Saturday, January 3, 2015

The stateless economy, local economies, and the state

NOTE: This is the second draft. This post was motivated and informed by THIS discussion on Facebook. 

The Multitude movement enters a new era, where its processes can be supported by truly p2p infrastructures. Bitcoin is now a well-known symbol of a new breed of value exchange systems, called cryptocurrencies, money without the bank, stateless money, a new currency that looks and feels like your ATM card, but it is entirely decentralized, under the control of those who use it.

Peer-to-peer is a new pattern that emerges in almost all the spheres of human activity, from culture, to governance, to the creation and the distribution of goods and services. It is the underlying pattern of the current leap in the emancipation of the multitude (see the multitude manifesto). Bitcoin is the poster child of p2p exchange systems, but the same technology is now expanding and promising much more:
From Ethereum project: Satoshi Nakamoto's development of Bitcoin in 2009 has often been hailed as a radical development in money and currency, being the first example of a digital asset which simultaneously has no backing or "intrinsic value" and no centralized issuer or controller. However, another, arguably more important, part of the Bitcoin experiment is the underlying blockchain technology as a tool of distributed consensus, and attention is rapidly starting to shift to this other aspect of Bitcoin. Commonly cited alternative applications of blockchain technology include using on-blockchain digital assets to represent custom currencies and financial instruments ("colored coins"), the ownership of an underlying physical device ("smart property"), non-fungible assets such as domain names ("Namecoin"), as well as more complex applications involving having digital assets being directly controlled by a piece of code implementing arbitrary rules ("smart contracts") or even blockchain-based "decentralized autonomous organizations" (DAOs). What Ethereum intends to provide is a blockchain with a built-in fully fledged Turing-complete programming language that can be used to create "contracts" that can be used to encode arbitrary state transition functions, allowing users to create any of the systems described above, as well as many others that we have not yet imagined, simply by writing up the logic in a few lines of code. (See the source). 
For those who think that all this technology is nothing if it doesn't live on its own support, on a p2p Internet, take a look at the MaidSafe project, FNF and many others like them. MaidSafe is special because it comes with its own economy, it's own ways to incentivize the development and maintenance of its physical infrastructure, and has a cleaver launch and growth model which takes advantage of the existing infrastructure.  

We are creating new economic processes with their own exchange systems that know no borders, no political boundaries, and no central authority (which doesn't mean no rules or chaos). We are creating a stateless economy. How states respond to it? How does it relate to local economies?

One of the most interesting observations in relation with this new pattern that deploys globally on p2p infrastructures is the emergence of a global multitude. It is a very diverse multitude. This diversity is rooted in values and principles rather than in local customs. We speak about it as different cultures of online communities. These new social structures transcend the state, which has no effective means to control them. We are witnessing the emergence of new social structures, that come with their own support mechanisms.  

Will states turn against these trends as a reaction of self-preservation? Yes, see for example a list of states that ban bitcoins. I predict that this opposition will grow stronger in the near future, but no state can bury an idea who's time has come. No state can oppose something that provides value to virtually all its citizens, especially when the current economic model is evidently unsustainable, openly criticized, and in decline. What should governments tell their youth looking for a job? The answers can be read in the daily news in Greece, Spain, Italy, France, USA, ... and the list is growing longer every year. 

There is antagonism between the state and this new Multitude outburst, with its p2p practices. Do we see a solution out of this standoff? Institutions are not eternal. They have a life cycle, like any other thing. Nation-states were created in the 19th century. The state is an instrument for local communities. People are above the state, the proof is that people have existed for millions of years and many social structures have been created and have collapsed during this history. People in their local communities will outlive the state with certainty. We will integrate new social structures and will find ways to sustain our local communities. How are local communities adapting to the new reality, since a lot of what it takes for a good living happens at the local level? How will they generate the material goods and services that are needed for a good life? 

The stateless economy is not in contradiction with the local economy

I am drawing this conclusion from my work on the Open Value Network (OVN) model within the SENSORICA community, a pilot project for long tail peer production

Forces and mechanisms behind the emergence of local economies

The impact of human activity on our planet is now visible, measurable, which makes us realize that our way of life is beginning to outgrow the Earth's finite basin of resources and/or its ability to regenerate some of these resources. Pollution and degradation of natural ecosystems, the energy crisis, and an unstable geopolitical situation are aligning to favor the development of diversified local economies. New technologies for renewable energy, for new materials, for automation, control systems and and robotics, including 3D printing, make local production for local consumption economically viable, make possible these local economies. 

The relevance of proximity and its role in the self-organization of local economies 

The Internet allows coordination and collaboration at the global scale. Design and simulation activities have been virtualized. Engineers now collaborate online on 3D models, electronics and optics designs, even chemistry and biology can now be virtually tested and simulated. Innovation has gone virtual, it has been delocalized. This allows the existence of new modes of innovation supported by a new socio-economic structure, the open source community. But making stuff (manufacturing hardware for example) requires local physical resources (materials, tools and equipment, space,...), used local processes (3D printing, assembling, ...), relying on local know how (which cannot be formalized, externalized, and easily passed to others through a medium like the Internet). The Internet doesn't obliterate the need for locality and proximity, when it comes to production and distribution of material goods. Locality anchors processes to a specific location, the need for proximity ties together different processes into a local economy.  
From global commons to local economies.
This is how the new economy is shaping. It builds on another new reality: 
Knowledge is abundant, know how and capacity of production are scarce and require proximity.
Knowledge is abundant because one idea becomes available to the entire planet in one instant, as soon as it is shared on the Internet. That single idea can be shared with everyone on the planet at the same time, assuming that everyone can easily find it, when needed. There is no limited quantity or limited debit. People don't need to take turns to access it. It can be accessed anytime. Everyone can have it, together with other ideas produced by other people. That's abundance. Thus, the Internet becomes a huge repository of ideas that people use to generate new knowledge, which is itself shared, and so on. Sharing is part of the process because it makes the whole system more efficient. Sharing is also imposed by a minority of individuals who have a natural propensity for it, and since ideas usually pop up in different locations at small intervals of time, someone will eventually share it, which obliterates someone else's wish to keep it a secret. This global swarm of ideas and knowledge building is actually a new mode of innovation, open source innovation, supported by a new social-economic structure, the open source community

Open source communities, which are virtual and stateless, are now the most innovative organizations. 3D printing has been democratized by open hardware communities, which continue to lead in 3D printing innovation, despite a few corporate successes. The same can be said for automation and control systems, with Arduino being the most popular example. DIY Drones is where the innovation in UAV technology happens. The dominant mode of innovation is now global, decentralized, stateless, increasingly using it's own physical infrastructure (a network of fablabs, makerspaces, co-working spaces), increasingly using its own funding mechanisms (crowdfunding and peer lending)

The abundance of knowledge goes hand in hand with the creation of a global knowledge commonsThis global knowledge commons gets materialized into local economies, using local know how and local capacity of production. This materialization requires a special type of infrastructure and new economic models. Let's illustrate this potential with two examples: 

Your local community needs adapted means of transportation? You can open a Local motors shop and grow a community around it to produce and distribute cars, locally. You continue to be plugged into the global Local motors community in order to benefit from the stream of open innovation that comes out of it. You can also join other similar communities like Wikispeed and the OScar in order to incorporate even more potential. There is no intellectual property around these car designs, they are open source and everything you build on top of these designs becomes open source by default, goes back into this global commons. Manufacturing car, its distribution, and services around it forms a local economic activity. In order to make that happen, a tight and synergistic relation must be established between the global open innovation process and the local processes. This relation insures that the feedback (for product improvement, diversification) that comes from the consumer, in direct relation with the local service providers and the manufacturers, is translated into technical problems and passed on to the global open source community of designers. The relation is established and maintained by channels of value between the local and the global/virtual layers. An example is a system of revenue sharing from the local to the global/virtual layer of innovation. This is what the Open Value Network (OVN) model is trying to achieve, with its value accounting system.  

You need to improve food production in your region? Join Farmhack, which provides open source solutions. Open source ecology offers tools not only for agriculture, but also for the construction of your farm and even for the construction of an entire village (see also Appropedia). There are similar online communities for indoor growing, automated greenhouses, hydroponics and aquaponics (see HAPI)... Name it, you'll find it. These sources for knowledge and designs are complemented by other tools and services for resource sharing and management, like landshare and shareearth (for land), neighborgoods (for tools and equipment), plantcatching (for plants and seeds), as well as more complex tools for mapping and economic modeling (localfoodsystems), etc. This new ecosystem needs to come tightly together into an open value network which allows value flows between different nodes. Local food systems are reorganizing along a different logic. 

New types of organizations are needed in order to orchestrate and incentivize the development of the global commons and to funnel it into sustainable local economies. I bet on the Open Value Network (OVN) model and on organizations like SENSORICA, because in my opinion they take into consideration how innovation, production, and distribution are restructuring. 

Within OVNs a need (local or not) is translated into a problem, which comes with its own incentive system (monetary or others) to be solved by a global, stateless community of developers, into open source solutions. The solution is materialized into a product or a service at the point of origin of the problem, and distributed to those in need, in exchange of some form of benefit/revenue. The revenue gets redistributed to ALL the participants in proportion to their contributions, using a value accounting system (records contributions) and a value equation (turns contributions into fluid equity). Since the solution is open source, others can also distribute it as is, or as a modified/improved/remixed version, also giving back to the original contributors in order to buy their loyalty and to sustain the open innovation channel, in order to sustain the link between the local economy organized around production, distribution and servicing, and the global and virtual layer of open innovation.

New infrastructures are required to support these organizations and their processes. OVNs are supported by a network resource planning and value accounting system (NRP-VAS). These tools will move on truly p2p infrastructures like Ethereum. It is important to realize that these new economic systems would be dysfunctional if they were obliged to use classical means of value exchange, or even Paypal. Imagine a project with thousands of participants and a long tail contribution distribution. The redistribution of revenue to all the contributors for every market exchange (every sale), as prescribed by the OVN model, would require thousands of micro-payments across the globe. Also, imagine thousands of individuals crowdfunding a new equipment used in a project. This would also require thousands of cash transfers from all the contributors into a unique bank account, from which the purchase is made. Bitcoin and other currencies built on the block chain technology improve the ability of OVNs to incentivize open innovation and to source its processes. 

Open source innovation has been proven to be the most effective mode of innovation. It is supported by open source communities, which are by nature open and decentralized, global and stateless. Innovation drives our modern economy, therefore open source innovation is here to stay, and the rest organizes around it. In order to close the cycle from idea to the market, new types of organizations have been created, based on the OVN model or others hybrid models (for more on these hybrid models see Open Source Hardware meets the p2p economy). New infrastructures have been created to tie everything together into self-sufficient value systems, into open value networks. These infrastructures are designed to support the p2p pattern, reducing the role of the state. Local communities have new alternatives for thriving, which require a radical redefinition of the state.  

Some states have banned cryptocurrencies, which reduces the ability of open value networks (tying global/virtual open source innovation systems to the local economy) to form and develop, which in turn takes away viable alternatives for local communities. 

Without embracing stateless p2p practices we don't actualize the full potential of the new digital technology in making our economy more effective, efficient, and sustainable. Without embracing stateless p2p practices we will see the collapse of our local communities, as the state gradually collapses. States that are fighting stateless p2p processes are essentially denying their local communities access to the p2p economy, an alternative that already shows clear signs to be effective.  

By Tibi

Saturday, November 1, 2014

Governance and legal structure for commons-based peer production

Governance and legal structures for commons-based peer production (CBPP) are evolving very rapidly, but we are still far from having something that is fully compatible with CBPP practices, to make a coherent CBPP system.

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 ecosystems like Arduino, which are comprised of a classical structure (the Arduino company) in the middle of an open source hardware (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) form a similar ecosystem. 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.

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 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 particular 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 that sell high tech open source products can survive in a highly competitive capitalistic environment, 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 that this is possible stop wasting your time arguing against it. It is real, it is here, you better understand it fast before the world becomes a strange place for you.

The business around open source innovation cannot be learned in school. It belongs to a new economic paradigm. Old arguments don't apply 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 source innovation. This article is constantly revised, so we encourage you to revisit it from time to time.   

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: early adapters for products testing and providing feedback, consumers, propose new features , spread the buzz, educate new members of the community and even provide technical 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 a provider-consumer relationship 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