Some Remarks on Open Business Models and the Economy of the Commons

Transcript of a video interview of Michel Bauwens by Robin Good of masternewmedia.org

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"What we do at the P2P Foundation is study:

Peer production,

peer governance, and

peer property.

In other words, all the modalities where people can aggregate around the Internet using collaborative platforms and produce something of value together. This has an application on business and economics, which I can summarize under two concepts:

Open business models, which refers to practices of individual firms.

the economy of the Commons is how this new system fits in the broader economy as a whole.

I would like to discuss a few features of open business models.

Open Business Structure

First, something about the structure.

What is typical about open business models is that it involves a collaboration between a community, using a Commons.

This means:

Open code,

open knowledge,

open designs, shared designs,

On the other hand, an entrepreneurial coalition.

In other words, companies who make use of that Commons and who try to market some extra value in the marketplace. How does that exactly work?

This is an interesting point, because, of course, this collaboration has a few characteristics that make it different from a classic business model, where you hire people, you give them a wage, you protect intellectual copyrights, etc.

Let me review a few of these points together.

The first element is Commons.

What Are The Commons

What do we mean by Commons?

This is something that does not belong to anybody in particular, that belongs to the whole community, of participants, of users, sometimes to the whole world. It depends, you have different types of commons.

This means that it is usually protected by some kind of a license, like the General Public License or the Creative Commons or some other type of license which says that you can use a material, you can change it, but any change will also be part of that Commons.

Around that Commons, you have a community. This is the second element.ì

That community will usually be a mix of:

Volunteers, who freely add contributions for a number of reasons.

paid contributors, because these companies that will work with that Commons, that code, or these designs will also hire people to do development work and build a business around it.

Collaborative platforms - this is a very important point.

We have to have some kind of technology, a platform which allows people to work together under certain rules.

Another aspect is very specific.

I call it "for-benefit institutions." These are usually foundations.

If you look at open software, most of these projects have a foundation:

Gnome Foundation,

Apache Foundation,

Eclipse Foundation,

Linux Foundation, I could go on.

These are called the FLOSS foundations.

I am fairly certain that when we have a more mature development of open hardware, that the same structure will be applied.

You don't have two players. You actually have three players.

You have:

The community,

the for-benefit institution which manages the infrastructure of corporation.

They do not tell people how to work and what to do, but they protect the infrastructure.

Then you have the corporations and companies and coops that are using those commons.

Some interesting points. When I talk about the Commons, I am talking, in this particular context, about immaterial Commons.

What is common is not the products. It is not the cars or the fridges or the solar panels, because they cost money, and you have to find a way to find investment and pay people, at least in this type of society we have now.

We are talking about the things that can be shared for free, because they can be reproduced digitally.

knowledge,

code and

design.

Consequences For Companies Engaging Open Production

What are the consequences for a company that engages in this type of production?

One of the consequences is that the primary material itself, the code or the designs, are not really marketable, because they are shared with the whole community, they can be copied.

It is pretty hard to sell, because the market, basically, is something that has supply and demand.

When something is in abundance, the market does not quite work for this particular part.

What a company will do is they:

Will use the commons, add something to it, and sometimes they use something called dual licensing.

That means that, let's say, 75 percent of the software is open, and then they will add some extra software that is proprietary.

Might decide to build derivative services - training, integration, insurance, guarantees - things that businesses want that are around the primary material.

This is an important point. A part of the value becomes free.

This is the point of the book Free by Chris Anderson, which explains why it makes sense today to give away the primary material for free.

You can do that by:

Protecting your intellectual copyright,

common copyright, open copyright - which is what I am talking about.

One possible negative consequence of working this way is that you are voluntarily, as a company, not taking up the benefits of copyright.

If you think of a company like Microsoft, or you think about Pharma, they can ask a lot of money above the production price of a piece of software or a medicine because it is stated under a copyright.

A lot of the money they get is not from the value of the product; it is the value of the protection of the product through legislation and the State.

This is something you have to give up when you do open business models and this has certain consequences.

Pros of Embracing Open Business Models

On the positive side, let's assume you are competing with a proprietary company who is asking a monopoly price based on intellectual property. It seems clear that you can outcompete those companies, because you don't have to charge for the property right.

Another advantage is that your research and development, instead of being just the people inside your company, becomes the whole community.

Basically, you are sharing innovation through some kind of a corporate and community commons, where you do not just get one stream of innovation; you get a lot more innovation.

I would guess that another advantage, which is not a certainty but often occurs, is that the market becomes so much larger.

Let me explain that.

If you have a proprietary strategy, you have only your product, and you have to pay everyone. I want to give an example, to make sure that is understood.

Let's take the geographical information systems.

In Europe, every country protects its national geographical data - which is public, it is done by governments - and then they license it to a few companies.

These companies may make quite some money, but because of the licensing they exclude an enormous amount of other people who cannot work with the same data.

This is a recipe for a limited marketplace.

Take the situation in the United States, where the National Oceanic Administration and other outfits decide to have open geographic data.

There is no licensing fee, and this means that everybody can participate in marketing and creating added-value services on top of this geographic commons geographic data commons.

I hope you see the point here which is: you can make guaranteed money in a small market, which is perhaps good for these few players who have a monopoly, but it is maybe not so good for business in general and not so good for society in general.

While, on the other hand, if the open business model works, what you have is a much larger marketplace based on this public and common data. In other words, a lot more smaller enterprises can enter the game because the threshold is so much lower.

If we look at open-source software, we can give an example of these different dynamics.

We can take proprietary software - Microsoft and those quite big companies - but let's take Drupal.

Drupal is an open-source content-management system.

I personally do not really know any company that's famous in Drupal, but I heard from people active in the field that there are tens of thousands of developers working on Drupal.

You can see the different model.

Nobody knows the company, yet the economy around Drupal, around the Drupal commons, is a thriving commons and is creating a lot of jobs for a lot of people."