Monday, August 5, 2013

The stealthy industrial revolution already underway in open source hardware

It's now common knowledge that open source software (OSS) has permanently altered the economics of the information business.

Free access to powerful software development frameworks and libraries -- coupled with cheap, pay-as-you go delivery infrastructure -- has sparked a massive creative explosion. With software innovation now effectively decoupled from the capital markets, increasingly powerful digital automation can be brought to bear against almost any human or business problem.

The priorities of the software business are now dictated not by anticipated returns to capital, but rather by the passion and imagination of makers with (virtually) free access to the means of production and distribution.

It still takes capital to scale a business -- marketing, sales and customer support aren't free (at least not yet) -- but the economic leverage on human effort expands exponentially as the hard capital needs of production fall toward zero.

We've made this shift from capital to talent a central theme of our investing at Founders' Co-op: empowering the maker class to apply the levers of open source and cloud to industries grown fat on the once-insurmountable advantages of capital access and economies of scale.

The economic impacts of the open source movement have been most strongly felt in the "information economy" -- where value is created and captured by the movement of bits. But huge swaths of the global economy aren't purely information-based.

All of us who live in the modern world rely on stuff -- useful stuff -- that comes to us by way of complex international supply chains, encompassing raw materials extraction, multiple layers of manufacturing, sub-assembly and assembly, on through elaborate webs of packaging, distribution and merchandising, before finally reaching us in our homes and offices, cars and public spaces.

Changing the flow of digital information is easy; changing the complex and capital-intensive webs of activity required to create physical goods is another matter entirely.

The popular press has seized on the idea of 3D printing as a shortcut to the digital future of physical goods -- where consumers just print products at home rather than buying them at the store. Unfortunately, this science fiction fantasy is just that -- a fantasy.

Most modern products aren't static bundles of homogenous atoms, but intricately complex assemblies of materials and electronics -- a fusion of bits and atoms, often connected to and dynamically altered by their connection to the digital web. 3D printing can cut time and cost from the segments of the supply chain concerned with static parts and enclosures, but makes effectively no difference in the most valuable aspects of modern production: integrated electronics assemblies like processors, microcontrollers and communications systems.

So if 3D printing by itself can't bring the magic of open source to the production of complex physical goods, are we stuck with the status quo: capital- and time-intensive supply chains that limit the availability of high quality products only to mass markets that can pay down their heavy capital and labor requirements? Thankfully not.

Open source hardware (OSHW) is already transforming the production of physical goods, but in ways that are largely invisible to the end-user.

The logic mistake of the 3D printing analogy lies in assigning the power of open source to the production of finished goods. Just because the tools of software production are freely available doesn't mean that the average consumer or business person now writes and deploys their own code.

Open source software empowers skilled makers with frameworks and libraries of components, but still requires extraordinary creativity in both design and execution to turn those raw ingredients into tools that actually solve human problems.

In much the same way, the open source hardware community supplies both informational goods like hardware design patterns, and -- more recently -- actual components and sub-assemblies (the Arduino and Raspberry Pi projects are two good examples) that begin to strip meaningful chunks of cost and time out of the production of physical goods.

In hardware as in software, open source is fundamentally an industrial input, not a consumer good.

Seen through this lens, open source hardware works its best magic not in the home but in the supply chain: using a combination of 3D printed components, free design patterns and cheap, prefabricated electronic subassemblies to remove steps and shave costs relative to traditional industrial tooling and production.

As recent evidence for the industrial supply chain role of OSHW, consider the $600 million acquisition of pioneering 3D printing manufacturer MakerBot; the acquirer wasn't a consumer goods leader like Amazon on Wal-Mart but Stratasys, a publicly-traded supplier of 3D printers and services for industrial prototyping.

As in software, OSHW allows physical product designers to easily discover and leverage freely-licensed prior art, with a well-documented forking procedure to support low-cost / low risk speciation of original designs. So not only is the first prototype cheaper and faster to produce, it can also spawn many more parallel generations of derivative projects, more quickly and cheaply than any vertically integrated and proprietary manufacturing system.

The Maker Movement offers a visible tip to this industrial iceberg, but their RFID cat doors and Angy Birds-playing robots tend to distract casual observers from the real revolution taking place below the surface.

Just saying the words "supply chain" can cause most normal people's eyes to glaze over, but -- unfortunately for its publicists -- that's where OSHW is doing its best work.

In an effort to add a little excitement back into the topic, here's a more realistic -- but still amazing -- alternative to the Jetsons-like vision of a factory on every desktop:

  • Imagine a not-too-distant future in which industrial designers can "shop" for their components and sub-assemblies by browsing a universal online library of open source hardware designs.
  • Designers can select any existing design, or "fork" that base design and modify it to meet their exact requirements.
  • Once their requirements are final, the designer can then one-click "order" the design from a global network of subcontractors who compete for his business on the basis of quality, turnaround time, order size and price.

To anyone familiar with's shopping experience this may not feel like much of a revolution. But for most industrial processes this level of transparency, speed, cost-efficiency and "de-layering" is mind-bending.

As it has with OSS in traditional IT organizations, it will take time for OSHW to win broad acceptance among established manufacturers. To extend the analogy, the companies -- both upstarts and existing players -- who embrace OSHW most fully are the ones that will reap the biggest near-term economic and strategic benefits of the shift.

If your physical design or manufacturing organization is currently one of the fence-sitters on OSHW, take this post as a warning shot -- or a starting gun. The tide of open source that's currently washing over the software business is headed your way next.

If I were you, I'd grab a board and start paddling.