Coke or Pepsi? D.C. or Marvel? It’s safe to say you probably prefer one of each category, or simply dislike both options. But why? After all, Coke and Pepsi are both Colas. D.C. and Marvel both make comic books. The answer is obvious. You prefer Coke or Pepsi because of the flavor, because of the recipe. You prefer D.C. or Marvel because of the characters and stories of one option.
In the Cola example, each company’s recipe is not public information. In the D.C. vs. Marvel example, each company holds intellectual property rights over its characters and settings. These companies’ business models necessitate protection of their intellectual property from use by other companies. This business model is the norm in most industries: if you create/invent something, copyright, patent, or trademark it so you can control the sales. But what if your company totally ignored this standard? What if your company deliberately eschewed intellectual property rights and put the recipe about its products out on the internet, for everyone to see?
In the 2010s, a technology manufacturer headquartered in Loveland, Colorado tested this idea. Aleph Objects produced a 3D printer line called the “Lulzbot.” What made this product interesting was the “open ethos” behind its production. Not only was the product developed using open-source technology – technology produced and published without securing intellectual property rights – but the device itself was “open.” The recipe of hardware components used to build the physical printer was available online through Aleph’s website. The software used by the printer was fully open-source as well. Nothing in the device’s makeup was proprietary. Individuals were free to build their own Lulzbot with Aleph’s help and without paying the company anything.
So, can this model be effective? If the company doesn’t protect its product from being replicated by other manufacturers, can it still make a profit? Let’s explore the pros and cons of this model.
Pros:
Cheaper startup expenses on the legal side: If you’re starting a company to sell a product you designed/invented, any decent lawyer will encourage you to get a patent on your design. You produced something unique, which is why it can be competitive in the marketplace. However, the expenses necessary to secure a patent can be intimidating when starting a company. Costs vary depending on the industry but securing a patent will likely cost a business thousands of dollars. This price tag includes fees assessed by the USPTO and expenses on attorneys who will help secure the patent. You may spend even more money if your first application is rejected and you need to try again. If you choose not to patent your product, you obviously save this money, allowing it to be allocated elsewhere.
Harness your customers to improve your product: Employing an open model can reduce R&D expenses. If you produce open-source software and hardware, your customer base can contribute to the development of your company. As customers tweak the product with minor improvements and revisions, you can implement these changes in your production model. Under this scheme, you aren’t dependent on your R&D engineers (which, as a startup, may just be yourself) to come up with all the good ideas. A limitless team of people can make suggestions, all for free.
No need to defend your IP: Even if you secure intellectual property rights to your product, you still need to defend these rights from would-be duplicators. Failing to do so will hurt your business as your market share is eaten up and also may result in the loss of your patent altogether. If you never secured the patent in the first place, this problem doesn’t exist. You don’t need to spend money on lawyers protecting your IP.
Cons:
Idea Theft: Obviously, if you aren’t securing Intellectual Property rights over your product, your competitors are free to replicate it. If you place your cards on the table, your opponents will know exactly what they’re up against. Any good ideas you have will be implemented in their product, and their improvements won’t be so visible to you. It’s easy to see how your business can fall behind the competition in this situation.
Industry Dependent: Let’s face it, in most industries, this model just can’t work. You won’t beat Coke by simply making your own Cola and publishing the recipe online. If you’re trying to beat D.C. and Marvel, letting them use your characters in their stories isn’t going to help. This business model may be effective in the technology industry, but perhaps nowhere else. Open-source software is already an industry standard, and open hardware has been done before, as seen with the Aleph Objects example.
How do you make money? If you publish the schematics for your product online, allowing anyone to build their own, how can you expect to sell any units? Why buy from your company when they can make their own? In order for this business model to work, you need to take advantage of economies of scale. Your production costs need to be low so you can still price compete with individuals who would buy the parts and build your product themselves. But these margins are going to be tight. You can’t markup your product’s price when building one is easy and cheap. This model may require higher startup costs in order to make production efficient enough for prices to stay low.
The Takeaway
It’s impossible to recommend an “open ethos” model to all business owners. The model is too industry and circumstance specific. Lawyers usually recommend that business owners secure IP for a reason. However, for some entrepreneurs (particularly those with very progressive views regarding the philosophy of ownership) the model may just work. Playing while showing your hand is a bold strategy in any card game, but you can still win if those cards are good enough.
Image Credits:
Coke vs. Pepsi – CNN Money https://www.cnn.com/videos/cnnmoney/2018/04/26/coke-vs-pepsi-cola-war-back-orig.cnnmoney
DC vs. Marvel – Games Radar (DC / Marvel Comics) https://www.gamesradar.com/whats-the-difference-between-marvel-and-dc/
Aleph Objects Logo – Wikipedia (Aleph Objects) https://en.wikipedia.org/wiki/Aleph_Objects
Lulzbot Printer – Lulzbot https://lulzbot.com/store/taz-6
Cards – Wellness Training Institute http://www.wellnesstraininginstitute.com/blog/2018/03/08/cards-on-the-table-heres-what-were-all-about-at-the-wellness-training-institute
Sources:
https://opensource.com/business/15/11/open-ethos-powers-lulzbots-success
https://www.uspto.gov/trademarks/basics/trademark-patent-copyright
This is such an interesting and important blog post! When starting a business, entrepreneurs may be more concerned about costs than other concerns, including IP. Your blog post does an excellent job of outlining the pros and cons of an “open ethos” model and explaining that not all entrepreneurs need to secure IP.
Hi Joe,
Your blog post is very informative and well-organized, with your subheadings. I like your use of Coke or Pepsi and D.C. or Marvel in your introduction to grab your reader’s attention. I like how you explained the pros and cons of companies using patents to protect their design. However, while any reasonable person would want to secure their design, it is also reasonable to see how some early startups without unique designs would benefit from not patenting their design. Your blog does a great job highlighting this fact, and overall well written.
Hello Joe, I enjoyed reading your blog post. I particularly liked how you simplified the pros and cons in your own words. The DC and Cola analysis was a relatable touch that entrepreneurs will understand by comparing the analysis to their own business. Great Job.