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The Collaborative Economy Disrupting the Software Industry

The software industry to date has thrived by reproducing the manufacturing model it was created in. But now with the power of distributed peer-to-peer networks it could benefit from new, more efficient and fairer alternatives.

Note: this article is a compilation of a series posted on the blog of Open Initiative.

Open Initiative arose from the need to make software differently. To make software that works. To stick to the real needs. To share to go faster. Because that’s not how the industry works currently. The software industry was built in an industrial culture. Large investments, strong intellectual property protection, long development cycles, and standardized products with mass sales. And in fact, that made sense for heavy industry, but it still made some sense, for distribution issues, in the early IT world.

But the Internet came and disrupted all of this. Software is specific because it has no replication cost. With virtually no distribution costs, there is no need for a long cycle anymore. You can make your prototype, test it, distribute it, upgrade it and fix it again. All of this with no heavy cost. No production line to build, no shipment to organize, no stocks to manage. And yet, we still think of IT companies the same way we think of industrial companies.

Free software, shared price

There is another way. If you invest a lot in a product to get it done, it is crucial to protect it strongly so that you can get good return on your investment. But if your investment is small, it can be better to let others use it, so that you can profit from their work as well as they profit from yours. That’s what open-source software is about.

Free software is not only more transparent and fair, it is also more efficient, because it creates an ecosystem on which you can base your work to create quickly very powerful software.

But that’s not all. Since software can be updated easily, it’s better to test it as often as possible. Free software makes it even easier because you get a community that can test your software quick and often. So, less risk, less investment, more efficiency, more fairness. That sounds like a good deal right? That’s what we mean by “make software differently”. That’s why Open Initiative came to life.

And you say: if it’s free software, how do you make a living? Well, as Stallman said, it is free as in “free speech”, not as in “free beer”. Free software developers need to earn money, as everybody else. And that’s why we created Open Funding. Free software brings value to everybody. So the price should be shared between everybody. And crowdfunding is about sharing the effort of funding, when free software is about sharing the effort of development. It just makes sense. So, fund it by the crowd, make it in small steps, let users test and validate, and make it open source.

The Funding Dilemma

This is a different way. That’s why we created a crowdfunding platform tailored for free software. But as any other platform of that kind, it needs to reach a certain size to be sustainable.

All platforms of the so-called collaborative economy gather people so that they can do business together. But because of the network effect, the more people gather, the more value the platform has. And until the platform reaches a certain size, it needs extra effort to live. And after that size the bigger the network, the greater the value. That’s why so many platforms raise millions. So that they can communicate about it and make it grow.

But then you need to pay back the investors, which means that the platform needs to take some of the value made by the users. You end up with users working together, paying for the platform to grow, in order to pay the investors. From that moment on, the platform finds itself in a conflict between the interests of its users and those of its investors, which can lead to tensions. This issue has been raised a lot recently under different aspects, for instance in the analysis by Janelle Orsi of the recent lawsuit against Lyft, as well as discussions on who owns the sharing economy platforms and on the impact of the sharing economy on social conditions.

So how can we solve this conflict between the interests of the users and the shareholders? Just make the users your shareholders! And offering users a chance to invest in a platform they rely on for their own revenue is not only a way to prevent conflicts, it is also a good way to improve users commitment. Plus if you get a large number of users to join, it can bring the platform a good quantity of cash! For the users, it is a way to secure the platform that brings them their income, to make sure it doesn’t turn against them, and provide cash if a dividend is paid.

After all, we make the platforms for our users. It’s reasonable they should get involved in building them, and become part of them. It’s more sustainable and fair, and more collaborative.

Decentralize to form a strong, global network

But maybe we should actually ask why we need that money in the first place. This is even more relevant when you think that all other functions in an Internet start-up are very scalable. Making a web platform requires very little work. Testing and fixing it is so easy. Hosting costs are negligible. And most functions can be automated. So the web can connect distant people who have no relation to the company to do business in a distributed way. Then why should communication and sales be done in a highly centralized, hierarchical way?

There may be an alternative. Internet start-ups have been externalizing so many functions, even their core services, which is executed by their users. There is no reason why their sales, communication or community management services can’t be externalized too, creating a distributed network of local connectors managing their own community of users. You end up with a “glocal” community, a network of networks. Each single community is a small start-up of its own, managed by a connector. It is linked to the global network on which it relies for the platform development, and coordination. But it can live its own life, grow to any size one likes and have its own animation and culture.

This model has the relevance of a small local group, but the strength of a global network.

If the Internet is to make all business models distributed, there is no reason why there should still be hierarchical armies of sales persons to sell those distributed services. It means giving up some revenue, and also some power. There are probably many obstacles on that path, difficulties that we don’t foresee. But it looks like it might be worth giving a try. And we will.