April 2008

"Business models are abstract, complex concepts of which understanding can be enhanced through the development of a general classification scheme."

Susan Lambert

In the September issue of the Open Source Business Resource, Patrick McNamara, president of the Open Hardware Foundation, gave a comprehensive introduction to the concept of open hardware, including some insights about the potential benefits for both companies and users.

In this article, we present the topic from a different perspective, providing a classification of market offers from companies that are making money with open hardware.

Defining Open Hardware

There is no consensus about the definition of open hardware. For the purpose of this article, we use the term open source hardware (OSH) and define it as any piece of hardware whose manufacturing information is distributed using a license that provides specific rights to users without the need to pay royalties to the original developers. These rights include freedom to use the hardware for any purpose, freedom to study and modify the design, and freedom to redistribute copies of either the original or modified manufacturing information.

This definition fits what McNamara calls "open implementation" hardware, described as "hardware for which the complete bill of materials necessary to construct the device is available."

In the case of open source software (OSS), the information that is shared is software code.In OSH, what is shared is hardware manufacturing information, such as hardware definition language descriptions, and the diagrams and schematics that describe a piece of hardware.

Opencores and Opencollector are two Internet repositories of OSH projects. These two sites list more than 600 projects, from designs for printed circuit boards to hardware description language (HDL) code for microprocessors.

OSH Market Offers

By using those Internet repositories, search engines and additional information gathered from the OSH community, we searched for companies that offer products and services based on OSH designs. Twelve companies were found and included in this research. The OSH offerings of these companies are summarized as follows:

  1. Adafruit Industries: several electronic boards
  2. ASICS.ws: several IP cores
  3. Corgan Enterprises: Universal Software Radio Peripheral (USRP), a device that allows the creation of software radio using any computer
  4. Elphel Inc.: model 333, a video camera
  5. emQbit: ECB_AT91 V1, a single board computer
  6. Ettus Research: USRP
  7. Free Telephony Project: IP04, an embedded Asterisk PBX
  8. Gaisler Research: Leon 3 and GrLIB library of IP cores
  9. Modern Device: Bare-Bones Board, a computing platform card
  10. Polarismicro: OpenSPARC, a microprocessor
  11. Smartprojects: Arduino, a computing platform
  12. Technology System: TS-7300, a FPGA (field-programmable gate array) computer

Based on the analysis of the twelve companies, 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".

Making Money with OSH

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.

Conclusion

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.

Recommended Reading

Lambert, S. 2006. Do we Need a Real Taxonomy of e-business Models?

Apel, T., D'Urso, V., et al, 2006. Do Some Business Models Perform Better than Others?

Pomerantz, Gregory. 2000. Business Models for Open Source Hardware Design

Salem, Mohamed & Khatib, Jamil, 2004. An Introduction to Open Source Hardware Development

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