals that are distributed all over the planet, therefore it is impossible to do time management. There is no instituted power structure, therefore no one can force anyone else to work more. In this mode of production we need to evaluate rewards after the fact, based on deliverables and their properties or based in some evaluation based on the type of activity. An algorithm is needed to account for contributions and to turn contributions into equity, as contributions are added to the project.

In some sense, the value equation is a distributed solution to time management, which can be applied in large scale and dynamic p2p processes in value co-creation. The value equation  embodies positive and negative incentives. The reward distribution mechanism takes into consideration the formal reputation of contributors. A higher reputation results in higher equity, all other things being equal, and vice versa. This acts as a stick and a carrot, and regulates behaviour. Moreover, the value equation contains parameters to incentivise periodic and frequent contributions. Other factors relate to the quality of execution or of deliverables, and to the priority level of tasks.

Value accounting and network resource planning

The long tail mode of value production needs a value accounting system in order to allow fair redistribution of revenue, since rewards cannot be prearranged, but need to be calculated after the value creation process. The value accounting system allows participants to record contributions of various types and uses a value equation to turn them into equity. But this is only the first part of the story, as seen from the surface.

In the OVN model contributions are attributed to the creation of resources, which can be documents, designs, parts or full prototypes, etc. (some contributions go into infrastructure of community development and they lack clear resource or deliverables). From the resource level, contributions aggregate at the project level. The project is a venture, or a business unit. It is the smallest unit within the OVN that can generate revenue.

The fact that contributions can be attributed directly to resources (not projects) is very important for CBPP commons-based peer production, which builds on open source. On Github, pieces of software can be picked up by someone and remixed into something else. Open hardware (OSHW) development follows the same path, i.e. designs (mechanical, electronic, optical) are forked and remixed. This ability to fork and remix parts of more complex systems makes open source development a very efficient process. This explains why modularity and interoperability are very important properties of OSS and OSHW. If rewards are envisioned for the work done, CBPP needs to find a way to account for contributions at the resource level and to track the way resources are put together in different contexts (projects are considered contexts). If contributions are only recorded at the project level projects become silos of economic activity with reduced possibility of value flows between them.

Taking into consideration the structure of OS development, the solution to the reward redistribution problem is to attach some information to individual resources that allows their reevaluation later, when they get integrated in context. The metrics of evaluation can vary with context. This is the role of the network resource planning system NRP, which allows rewards to propagate upwards through value streams and the creation of a single resource can generate rewards from many different sources (many projects), depending on how many successful projects are using it.

This goes even further, because this same NRP-VAS also provides a growth mechanism for CBPP networks. To illustrate this, imagine that members of a CBPP community decide to attribute equity to resources that are created by other communities. (Example: SENSORICA decides to integrate a piece of open source hardware developed by another OSHW community). First, why would SENSORICA affiliates decide to diminish their revenue by giving equity to other groups when they can just copy the open source design? The economic rationale is to reduce efforts required to internalize new capacity (new knowledge and know how around that piece of open hardware) and to increase the speed of execution (a first to market advantage). CBPP networks grow by affiliation. By offering equity to other CBPP communities they are essentially building bridges for value exchange and co-creation, which is in essence the formation of networks-of-networks (see the Open Alliance).

We believe that in order to sustain the CBPP we need to create infrastructure that allows attribution of value-related properties to individual resources, to allow reevaluation of these individual resources in context, and to facilitate the formation of networks-of-networks that preserve the individuality of every community part of it, but at the same time brings them together on the same economic platform.

By t!b! 


Wednesday, October 30, 2013

What should we do with dark IP?

Answer: Open it! 

My friend Layne Hartsell sent me a link to an article on Yahoo news "Anti-Troll' Marblar Unites NASA Patents, Samsung to Crowdsource New Products".
Marblar CEO Daniel Perez said that although many companies' research and development departments spend millions of dollars on such patents, more than 95 percent of them sit unused.
"They're just kind of laying dormant," he told ABC News. "But what if people saw the patents for a special type of material from NASA or a unique laser from Oxford? What are some new ways that we can incorporate these patents into new products?"
I digested the text and put some comments on it, you can access it through Diigo HERE.

Marblar is a new tool for mining and valuing dark IP. What value Marblar brings to the market? They bring dark IP to the surface, from different sources, and they put in one place. The huge database of patents also gets sorted and refined using the users of the website (so they crowdsource that work too). They also ease licensing/royalties agreements between at least 3 parties: the owners of the IP (NASA for example), applications developers (the crowd), and companies that have the capability to put products on the market, (Samsung for example).

I see here old school mentality trying to adapt to the new. These are people who still value IP, who don't understand the open innovation game, who don't realize its potential, or who simply can't play it in their current setting. They have spent a lot of money developing all sorts of technologies and are now trying to value them in a different way. In other words, they feel that the IP they're sitting on surpasses their capacity to put it into practice, to develop its full potential, and they are essentially outsourcing (by crowdsourcing) applications development. This is already recognizing that they (closed corporations) aren't innovative enough. This is recognizing that the creativity economy will be driven by the multitude (the crowd, in their terms). But they are still holding on to their patents because they feel they should get a return on their investment and, most importantly, because they don't know how, or they can't play the open game.

If you ask my opinion, I would put all this dark IP into the public domain, especially the one developed with public funds. This will do a lot more good for the local economy!!

If I was a large company like Samsong, I would re-purpose my business core into a value network management group. Don't need intermediaries like Marblar. Samsong has the resources to become a locus of open innovation, an attractor of bright minds, by providing the space, the equipment, and the proper incentives for an innovative ecosystem to grow around their mission.

But I am not a large company and I am with the 99%, which is now merging into open value networks, powerful (I believe) economic entities, capable of bringing ideas to market. Watch the video below where I explain the open value network model.

Open value networks like SENSORICA also have strategies to mine dark IP. You can take a look at our approach in THIS document.

In my opinion, Marblar is only a transitory system. This model is missing something extremely important, the dynamics of open innovation, which is beneficial for society at large, but also for individuals who engage in it IF we give ourselves the proper tools, like a value accounting system, and a p2p production framework like the one proposed by the open value network model. Nonetheless, it is refreshing to see that Marblar implements a rudimentary value accounting system with their "marble" points, which has the effect to turn competitive product development into large scale collaborative product development. This is precisely the dynamics we're nurturing in entities like SENSORICA, to turn product development into a long tail process.

But systems like Marbler are setting up a candy economy (see THIS post for the definition) and are furthering the netarchical capitalism agenda. SENSORICA is setting up a commons-based peer production system, in which ALL revenue is redistributed in a FAIR way to ALL the participants. The Marblar scheme treats participants as resources, as the crowd, as a mass that can be organized to produce new ideas for the big guys to exploit and rip all the profits, giving a candy back to the crowd (see my post Why I don't like crowdsourcing). SENSORICA is empowering, see participants as equipotent peers, is inclusive, is fair. Which one feels better? Which one do you think will grow faster?

The new world will not be uniform or monolithic. As in the old world, there will be oppositions or antagonistic systems in the new world too. Netarchical capitalism, which is in fact a new form of feudalism is gradually defining itself and growing in opposition to peer production. Those who own our most important resources are looking for ways to transfer their assets into the new economy and to preserve their power. They are building platforms that they can control, and are hoping that the rest of us will get trapped in there or become dependent. The p2p or the multitude movement is building p2p infrastructures parallel (that fulfill the same functions) to these centralized and controlled platforms, with the hope to free the individual. We need to distinguish between being able to co-create value using a platform owned by someone, and being able to co-create value in an environment that is not owned or controlled by anyone, as autonomous and equipotent peers. In both cases we co-create value, we collaborate, but I prefer not having someone to randomly decide if I'm in or out...

By t!b!

Tuesday, April 16, 2013

Open source hardware meets the p2p economy

We are at this moment in history when we can say with certainty that open source hardware (OSHW) is economically viable. The video below tells the success story of Adafruit Industries. Barely formed, this business model relying on OSHW might already be obsolete. A new model, the open value network, is already threatening to transform the landscape of the open source economy. This article explains why.

Most people find it counter-intuitive that companies can survive in a highly competitive capitalistic environment, designing and distributing high tech products, giving away their recipes, AND allowing (even encouraging) everyone else to copy them, WITH THE RIGHT TO MAKE COMMERCIAL USE.

If you don't believe it, stop wasting your time arguing against it. It is real, it is here, you better understand it fast before the world changes around you, leaving you an alien in your own surroundings.

The business around open innovation cannot be learned in school. It belongs to a new economic paradigm. Old arguments don't apply anymore, because the semantics and the logic are not the same. Some time ago, we published the article How to play the open game in the present and future economy, which tries to capture the essence of sustainable open innovation. You should revisit this article from time to time, because we'll continue to improve it.   

The most successful ventures built around OSHW, like ArduinoAdafruitSparkfun, etc., can only be understood within their larger ecosystem. We can identify two main structures: a commercial entity and a community. The commercial entity is a classical form, usually a corporation or a co-op. It takes care of manufacturing, insures quality, structures and integrates the feedback from the community into new products, nurtures the community, performs legal functions, integrates all the transactional logistics (storage, shipping, payment), and provides services. The community plays different roles: consumers of products, provide feedback on products, propose new designs, spread the buzz, educate new members of the community and provide help, etc.

What we see in the case of OSHW is a greater integration between a commercial entity and its market. Traditional commercial entities maintain provider-consumer type of relations with their markets: some "smart" individuals within the firm study what consumers might need, pass that to a team of engineers to make it, and put it for sale with a team of marketing wizards who will make almost anything look like the perfect fit. If the firm was right about the need, which is not always the case, customers pay for it and take it, and ask for service if needed. Service is provided by the commercial entity in exchange of customer loyalty. In this approach, the consumer is educated about what he needs and wants, after the "smart guys" have made the market study, decided on the general need, and offered a one-fit-all solution. This is obviously the extreme case, or what was widely practiced 20-15 years ago.  Today, traditional corporations build communities around their brands, and they try to absorb more feedback from their consumers. In the case of OSHW, individual consumers drive design and development.

This integration between the commercial entity and the market in the prevalent OSHW models is made possible by the internet technology. But as we saw above, there is still a clear distinction between the commercial entity and the community. For example, a community member who proposes a new design that becomes commercially successful is not rewarded with a fair share of the profits made by the commercial entity. I call this the "candy economy", meaning that the members of the community around a OSHW company stick with it and contribute mostly for intrinsic motivations, and a small present (a candy) or a token of recognition from time to time.

Is this division between the commercial entity and the community necessary? Or is it an impediment for a better arrangement?

The open value network model abolishes the distinction between 
the commercial entity and the community!

The open value network is a model for commons-based peer production. See SENSORICA as an example.

The diagram above depicts the structure of a value network. The physical and the virtual infrastructure, as well as the tools and the equipment used in R&D and in production are part of a pool of shareables, legally owned by a custodian, which is bound by a contract to act in the interest of the community, obeying a set of predefined rules set by the community. All the information and the knowledge generated by the value network become part of the commons (there is no intellectual property). Affiliates (agents) rely on their know how to create value (products), using these resources. This value (products) is exchanged on the market for some form of revenue. The revenue is redistributed among all affiliates in proportion to their contributions, using a value accounting system. The barrier to participation to value creation processes is very low. In that sense, the value network is open. Value creation is so widely defined that it encompasses activities usually performed by members of the commercial entity and the community, in the prevalent OSHW model cited above. Therefore, the two structures, the community and the commercial entity are merged together at the level of value creation.

The open value network model distinguishes between different types of agents, based on their degree of involvement/participation. Thus, we can distinguish between active affiliates (those who take part in value creation) and unaffiliated observers (those who know what's going on in the value network). If we go back to the prevalent OSHW model cited above, we can say that the owners and the employees of the commercial entity, as well as the community members who provide feedback and new design ideas, or who actively propagate information about products are ALL active affiliates.

We also need to note that active affiliates are those individuals who participate in value creation AND who decide to log their contributions within the value accounting system. Participation in the value accounting system is NOT mandatory. Someone can elect to contribute to the value network without expecting something in return. Thus, the open value network integrates a gift economy with a market-oriented economy.

That is all fine on the value production side, but what about the distribution side, or the market side?
All the transactional logistics (for the exchanges between the value producing network and its market) and the legal aspects associated with it are moved into what sencoricans call the "Exchange firm", which can be embodied as a non-profit, with the sole purpose of serving the value network.

So why is the open value network a menace to current OSHW business models? Because by abolishing the distinction between the commercial entity and the community, value networks like SENSORICA threaten to drain these communities associated with OSHW-based firms of their talent!   

More on the open value network model

The open value network model departs from capitalism for 3 main reasons:
  • No economic cast, no division between owners and workers, between those who own the means of production and those who provide work. The commons takes care of that. 
  • No clearly defined frontier between the system of design-production-distribution and the market, the system rewards every contributor to value creation in proportion to his/her contribution. The value accounting system takes care of that. 
  • Reappropriation of labor. Active affiliates who are involved in value creation are not exchanging their labor for wages, they are in fact accumulating equity, which gives them rights to the future revenue generated by exchanging the value they create with the market. Thus the individual is always the owner of his work. 
The value accounting system allows value networks to go beyond the gift economy AND beyond the candy economy.
By t!b!
By AllOfUs

Saturday, February 2, 2013

Leadership? What's that?

I am trying to understand how networks respond to problems. I use the presentation below to structure my understanding. I am pursuing this reflection in the context of SENSORICA, which is a value network. The presentation will continue to evolve...

See also the discussion on Next Edge.

By t!b!
By AllOfUs

Saturday, November 10, 2012

How value networks can articulate with the present economy - an example in food preparation and distribution

Yesterday I had a conversation with my friend Paul about the advantages of value network over classical structures, including co-ops.

picture comes from this website
Paul is involved in #occupy Montreal and they are now organizing a center for preparation and distribution of vegan food in Montreal. They also want it to be very local. This operation would require gathering products from different local farmers, cooking/preparing, packaging and distributing raw or prepared food. 

Should they create a co-op or a value network

My answer 
They can have a co-op embedded within a value network.