November 20, 2011
You can find other articles I’ve written about open-source 3D printing on my 3D printing topic page.
Today I had the chance to talk to a few people at Makerbot about “sustainable competitive advantage” - a business jargony term that basically means protecting your business against competitors, especially those with lots of cash. Another way to think about it is capturing the value that you’re creating.
(To present some of my ideas, I experimented with a hand-drawn deck instead of Powerpoint. I liked it. Forced me to focus on content a lot more, and actually looked really nice, I thought. You can also download these slides here.)
Competitive advantage is a really interesting problem in the open source world, because many sources of it require exclusive use of some kind of asset. So for example, if you have important intellectual property related to your product - that’s a competitive advantage because your competitors can’t use that knowledge. If you have “network effects”, meaning that your product gains value the more users it has, and it has a lot of users (think Windows, or Facebook), that’s a competitive advantage because new customers are attracted to you based on your existing popularity. If you have an ecosystem to offer to customers, that helps too, think about iPhone/iTunes - using one implies using the other.
But all of these go against the spirit of open source, which is to give people freedom - not capture value. Fortunately, there are a bunch of other sources of competitive advantage, such as brand, that open source companies can use. Another big one is tacit knowledge - which means your company’s internal understanding of its product, how it’s engineering, and how to produce it and improve it. Companies like Red Hat use this knowledge to offer consulting and subscription services along with their open-source product. And they make a lot of money that way.
Part of what I thought about in preparing this presentation was how it would look if Makerbot built any particular one of these competitive advantages. One thing I think they do incredibly well is branding and marketing; think about how many times you’ve seen Makerbot in the press, usually doing something amazing and creative.
But for process knowledge, what if Makerbot made a business out of Makerbot-izing other open source hardware projects, the same way they’ve taken the RepRap project and built an incredibly valuable, growing business on top of it? They could apply all their knowledge to some random open source hardware project, like let’s say an open source hardware car, and create value that way. That would very difficult for competitors to duplicate.
As another example, Makerbot could copy Red Hat more directly and offer a “managed Makerbot” package to school districts - bulk ordering, materials, service and support, and upgrades. This is pretty much the standard model for making money off open source, since what you’re really selling is your knowledge, bundled with the project. “Managed Makerbot” would be an option, of course, not a requirement.
I wondered if there would be ways for Makerbot to make money from things like patents, too, even though Makerbot doesn’t and won’t patent anything itself. For example, could it patent certain innovations defensively, requiring users of that patent to also make their hardware products open source? That would nullify patent advantages that other companies might seek to build.