The Solar Power Expert Blog

A Business Model For The Next Decade

by Chris - March 26th, 2012.
Filed under: Charge Controller. Tagged as: , , , .

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A tweet by Charles Eisenstein (@ceisenstein) alerted me to this great article by Michel Bauwens. In it, he draws comparisons between an economic phenomenon observed durring the Occupy Wall Street movement and the buisness models established by the relationship between Linux and IBM. It really got me thinking into how one would actually go about modeling these buisness models of the ‘new economics’.

This post covers my attempt at modeling both the old and the new economic models discussed in Michael Bauwens article. I also discuss how the repercussion of the new economic model are captured in my drawings – the big one being that open source technology unarguably creates value at higher efficiencies (lower cost), but rarely replaces the share of market value (dollars) when it displaces proprietary competitors.

The Old Model or Basic Economics

The old model of how products and services are created, traded, and consumed looks like this:

Old Market Economy Model

Traditional Market Economy Model

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In this model, a company puts forth labor to create a product or service. The product or service is valued or ‘creates value‘ for the consumer. Since the product or service is valued higher than their money, they trade their money for the value.

This works very well since the company values the money (profit) more than the product or service. By adjusting the selling price and the cost of producing a product or service, the company can find the optimal point of operation to achieve maximum profit. This is the ideal model that every traditional business needs to follow if it is to be considered a good business.

As a repercussion of this model, the customer does not have any direct feedback to change the product. They can communicate with the company in theory, but in practice much communication is lost. Other than their ‘power of the consumer’ by choosing to buy the product or not, they really have no way of communicating features or modifications to the product that they desire. Customization is practically unheard of.

Another repercussion of this traditional model is that all the incentive for improvement of the business practices revolve around maximizing profit. This can be done by charging more for the product or lowering the cost to produce it. More qualitative features such as customer satisfaction, reliability, repair-ability, and customization are secondary to the quantifiable goal of maximizing profit.

The Occupy / Zuccotti Park Model

Michel Bauwens opened his article by describing a model of how food supplies to the Occupy Wall Street protestors worked. The protestors in Zuccotti Park in New York City set up a working group to oversee food supply logistics. Here is how I interpreted that model:

Zuccotti Park Economic Model

An Economic Model for Zuccotti Park Food Consumption

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A farm in Vermont sent them free food, which threatened the entreprenurial food vendors that had already been established. In order to protect the interests of the food vendors, the working group solicted for donations to pay the food vendors. As a result they had two sources of food supply – one working on gift economics and one on traditional economics. Everyone wins: the Vermont farmers gain gratitude, the food vendors gain money, and the protesters have two independent sources of food.

The New Model

The Occupy model, which illustrates the flow of value in a hybrid model of gift and traditional economics, could be interpreted as a simplified version of the model below, which describes the economics of the Linux kernel:

A Hybrid Model of Gift and Market Economies

A Hybrid Economic Model Based On The Linux Kernel

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The three boxes on the left of the dotted line represent the traditional open-source product model. Contributing users put forth labor to create a product, such as Linux. They also gain value from using using this product. As an added bonus, non-contributing users also gain value from the product, with virtually no cost to themselves. This process could be considered a gift economy.

When you combine this gift economy with the traditional market economy, some amazing, synergistic activities occur.

In the case of Linux, the operating system has spawned a thriving entrepreneurial market. The foundation of this market is based on deriving value from the Linux kernel. However, this market has money ($) and requires support for utilizing Linux in their business processes. They are willing to pay companies like IBM for this support. They exchange money and labor.

Because it is in IBM’s (and similar companies) interest to improve the Linux kernel, it’s in their interest to contribute to the Linux kernel. Therefore they hire paid contributors to improve Linux, which improves the product for everyone.

The synergy is created when the infusion of corporate sponsored labor enters the gift economy. By the time the product (Linux or otherwise) has gained enough attention to lure this sponsorship, the gift culture, product direction, and working groups have been well established. This prevents any undesirable corporate cultures from tainting the (often unwritten) rules of the gift economy.

The gift economics surrounding the creation of open source projects are capable of functioning without any corporate sponsorship. Likewise, corporations are capable of making their own competing products. However, when combined in this manner, everyone wins, the product improves, and the process creates more value at a faster rate.

If that idea doesn’t excite you, then you probably shouldn’t have read this far into the article (just kidding).

This model also explains why companies that harness this hybrid model don’t create as much money in their industry as the displaced competitors. The value leaving the gift economy is undeniable, but does not generate money (dollars). Likewise, the cost of the corporate sponsored labor can be tightly controlled and budgeted by each company. When managed properly, this labor generates much more value per dollar than traditional business models (higher efficiency). This idea is captured in the phrase “give a brick, get a house”.

These kind of revelations excite me to no end. It is these types of market economics that I hope the Free Charge Controller Project can harness some day. Many products that we use today could benefit from the synergy created by this new process.

I’ve been reading a lot about gift economics. I heard the phrase coined a few years ago, but have been hearing more and more about it. I finally stumbled across this awesome video about the book Sacred Economics. The author, Charles Eisenstein, is an amazing thinker. He identifies and connects almost all of major crisises happening in the world today and shows how they are a natural repercussion of a fundamental (and easily changed) flaw in the rules governing money. It has furthered my understanding of gift economics and I highly recommend it.

1 Response to A Business Model For The Next Decade

  1. Bauwens article is quite interesting… He gets some things right, but there’s something I can’t quite pinpoint that’s off.

    I do think you need to move that line separating profit and gift economies so that 75% of the ‘linux’ box is in the profit side, and add another box to represent the users in which the value exchange is services in exchange for advertising. This blog is a good example… you have a big advertisement (for some open source vendor, amusingly enough) at the top middle of the page.

    I don’t have any ads on my web pages/blogs, but then I don’t have as much useful or updated content. I’ve also been running a web server since 1998 or so… otherwise I’d probably be using a free ad supported service, because it seems like I have to spent at least 75-80% of my time in the profit economy.

    Personally, the biggest driver for me for open source hardware right now is the cost reduction possible for solar energy and smart LED lights.. which is (someday) going to hopefully provide me income doing consulting on customization of open-source smart-microgrids. So I’m really doing this with a profit motive, because it’s going to let me differentiate myself.

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