Open hardware and crowdfunding

Open Hardware – Crowdfunding

© Lead Image © lightwise, 123RF.com

© Lead Image © lightwise, 123RF.com

Article from Issue 227/2019
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Open hardware and crowdfunding are a natural fit. While their relationship has evolved over time, crowdfunding continues to play a big role in open hardware development.

Open hardware and crowdfunding became popular at about the same time and have been associated ever since. In fact, in the absence of major investment, open hardware would not be where it is today. Crowdfunding has helped to launch several open hardware small businesses like Purism and Keyboardio and has helped existing small businesses to launch new businesses. But how else do the two trends reinforce each other? Today, the answers are different from what they were five years ago.

The close connection between open hardware and crowdfunding should not be surprising. As Josh Lifton (Figure 1), the founder of Crowd Supply [1] notes, the two "go hand in hand, because they both rely on their community of users. Participating in crowdfunding requires a certain amount of risk. A product being open source mitigates some of that risk and builds trust with the end user." Consequently, those involved in one of these trends have little trouble accepting the other.

Figure 1: Josh Lifton, the founder of Crowd Supply.

Just as importantly, crowdfunding resolves a long-standing problem. As Eric von Hippel points out [2], innovation often comes from users rather than established companies. As companies get set in their ways, they can become more concerned with growth than with new products, while users want solutions to their own needs. In other words, those who have the money may not be overly concerned with innovation, while those who are interested in innovation generally lack the money to realize their ideas. Thanks to crowdfunding, those with the ideas have a way to fund themselves that does not depend on corporations or venture capitalism.

Still another consideration is that a large corporation may consider the potential profit from an innovation too small to be worth development. For example, most sellers of keyboards are content with a small range of products: cheap membrane keyboards for the average user, and a few expensive programmable mechanical keyboards for gamers. It takes a small business like Input Club to develop a product like the forthcoming Keystone Analog, whose keys can produce different results depending on how hard they are pressed (Figure 2).

Figure 2: Like many innovations, Input Club's Keystone Analog keyboard was developed by a small company rather than a corporation.

Under these circumstances, it seems no accident that the overwhelming majority of crowdfunding campaigns for open hardware are for only a few hundred thousand dollars, and only a few for over a million. Many are for less than $50,000. So far, the majority of open hardware products are for niche products that major manufacturers do not consider worth developing for themselves. Yet what is loose change for a corporation can be enough to support a family operation or a business with half a dozen employees – and can be a realistic goal for an average crowdfunding campaign as well.

Analyzing the Odds

Popular coverage of crowdfunding focuses on the successes. However, for open hardware, success is by no means guaranteed. Moreover, the success rate has changed over the years.

Five years ago on Indiegogo [3], the term "open hardware" was not used [4]. However, many of the projects listed under "open source" would be called open hardware today. At the time, there were a few outstanding successes, like the magazine Linux Voice (now a part of Linux Pro Magazine). However, based on the first 12 pages of results for the term "open source," only 7.0 percent of campaigns reached their target funding, while 89 percent raised only half their target funding. Searching for "free software" produced roughly the same results. Neither keywords for searches or gifts for backers had any noticeable effects on success rates, although updates did.

2019 presents a different picture. For one thing, open hardware is now a recognized, if small, category. Crowd Supply has a dedicated page, while a search on Kickstarter [5] divides open hardware into Product Design, DIY Hardware, 3D Printing, and Hardware. Perhaps because of this increased recognition, the success rate is much higher than five years ago. My unscientific analysis shows a success rate of 78 percent on Indiegogo, 72 percent on Kickstarter, and 85 percent on Crowd Supply.

No doubt the increased recognition of open hardware is part of the reason for this difference. However, one noticeable change in the last five years is that open hardware campaigns are far more detailed than in 2014. Certainly, the reason for the high success rate on Crowd Supply is that the site offers detailed advice to fundraisers and guides them through each stage of the campaign. For instance, I have yet to see a Crowd Supply without a video, and most of the successful ones have frequent updates, averaging one every two or three days of the campaign. Even backer gifts are encouraged, although from what I can see, they are not a major factor in a campaign's success.

By contrast, campaigns that fail tend to communicate much less, or simply communicate poorly. For instance, I believe that one campaign that I backed failed because it consistently defined the hardware as useful only for a small audience, despite the fact it had a broader appeal. Moreover, on Indiegogo and Kickstarter, many failed campaigns didn't include a video.

One difference between the three crowdfunding sites analyzed was that successful campaigns on Crowd Supply and Kickstarter tended to exceed their goals by under 100 percent, or by a few 100 percent at the most. In comparison, 33 percent of successful Indiegogo campaigns exceeded their goals by over 1,000 percent, with several exceeding by over 2,000%. If this difference is not a coincidence, I suspect that, in Crowd Supply's case, the reason may be that the site helps campaigns set realistic goals. As for Kickstarter, the reason may be that its campaigns are often for smaller goals.

One thing that has not changed is that open hardware on all three sites remains heavily oriented to hobbyists, with monitors, robotics, breadboards, testing hardware, and similar devices. Another general category is various computer parts, such as WiFi. Raspberry Pi accessories seem to have declined since 2014, while 3D printers and utilities have surged, probably because of the decline in prices.

The biggest takeaway is that open hardware is better known and has over 10 times the success rate it had five years ago. Probably, the increase reflects an increased sophistication in using crowdfunding. However, whatever the reason, the tie between open hardware and crowdfunding is closer than ever before.

Next in Open Hardware Evolution

How long open hardware will continue to depend on crowdfunding is uncertain. In the past year or two, established companies have started taking a cautious interest in open hardware. For instance, the RISC-V Foundation [6], which oversees the development of the first open hardware chip, currently has Google and Western Digital on its board of directors (Figure 3). Josh Lifton also observes that a lot of the interest in open hardware "is from companies not traditionally in the hardware space – they seek better security and control over the hardware they are using." Despite many investors' innate conservatism, it is probably only a matter of months before the first major venture capital goes to an open hardware project. Already, Joseph Jacks, the founder of OSS Capital [7], is keeping an eye on open hardware, mostly in manufacturing, but also in consumer products (Figure 4). Almost certainly, he is not the only one. In another few years, open hardware may start trending the same way open source software did around the turn of the millennium.

Figure 3: The RISC-V chip is becoming one of the entry points into open hardware for established companies.
Figure 4: Joseph Jacks of OSS Capital is one of the venture capitalists starting to watch open hardware.

Yet even if that happens, the association of open hardware with crowdfunding is likely to continue. In just a few years, open hardware has gone from being as hit and miss as any crowdfunding project to having a higher than average success rate. More and more, open hardware developers have learned to game crowdfunding. Others can draw on the experience of experts like those at Crowd Supply. So long as there are enthusiasts who dream of starting a small business, the reliance of open hardware on crowdfunding can only continue to thrive.

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