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Open Source Hardware Business Models

A major question for open source hardware is about its business models. How can you create a sustainable business out of a hardware product that is non-patented and that anyone can reproduce and sell?

This article is here to give you revenue streams ideas for your open source hardware business and a tool to define your own business model.

SparkFun, Adafruit, Arduino, Olimex, DIY Drones, LulzBot, Pinoccio… Successful open hardware companies are showing the way.

 

8 Ways to Make a Living with Open Source Hardware

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Product

The 3 first business models in this list are about selling products, which is obviously the most direct way to live from an open hardware project.

#1 You Sell your Own Products

This is the most-popular business model for open source hardware creators. Most successful companies use this model, along with hundreds of smaller successful companies. SparkFun, Arduino, Adafruit, Evil Mad Scientist, PrintrBot, LulzBot… Because open source hardware is all about taking from each other and sharing back, all these companies influence each other and in many cases create designs based on each other’s products.

But the primarily way for them to make money is to come up with new product ideas. Sales channels can be their own website (such as Adafruit, SparkFun), other retailers’ websites and physical stores (such as Atmel, Element 14, RadioShack, …).

Product sold can be the full product or parts to build it. Adrian Bowyer opened RepRapPro, a store to buy parts to make your RepRap.

#2 You Sell Products Made by Others

From my popular list of open source hardware online stores, it’s good to notice that many open hardware companies started as a retail shop and added their own products along the way. MakerShed or Cooking Hacks are primarily retail stores but now also make their own open source products.

Most open hardware companies also sell other companies products, such as Adafruit, Evil Mad Scientist, Snootlab. I also include open design platform OpenDesk in this category as company sells products conceived by other designers.

#3 You Sell Products Made with Others

Nuance here is that product is designed as a collaboration between you and someone else. Inventables for example started as an online retail store (#model 2) and helped Shapeoko inventor go to market by working with him on the design, branding, manufacturing and distribution. Same with Evil Mad Scientist and its Egg-Bot, or hundreds of SparkFun products.

 

These 3 business models are not equal in term of margins. Commissions and operating costs will greatly vary.

 

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Third-Party

This second category shows 2 models that are based on service. You become an intermediary in others’ open hardware projects.

#4 You Sell a Service

Some key open hardware companies like Seeed Studio or OSH Park are focused on offering their services to other hardware companies. These companies can be anywhere in the supply chain: manufacturer, certification specialist, distribution, pick and place.

Instructables, PCB design platform UpVerter or sellers marketplace Tindie could also be included in this category.

#5 You Sell your Expertise

With this model, you become a consultant. You’re paid to advise other companies thanks to knowledge acquired building your company (community management, open source hardware product development, certification, manufacturing…). Format can be conferences, studies, coaching, companies’ workshops. This model is pretty popular for open source software companies, I don’t see it as much yet in open source hardware ones.

Bunnie Huang, Mitch Altman give international conferences every year, some of them are paid. Dragon Innovation could also be considered as part of this model by accompanying open hardware startups.

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Knowledge

Because Open Source Hardware is based on sharing knowledge to build the commons and progress together, knowledge has a strong value. Don’t underestimate this asset in your project.

#6 You Sell Workshops

Workshops can be a key activity of your open hardware company. People pay to come to the workshop and learn how to build the product. Many open hardware projects prefer to give workshops for free, asking people only to buy the kit.

Companies choosing this model are usually focusing on creating strong experiences: soldering workshops for kids, upcycling workshops (such as Jerry), sustainable living workshops. Open Source Ecology uses this model as well.

 

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#7 You Ask for Donations

Crowdfunding campaigns, even if they are most of the time a pre-ordering campaign, can be a form of donation. Some hardware projects add a donation button to their website. Some hardware projects creators also sell goodies around their brand, such as Super Awesome Sylvia’s tee-shirt or Joey Hudy’s bracelet.

It’s almost impossible to make a living in the long run simply out of donations.

#8 You Are Part of Another Company

Some open hardware projects start as a spin-off of a bigger company. It’s the case for example of BeagleBoard, non-profit born at Texas Instruments, or Maker Media, which started at O’Reilly. In other cases, company partners with a bigger one that will handle major parts of the business, including for example manufacturing or distribution.

 

Almost 100% of open hardware companies don’t have one revenue stream only. They combine multiple revenue streams, focusing on a dominant one.

To give you a few examples:

Mitch Altman created Cornfield Electronics to sell his open hardware kits (#model 1), he also gives conferences around the world, some of them are paid (#model 5).

Dangerous Prototypes creates a new open hardware product every month and sell them (#model 1). Company recently started a PCB manufacturing service (#model 4)

Adafruit sells its own products (#model 1), products made by others such as the LulzBot or Arduino (#model 2) and makes products with others (#model 3).

Liquidware sells open hardware to business (#model 1) and help them develop their own products with their hardware (#model 5).

 

A Tool to Define your Business Model

A business model is more than a revenue stream. It’s a full understanding of how your company exists and thrives. A tool called the Business Model Canvas has been created a few years ago to help you visualize and define your business model.

Business Model Generation is a book and a website where you can download the model freely. Ostenwalder’s book is part of my master list of books for open hardware entrepreneurs.

OuiShare co-founder Benjamin Tincq gave a workshop on the business models of open source hardware at the OH Summit 2014. He recently published his presentation online. Him and Leo Benichou interviewed companies such as Arduino, OH Vehicle, Open Desk and Open Source Energy

They came up with 5 major models:

  1. design centric,
  2. manufacturing centric,
  3. expertise centric, experience centric
  4. product-service system and
  5. standardize – leverage

Their classification is a good way to define the focus of your company.

Study has been published in French by Without Model as a chapter of Open Models.

Members of the Open Source Hardware community modified the business model canvas to make it fit better to the specifics of open source hardware business.

Simone Cicero, co-Chair at Open Hardware Summit 2014, came up with a business model canvas derivatives and Lars Zimmermann used Simone’s canvas and adapted it.

More resources

Articles on the business models of open source hardware:

  • Liquidware’s founder would like to see a bank for open hardware projects
  • Chris Anderson talks about how he defined the business model of DIY Drones
  • Christopher Clark from SparkFun on how open source software and hardware models compare

I’d be happy to hear about your business model. Share your story in the comments below.

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7 Comments

  • You’ve pulled together a nice summary, Thanks!

  • Interesting article. Here’s a video that exposes the problem of OSHW communities.
    http://youtu.be/9h7Z9LPQwmw?list=UU3W5xq0ll3E8TDa9VFSIdvQ

  • Interesting article! I would add in the ‘Knowledge’ part that except workshops, selling books/video courses to help people with open hardware also works very well.

    • True! And you’re doing it well :-)

  • Amazing article as usual. Another possible model is a hybrid company of profit and non-profit organization. One typical example in the software world is Mozilla. In case of open hardware companies, Rainforest Connection, with a successful Kickstarter campaign is down this road. There is a wonderful podcast of its founder at this link – http://artofthekickstart.com/tag/rainforest-connection/

  • But a new business model can be add into author’s 8 ways of list belonging to Knowledge category and also representing as stating style of post author.

    #9 You Sell Development Standard enclosed within Product/Tool and Service

    Built upon strong expertise in embedded SW/HW and deep insight into challenge and obstacle encountered during course of Maker’s idea prototyping and product development, open source hardware company leverages best practice in SW/HW respective area and reinvents consolidated consistent methodology/process offered in format of professional tool or service or combination of both geared toward specific needs of Maker community for boosting productivity and debugging cycle and achieving fast time-to-market. Yet no open source hardware company emploies this model but GoWarrior that will be seen.

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