Open Source Hardware Business Models

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For background: see Open Source Hardware or Open Hardware


Mathilde Berchon:

"The number of open hardware startups is increasing, mostly since 2007. Before this date, about only one company per year was launched […] Since 2007, the number of new open hardware startups is growing pretty fast.

It takes an average of two years to go from a project to a product. With the rapid increase of open hardware projects – reaching now the thousands – we might expect the birth of many new open hardware startups in the coming years. […]

Electronics for hobbyists and education is by far the number one market addressed by open hardware companies. 63% of them are developing products for hobbyists’ electronics, education and prototyping. Many of them are inspired by Arduino or Rasperry Pi success, developing compatible boards, shields and kits. The second position goes to fabrication tools (15%), and more specifically to 3D printing (11%). Market is then fragmented between many niches that reflects open hardware entrepreneurs passions: drones (3%), lights (3%), synthesizers (2%), construction kits…" (


Open Hardware Startup Survey, 2013

Mathilde Berchon:

"Open Hardware startups are primarily based in the United States: 68% of them have their headquarters in the US. Europe comes as secondary hub with 19%, followed by Asia with 7%.

If you get a closer look at the United States, you’ll notice that startups are mostly based on the coasts: San Francisco Bay Area (19%), New York and Boston Area (18%). It’s not a real surprise as this is where the open hardware ecosystem is the most active: universities with dedicated programs (ITP NYU, MIT Media Lab, Cornell, Stanford D School), very active and structured hackerspaces (Noisebridge, NYC Resistor, Artisan’s Asylum), entrepreneurial hubs.

What is more surprising is how open hardware startups are spread all over the US. Most open hardware businesses are fully online. Collaboration, distribution and communication don’t require any prime located headquarters. In the open hardware world, location doesn’t really matter.

The number of open hardware startups is increasing, mostly since 2007. Before this date, about only one company per year was launched: Parallax (1986), Solarbotics (1994), Lynxmotion (1995, acquired since then by RobotShop), ShopBot (1996), Egnite (1997), WIZnet (1998). Since 2007, the number of new open hardware startups is growing pretty fast. It takes an average of two years to go from a project to a product. With the rapid increase of open hardware projects – reaching now the thousands-, we might expect the birth of many new open hardware startups in the coming years.

Who is behind open hardware startups? Let’s look at the entrepreneurs

Most founders have a background in engineering (83%), going from advanced hobbyist to NASA physicist. Many of them have a day job and work on their company project in their spare time. Founders with a background in design reach the second position with 17%, including many digital artists who also know how to solder and code. Teachers and researchers are in the third group with 14%, and guess what… many of them are sciences and engineering teachers.

Interestingly, numbers show that 47% of open hardware companies are led by solo entrepreneurs (52% are in teams). Hardware makes it usually very hard to be on your own, but with open hardware, it’s a bit easier as soon as you have contributors to your project. A culture of sharing knowledge and skills also helps tremendously. Many entrepreneurs are building their open hardware business in their free time, on their own.

Women are not launching open hardware companies?

Expect exemplary Lady Ada with Adafruit Industries or Ayah Bdeir with LittleBits, the vast majority of open hardware startups have been founded by men so far. Only 5% of companies have been launched by women-only, and a total of only 10% include women in the founding team. It’s surprising as the open hardware world is pretty inclusive and many women are very active in hackerspaces, events and research projects. Not so many of them jump from project to company so far.

Open hardware startups are mostly boostrapped: 62% of them are bootstrapped. 28% are fully or partially financed by crowdfunding. Very little are VC backed. Crowdfunding is getting a lot of (deserved) attention and many open hardware startups have strongly benefited from their campaign. Printrbot, Makey Makey, Pinoccio, Galago, NeoLucida, RFduino, Foldarap are just a few examples that show that open hardware fit very well with the crowdfunding strategy. Product strategy, from development to sales, is driven by the community." (

Markets of the Open Hardware Startup movement

Mathilde Berchon:

"Electronics for hobbyists and education is by far the number one market addressed by open hardware companies. 63% of them are developing products for hobbyists’ electronics, education and prototyping. Many of them are inspired by Arduino or Rasperry Pi success, developing compatible boards, shields and kits.

The second position goes to fabrication tools (15%), and more specifically to 3D printing (11%). Market is then fragmented between many niches that reflects open hardware entrepreneurs passions: drones (3%), lights (3%), synthesizers (2%), construction kits… " (



"Open source hardware has a set of business models that include the following:

  • Design distribution — Companies can pack sets of designs and sell the distribution just like Linux distributions. The OpenTech CD-ROM is an example of this method.
  • Design technical support — Experts can give support for Open designs. is a company that follows this model by releasing IP cores and charging customers for technical support.
  • Design implementation — Companies can implement the designs, sell them and pay royalties to original designers, according to their release license.
  • Releasing — The release of open designs under the control of GPL-compatible licenses can occur whenever a silicon implementation is considered commercially."



Edy Ferreira & Stoyan Tanev:

There is little research on the types of business models specifically related to OSH. With OSH, the open asset is different from the ultimate market offer, the manufactured hardware device itself. OSH is not about hardware, it is about the intangible assets related to hardware design information. This makes existing OSS business model classifications not directly applicable to companies involved in OSH projects.

Salem & Khatib suggest the following models: see just above.

Additionally, companies working under contract for a chip manufacturer could open source a design to enable the participation of other chip manufacturers and develop multi-purpose and customizable designs. Companies could also open source IP that is not intended to be sold, but rather to be integrated into a product or service. This IP will have the benefits of an open source development process without risking revenues.

Clive Thompson identifies two main economic models for OSH-based market offers. The first is to concentrate not on selling hardware but instead on selling expertise as the inventor. The second is to sell OSH devices while trying to keep ahead of the competition. The heart of this second economic model is higher competitiveness based on complementary assets. [1]"



DIY Drones

Case study at

Excerpt from Chris Anderson:

"what’s the right markup that leads to the lowest cost for consumers and still makes money for us? That’s what we set out to find out. With the help of some open source hardware experts (Lenore Edman, Limor Fried and Phillip Torrone, plus this good overview), here’s the business model we settled on:

This model is based on a simple rule: transparency about costs and a choice between paying us to make the product or doing it yourself.

The basic process is that we list all the components and other costs of our product (an autonomous blimp in this case) and links to where you can buy them yourself, along with instructions on how to put them together. If you want to do it yourself, or perhaps already have some of the parts and don’t need ours, go for it!

But if you want us to make it for you (guaranteed to work), because it’s easier, safer, quicker, etc, we would charge you a 66% markup, which give us 40% profit." (

Discussion 1: Difficulties

Why OSH is more difficult than OSS

Edy Ferreira & Stoyan Tanev:

"In OSS, "free" may be confused with "gratis" because it often costs nothing to make your own copy. In OSH the situation is different. People can download free hardware designs, but they either have to pay someone to manufacture the hardware or buy the components and tools and manufacture the hardware themselves. In most cases, it is very costly to manufacture the hardware. The costs are related to the replication of the physical hardware, not with the replication of the design itself. However, the benefits of an OSH collaborative process are not reduced by the slowness or difficulty of the replication process of the physical hardware. Companies may still choose to capitalize on the commercial benefits of the OSH collaborative process by participating in collaborative development of hardware that is required by all but is a differentiator for none.

The costs related to designing, verifying and understanding OSH are also high. This requires appropriate EDA tools which are very expensive. In addition, hardware testing and verification requires expensive external hardware equipment such as oscilloscopes, analyzers and wafer probes. Currently, there are open communities developing open source EDA tools that will eventually improve to the point where they will be competitive with commercial EDA tools. A major obstacle is the fact that some commercial EDA tools are designed to work with commercial FPGAs that are protected by commercial secrecy. Open source EDA tools could not be adapted to interface with those FPGAs without facing legal problems. One of the suggested solutions is the development of open source FPGAs whose interfaces would be open enough to allow the use of any open source EDA tool.

In some pieces of hardware, the cost of the IP, which includes the cost of the design, is much lower than the cost associated with manufacturing and integration. For example, in the case of microprocessors, designs built on OSH IP cores alone are not likely to be commercially successful. This means the cost of some commercial IP cores must be added to the final cost of the hardware product. Bugs in hardware designs can unexpectedly increase manufacturing costs by causing physical damages to the chip or other parts of the system. This challenge is a major difference between OSH and OSS. It is additionally aggravated by the increasing technological complexity of state-of-the-art microchip designs and manufacturing requirements.

It is difficult for OSH developers to design products without infringing existing patents. Spooner has pointed out that established companies, such as IBM and Intel, might not be directly challenged by the OSH movement because of the patents they use to keep their products safe. In many cases, existing hardware design patents will seriously complicate the deployment of OSH designs.

None of the existing OSS licenses are designed to cover all aspects of hardware design. At the same time, hardware has become more like software. HDL code is considered by the Free Software Foundation (FSF) to be software which can be legally distributed with OSS licenses. However, according to Richard Stallman, although IC definitions written in HDL can be copyleft, ICs themselves cannot be copyleft, because they cannot be copyright. A copyright can protect a design from being copied and modified, but it cannot regulate the manufacturing, distribution and use of products based on the design. Patents are used in such cases, but patents are expensive and not as flexible as copyright. The final result is that, for a design that is copyleft by a GPL-like license, "any person can legally draw the same circuit topology in a different-looking way, or write a different HDL definition which produces the same circuit", thus making the benefits of copyleft in hardware somewhat limited.

Since 2007, the Tucson Amateur Packet Radio (TAPR) organization has been promoting the TAPR Open Hardware License (OHL) as a legal framework for OSH projects. TAPR argues that the license can be used for any kind of physical tangible product. As a share-alike license, modified designs can be redistributed only by using a license with the same rights as those granted by the license of the original design. They point out that "OHL is not primarily a copyright license" and, although it does not prohibit a company from patenting an invention related to an open hardware design and then enforcing its patent rights, it states that parties who receive any benefits from an open hardware design "may not bring lawsuits claiming that design infringes their patents or other intellectual property".

Another challenge arises as hardware is not as modular and compartmentalized as software. Modularity is a critically favourable characteristic for OSS production. For example, modularity was important in the case of the Apache software allowing developers to work in particular areas without affecting other modules. Netscape faced significant difficulties when releasing the Mozilla browser as OSS due to the insufficient level of modularity in its software architecture and a major restructuring of the program was needed to address that problem.

Another obstacle facing OSH is what OSS faced more than a decade ago: lack of credibility. It is expected that the OSH community will eventually convince users that the OSH model works and high quality OSH designs can be achieved." (

Discussion 2: Realisations

Making Money with Open Source Hardware

Excerpt from an article by Edy Ferreira at

"we identified 56 market offers. These were classified using four dimensions: i) type of market offer; ii) ownership of OSH project; iii) type of OSH asset transformation; iv) and importance of OSH to the market offer. Our findings can be summarized as follows:

Type of market offer: forty four of the market offers were for manufactured products, such as printed circuit boards. Six of the market offers were for intellectual property, such as electronic circuit designs and software. The remaining six offers were for services, such as consulting, custom designs and training.

Ownership of the OSH project: fifty three of the companies own the OSH projects upon which their market offers are based. There were three cases of companies whose one market offer was related to an OSH project owned by another company or individual. Type of transformation of the OSH asset into the market offer: this dimension refers to the type of activity that is needed to transform the initial OSH asset into the final market offer. Our analysis revealed four market offers requiring software development, fifty one offers requiring hardware development and manufacturing, and one market offer for the same OSH asset without any transformation.

Importance of the OSH for the functional integrity of the market offer: this dimension has three possible options. The design of thirteen market offers did not include any open source component and were classified as "pure-close offers". The designs of twenty eight market offers are completely based on open source components, and were classified as "pure-open offers". The core of fifteen of the market offers are based on open source designs but also include additional proprietary components; these were classified as "open-driven offers".

Using these four dimensions, we found eight different ways of making money with OSH in the listed companies. Those eight methods are summarized as follows:

1. Consulting and custom designs over owned OSH (three market offers): this category includes companies which sell services related to the OSH projects that they own. Those services could be custom designs or consulting.

2. Consulting and custom designs over third-party OSH (three market offers): this category is similar to the previous one, but the services sold are for OSH designs owned by other companies. As an example, Polarismicro sells consulting and custom designs based on OpenSparc, an OSH project owned by Sun Microsystems.

3. Proprietary hardware designs based on OSH (one market offer): this category includes companies that sell modified versions of OSH projects that they own. The market offer is intellectual property in the form of schematics, diagrams or any other type of hardware design information. The OSH assets are transformed into the market offer by designing proprietary hardware modules (hardware development) that modify the OSH asset (open-driven offer). Gaisler Research sells the netlist information for Leon-3FT, a fault-tolerant processor code based on Leon-3.

4. Proprietary hardware based on OSH (eight market offers): this category includes the sale of modified versions of owned OSH projects. The market offer is the result of proprietary hardware modules (hardware development) that modify the OSH asset (open-driven offer). The difference from the previous classification is that the market offer is not intellectual property based on hardware design information, but physical manufactured products. emQbit sells a physical board that is an improved version of an open source single board computer called ECB-AT91 v1.

5. Manufactured OSH (twenty seven market offers): this category includes companies that sell a physical manufactured hardware based on pure-open hardware designs that they own. This category includes more companies and seems to be the first step most organizations take to start making money with OSH.

6. Software tools for OSH (four market offers): includes companies that sell pure-closed software tools for testing and working with OSH assets that they own. Gaisler Research sells simulation and debug monitor software for Leon 3.

7. Hardware tools for OSH (nine market offers): this category is similar to the previous one, but these pure-close market offers are not software but hardware tools for an owned OSH asset. For example, Gaisler Research also sells development boards for Leon 3.

8. Dual-Licensing (one market offer): this way of making money with OSH is similar to the dual-licensing model used by some OSS companies. The idea is to offer the same pure-open hardware design that is owned by the company with two difference licenses. The first license is a GPL-like license, which is free but forces users to disclose the source code of any modified version of the original design. The second is a commercial license, which has a fee but allows buyers to conceal the source code of any modified version.


"Some authors have cited the costs associated with manufacturing hardware as one of the biggest disadvantages of OSH in comparison with OSS. Users who download software code can compile and use it without any cost. Users who download source for an open microprocessor cannot use it unless they pay for its manufacture. However, most of the companies working with OSH have taken this disadvantage as a business opportunity by selling manufactured OSH.

Secondly, companies, as seen with Gaisler Research, may successfully combine more than one way of making money with OSH to diversify their sources of income. It is also possible for companies to expand revenues by combining OSH with OSS, especially in cases where symbiotic relationships between OSH and OSS projects exist.

As an example, Corgan Enterprises offers training and consulting for both the USRP, an OSH project, and GNU Radio, an OSS project.

Additionally, this study shows that some ways of making money with OSS can be used with OSH. Dual-licensing, consulting, and customization of open source projects are such examples.

The classification presented here is just the first step towards a more systematic understanding of how companies build business models around OSH. More research is needed to study which models are likely to generate higher incomes and the profitability of the market offers related to OSH." (

Two Business Models?

This is a quote from a very interesting treatment of open hardware trends by Wired, which starts with an extensive profile of Arduino. It’s a real must read article.


One of the aspects covered by Clive Thompson’s article are two possible business models for open source hardware:


“Right now, open design pioneers tend to follow one of two economic models. The first is not to worry about selling much hardware but instead to sell your expertise as the inventor. If anyone can manufacture a device, then the most efficient manufacturer will do so at the best price. Fine, let them. It’ll ensure your contraption is widely distributed. Because you’re the inventor, though, the community of users will inevitably congregate around you, much as Torvalds was the hub for Linux. You will always be the first to hear about cool improvements or innovative uses for your device. That knowledge becomes your most valuable asset, which you can sell to anyone.

This is precisely how the Arduino team works. It makes little off the sale of each board—only a few dollars of the $35 price, which gets rolled into the next production cycle. But the serious income comes from clients who want to build devices based on the board and who hire the founders as consultants.

“Basically, what we have is the brand,” says Tom Igoe, an associate professor at the Interactive Telecommunications Program at New York University, who joined Arduino in 2005. “And brand matters.”

What’s more, the growing Arduino community performs free labor for the consultants. Clients of Banzi’s design firm often want him to create Arduino-powered products. For example, one client wanted to control LED arrays. Poking around online, Banzi found that someone in France had already published Arduino code that did the job. Banzi took the code and was done.”


“Then there’s the second model for making money off open source hardware: Sell your device but try to keep ahead of the competition. This isn’t as hard as it seems. Last year, Arduino noticed that copycat versions of its board made in China and Taiwan were being sold online. Yet sales through the main Arduino store were still increasing dramatically. Why?

Partly because many Asian knockoffs were poor quality, rife with soldering errors and flimsy pin connections. The competition created a larger market but also ensured that the original makers stayed a generation ahead of the cheap imitations. Merely having the specs for a product doesn’t mean a copycat will make a quality item. That takes skill, and the Arduino team understood its device better than just about anyone else. “So the copycats can actually turn out to be good for our business,” Igoe says.”

The article also covers the limits of such projects.

Here’s the quote:

“I can’t help but think there are limits to this. Passionate amateurs can create an MP3 player or a synthesizer. But what about a jet engine? Or a car? To pass regulatory tests, these products require expensive laboratory equipment, like wind tunnels for car shapes and airplane parts, or crash labs. That can’t be accomplished by a bunch of loosely connected designers surfing on their laptops in a Starbucks.

Yochai Benkler isn’t so sure. The Harvard professor and author of The Wealth of Networks predicts that smart commercial firms will share resources with open source communities. “If you want to design a car in an open source way, maybe you’ll work with a corporation that has access to an expensive wind tunnel,” he says. This sort of cooperation has become common for open source software. IBM and Sun Microsystems pay staff members to contribute to Linux because it’s in the companies’ interest to have the software grow more powerful, even if competitors benefit.” (

The most obvious monetization strategy: Manufacturing

Simone Cicero:

"The most obvious monetization strategy for open source hardware is that of manufacturing. Indeed as is it for closed source hardware – but differently from software that has basically zero infrastructures needed to build – open hardware still requires a factory to be built, at least when we talk about electronics (you could self build open design furniture sometimes).

Interestingly enough, the advantage to having access to manufacturing facilities is, on the other hand, less and less decisive in places like China’s Shenzhen, where at now the knowledge, processes and tools needed to build hardware are radically accessible and shared across hundreds if not thousands of companies. Manufacturing ability is no more a differentiator in itself.

With this in mind, the point here is only one: a successful hardware design – being it closed or open doesn’t matter – will be copied once successful and – as Nathan Seidle often pointed out in interviews – market advantage resides in company elasticity and in the capability to innovate rapidly a product portfolio.

Despite the correctness of this consideration, to be honest, the most successful open source hardware company in the world, Arduino, demonstrated that, even if you’re painfully slow to innovate your products – every Arduino lover knows that the board have some limitations and the new models often take a hell of time to arrive – you can win the market.

Arduino experimentation (or, better, lack of experimentation) in business model, eventually became it’s true advantage. As the platform debuted on the market the founders decided that only the brand would have characterized their production. It should be noted that this simple model it’s particularly difficult to achieve and, also, may only work for that kind of projects that have a strong prosumer/consumer oriented market segment and, at the end of the day, a Business to Customer model.

B2C markets are those where brands count: the B2C tends to be inefficient for the professional context where components may be embedded in final products therefore hiding the brand. As you may know, for example, Arduino boards complexity is negligible and one can copy the board, manufacture it and rebrand it (maybe inside a more complex product) with relative ease.

Obviously, while this situation could be seen as a problem for the original brand manufacturers, this opens an opportunity for third parties to manufacture the product designs of several third parties (when open source). These players could, in this way, explore and exploit new niche markets for customized and/or upgraded niche products or even take care of geographical distribution with local production facilities that can eliminate shipping costs.

Another existing approach that many players are considering is the so called dual licensing. Dual Licensing is very famous and widely adopted in Open Source software and simply put, it’s about having the same piece of software distributed under two different software licenses, where one is usually Free Software or OSI-approved and the other is a proprietary license.

In hardware we could have pretty the same situation: that’s indeed the case of Gaisler Research’s LEON is a 32-bit CPU microprocessor core, based on the SPARC-V, A LGPL/GPL FLOSS licensed product that also offers a proprietary license for integration in proprietary products.

Another approach to dual licensing could be based on extending the core open product with additional proprietary extensions or versions. Thanks to dual licensing, providers can create a product that is more resilient in the market since other companies or professionals may decide to base their product on the technology and contribute to a common development. That being said, it’s still very early and it’s hard to find a dual licensing hardware product that really fueled a lot of community innovation in parallel with a closed edition.

In many cases the open-hardware approach just stands as a declaration of intents and openness to the community: something that you can’t really avoid this days. On a different level by the way, one must note that having an open source core offering may help lower the customer lock in concerns (especially in the professional segment).

The lock in problem instead could be considered a friction point for companies trying to complement open source hardware with closed source Software as a Service offering (especially in the Internet of Things and connected hardware realm). On the other hand we still see a relatively limited market penetration also for Open Source powered cloud integration services (such as Thingspeak): this could be interpreted as an indication of a market segment that’s still not mature: that of intelligent, connected object.

Professional Services make the bulk of the rest of the monetization strategies and business models around open source hardware. In fact a bunch of interesting and very focused small companies are bootstrapping businesses around visionary customers exploring IoT, Machine to Machine and hardware innovation.

That of logistics and automation, by the way, still seems a market dominated by few closed industry giants (eg: Siemens), playing in the field of large and middle scale projects in traditional industry contexts." (

The new model is dominant in the emerging niches, not in legacy industries

Simone Cicero:

"The fact that, differently from the creative industry, the corporate hardware industry is still not embracing open hardware could therefore be not much related to business sustainability and business model issues. Instead the closed approach, could be much more related to promoting ill (from a sustainability point of view) behaviors like planned obsolescence to ensure profit maximization.

Despite the leaders of open hardware are still not really significant in terms of market share, respect for example to a mainstream – closed source – home appliance vendor or electronics manufacturer like General Electrics or Samsung, the rampant level of success that those players are having among early adopters should be at least considered by the hardware giants.

In fact, entirely emerging industries – like that of drones and UAV for example – are being develop around the concept of open and componentized hardware and new projects, targeting new and challenging industry branches (some new, some just there to be disrupted) are emerging every day.

We can really foresee a huge disruption potential in these industries: if you just look at the role that the Arduino platform is playing we can really see two different aspects. On one hand, Arduino is a brand and a community: the platform itself has a negligible technology advantage (if any) but still is largely used as a core for many truly innovative products ranging in many industries and having real impact in the life of those that are open to experimentation.

But behind this “social” role, the Arduino platform succeeded to be the first global componentized hardware platform that is universally recognized and used as an interchangeable component. Think to our 3Drag 3Dprinter: as many of you know the printer now sports an advanced control board that allows things like autonomous printing, but is still based on Arduino.

Thanks to Arduino componentization and to the standardization of its I/O interfaces our enhanced board may be used in several other contexts and products, and not only those based on RepRap: virtually everything that is based on Arduino, using the same firmware, can use our board in some ways.

The work done by iFixit during these years, and the preliminary appreciation that the initiative is gaining among some industry players demonstrates that a different approach is, somehow, possible.

Said that’s, it’s way more likely I think, that (in the very same way it happened for the incumbent software industry), a new breed of hardware manufacturers will come up and disrupt the existing ones, instead of seeing the incumbents change their approach.

This incapability to change their approach may be due to the organizational rigidities that might actually prevent incumbents to adapt. Some interesting examples in the software industry might be that of Oracle and Microsoft: both the software giants of the early 2000 are increasingly losing market shares and struggling to face the competition of a new breed of (once) startup players such as Salesforce, or even Google.

Despite Google is a giant today, it was nearly a startup when those incumbents were dominating the market, and actually debuted in the Software as a Service, browsers and Operating Systems market very lately. All these markets are now being almost totally disrupted by the guys from mountain view.

What we could expect in the hardware and manufacturing industry could be a something really similar: the birth and affirmation of new hardware and manufacturing players that, despite not ideologically linked to open-hardware, will enjoy of the growing componentization that open-hardware itself drove into the hardware industry. As Google did with open source software.

These players will be likely based on totally new and innovative approaches to production: a similar paramount change is the one that we saw in the software industry: it switched it’s dominant model from on premise installations to Software as a Service." (

More Information

  1. Gregory Pomerantz, on Business Models for Open Source Hardware, 2000
  2. Presentation by Limor Fried of Adafruit Industries: download full presentation here: "Each year we've seen more and more makers do what they love (making) as a full time job, we put together some of the observations, trends and more on how you could go about doing this too."
  3. Edy Ferreira & Stoyan Tanev How Companies Make Money Through Involvement in Open Source Hardware Projects
  4. A business model for open source hardware, at
  5. Open Hardware Startups Directory