What is an Open Business Model and How Can You Generate Revenue?
In this fourth of our six long form Medium articles I describe what an open business model is and some of the many ways to generate revenue while still licensing things to be free and open using Creative Commons. My goal is to help you find ways to build sustainable and thriving open business models.
We’re discovering a rich diversity of open business models that use Creative Commons. There isn’t one model, there are many.
We set out with the goal of depicting open business models across different sectors and from different parts of the world. To business sector and geographic diversity we’ve added model diversity. With our interviews we’re aiming to show as many types of Creative Commons based open business models as possible.
I’ve been especially impressed at how many different types of businesses are using Creative Commons licenses. Writers, musicians, furniture designers and manufacturers, visual symbol creators and distributors, educators, games developers, hardware manufacturers, publishers, researchers, art museums, journalists, technology platforms… The list goes on. Use of Creative Commons by business is not niche.
It’s been even more interesting to discover a diverse range of business models being used across these different sectors. With each new interview we hear different ideas on how Creative Commons is being used as part of a successful model. I feel a kind of unexpected wonder and delight with each new model. Like receiving a gift and glimpse of an alternative kind of economy just emerging.
What is a business model?
The phrase business model conjures up different things to different people. For some of our interviewees the very idea of a business model is dissonant with how they think about what they do. Others are very much aligned with the concept of a business model, have thought deeply about it, and speak eloquently about its many dimensions.
Everyone we interviewed can describe what they do and how it has evolved over time. But not everyone uses business speak and for some the process has been experimental, emergent, and organic rather than carefully planned and following some pre-defined model.
Entering into this work Sarah and I drew on the Business Model Generation handbook as a frame of reference for defining a business model.
Developed using an open process over 9 years, involving 470 co-authors from 45 countries the business model canvas described in the Business Model Generation handbook establishes a common framework for understanding the core building blocks of a business model.
The canvas is used to design business models by answering a set of questions in each of the nine core building blocks. Its an interactive process that allows for rapid prototyping and careful consideration. It’s useful for establishing a common reference for what we mean by the phrase “business model” and providing a framework for talking about it and thinking about it more strategically.
The authors of the Business Model Generation handbook licensed the business model canvas with a CC BY-SA Creative Commons license. This allowed us to adapt it, adding in additional building blocks, Social Good, CC License, and Overall Environment Open Business Fits In, as additional components “open” businesses explicitly need to define as part of their open business model.
We created a GoogleDoc open business model canvas template with associated questions as a useful tool for creating your own open business model. Open the open business model canvas template in Google Docs, then from the File Menu choose Save a copy …, give it a name and you’ll have your own editable version. Into each building block enter your answers to the questions. Once complete you have a one page depiction of your open business model that can be used for discussion, planning, and communicating.
We’ve used these tools a lot ourselves in open business model workshops we’ve conducted and in analyzing and providing advice and feedback on others existing or newly designed open business models.
Revenue Generation +
Many people equate a business model to one thing — revenue generation. “Just tell me how I can make money?” I get asked. Open business models are not for those who just want to get rich and if that’s your only interest an open business model may not be for you. As the open business model canvas shows, a business model is more multi-faceted than simply making money and to fully understand it mapping out all the building blocks is essential. Most organizations and businesses using Creative Commons are in business for reasons other than money.
However, given the overwhelming interest in understanding how revenue generation works when Creative Commons licensing works I thought I’d focus this post on that topic and use real examples from the interviews we’ve done to illustrate a range of possibilities.
Method #1: Digital to Physical
Many of the businesses and organizations we’ve interviewed operate at the interface between digital goods and physical goods. In this model digital goods are openly licensed with Creative Commons and made available online for free.
This generates all kinds of value for both the creator and society including:
… to name but a few. These open benefits are generalizable to all the open business models but worth stating here upfront.
When a digital good is converted into a physical good costs are incurred. Money is required for the raw physical resources themselves and for the production of the physical output. Then there are the significant additional costs associated with physical good storage, replication, and distribution.
Digital to physical can also apply to digital works available online under a free open license but in person performances, appearances, or services costing money.
The conversion of bits to atoms is a point of transaction where revenue generation for many of the businesses we interviewed happens.
Example #1: OpenDesk has curated a collection of digital designs for furniture from a range of international designers. Designs are Creative Commons licensed and can be downloaded and customized by users to fit their specific needs. Users can make furniture themselves from the design for non-commercial use in a do-it-yourself fashion. However conversion of a digital design into physical pieces of wood usually requires specialized milling tools controlled by computers.
OpenDesk has partnered with maker businesses all over the world that have such tools. A special part of OpenDesks business model is enabling localized manufacturing close to where you live. Localized manufacturing generates a huge range of benefits including increased business for small local businesses and a more eco-friendly method of manufacturing that dramatically reduces things like storage and transportation costs. OpenDesk and their designers make revenue when a user wants a local maker to do the cutting for them.
When customers buy an OpenDesk product directly from a registered maker they pay:
1. the manufacturing cost as set by the maker
2. a design fee for the designer
3. a percentage fee to the OpenDesk platform
Conversion of digital to physical is an important part of the OpenDesk model.
Example #2: Cards Against Humanity one of the most popular table-top games of all times started out as a game Max Temkin and friends put together to play at a New Year’s Eve party. The game generated huge laughs and they decided to work on it some more, refining the writing to make it better. They created a .pdf of the cards that make up the game and a set of descriptions for printing it out and playing it and posted it online under a Creative Commons Attribution BY NC-SA license.
Thousands of people downloaded and played it generating a lot of positive word of mouth and interest. They began to receive requests from people who wanted to simply purchase the boxed Cards Against Humanity set directly from them rather than printing it out and making it themselves. This led them to run a Kickstarter campaign to raise funds to manufacture the game. The initial print run sold out quickly and led to ongoing growth and diversification into custom card packs and many other spin-offs.
The Creative Commons license let people make a fan based version of the game and remix. A search on YouTube for Cards Against Humanity generates hundreds of thousands of videos with fans sharing remixes, humorous game play, and expansions. As Max Temkin put it to us “the license sanctioned this and became a fantastic form of marketing.”
The Cards Against Humanity team use quirky irreverent humour and candor to further differentiate themselves and establish a unique brand. For example check out the way they engage with Black Friday:
Conversion of digital to physical is where Cards Against Humanity generates money. The business formula is simple. Max describes it as, “Make product, sell product, make it for less than you sell.”
Method #2: Direct Connect
In the past musicians, writers, artists and other creators had to first find an agent, record label, publisher, or other third party to represent them. This intermediary sat between the creator and their hoped for fans and played three roles — 1. judged whether their work was worthy of publishing 2. invested in supporting creation of the work, and 3. acted as the representative and distributor of the work to the public.
The “direct connect” open business model eliminates creator reliance on such middle man intermediaries. Instead, creators use the Internet to go direct to fans, readers, and their audience. They openly license their work using Creative Commons licenses, put it up online and invite everyone to listen, read, use, and distribute it.
Rather than restricting access to the work until payment is received, it is freely given away with an explicit invitation to copy it and share it with others. Fans and audience are the ones who, through word of mouth, have a promotion and distribution role. This leverages the unique social affordances of the web.
Going direct to your audience is only one part of this model. The creators we’ve interviewed also make an extensive effort to “connect” with their fans. They post images, they tweet, they Facebook, they blog, and use other forms of social media to represent themselves directly to fans. Sharing daily lives, experiences, and insights is a form of open transparency that deepens fans understanding, interest, and trust. It invites connection, dialogue, and a bond. It creates relationship and establishes a channel for reciprocal exchange. It makes people interested in the work you do and want to support you in doing it.
A kind of reciprocity emerges with creators when they celebrate and promote derivative works their audience creates including things like fan fiction, music remixes, and video .
Direct connect revenue methods include:
Donations — this method appeals to users, fans, and audience for a small donation that goes toward costs. The donation model tries to spread costs across a large number of small personal donations.
Example: Wikipedia is one of the world’s top ten most popular web sites viewed more than 15 billion times every month. Wikipedia text content is licensed Creative Commons Attribution Share Alike CC BY-SA. Wikipedia runs an annual donation fundraising campaign. A small donation from a percentage of users can actually fulfill revenue needs. In 2014 over 2.5 million users made an average donation of $15.
Pay-what-you-can — this method asks fans when they download a work to pay an amount of their own choosing.
Free and for sale — This method makes works available as both a free openly licensed download and a for sale item through traditional channels.
Example: Author Cory Doctorow licenses his books CC BY-NC-SA making them available as a free openly licensed download but also selling them through booksellers. See his book Down and Out in the Magic Kingdom for example.
Crowdfunding — this direct connect method is a direct appeal to fans for upfront funds to create a work with the promise of making it available to them on completion, open licensing it for further distribution, and providing other rewards.
Example: Sarah and I used Kickstarter to crowdfund the writing of this book on open business models.
Unlatching — this method, a variant of crowdfunding, appeals not to the “crowd” but to a specific group to aggregate upfront funding to make a resource open.
Example: Knowledge Unlatched forms coalitions of libraries to underwrite the publishing of monographs under a Creative Commons license. Funds provided by each library are pooled to pay for the commissioning, proofreading, design, and everything you have to do in advance to get to first digital copy. In exchange for this fixed amount title fee publishers make the book available to anyone, anywhere to read or download for free under a Creative Commons license. With the title fee a fixed amount the greater the number of libraries participating the lower the cost per library.
Patrons — this direct connect method asks fans to commit to providing an amount of money for each work you create on an ongoing per item or monthly basis.
Example: Amanda Palmer has over 7,000 patrons on Patreon who are willing to fund her creation of new songs, film clips/music videos, long-form writing, and more random, unpredictable art-things at $33,840 per “thing”. She creates about one “thing” per month.
Method #3: Matchmaking
Technology platforms play a unique role acting as a bridge matchmaking creators of openly licensed goods with those who need those goods. In a sense, platforms play the third party intermediary role eliminated in the “direct connect” model. They are the new web based intermediaries representing creators and matchmaking supply and demand.
Platforms offer creators of Creative Commons licensed goods a place to upload and store their work. Platforms provide functionality enabling creators to establish an online presence and identity which serves as a means of online promotion and marketing building a creator’s reputation over time. That’s the supply side.
On the demand side, platforms provide users seeking specific types of openly licensed works a one-stop shop destination for finding resources they may be interested in. Platforms usually support search, browse, and download.
Many platforms create value for themselves by becoming the destination for openly licensed works. However, platforms do not always provide reciprocal value (beyond reputation) for the creators who are putting their openly licensed works on the platform. For our interviews, we focused on platforms who go beyond merely hosting openly licensed content by offering creators additional matchmaking support.
Example #1: The Noun Project is a platform for visual symbols and icons. The Noun Project aggregates and curates symbols and icons from a global network and profiles the designers of each work. Icons and symbols are licensed Attribution CC BY. There are currently over 150,000 icons available.
Users can download and use the icons and symbols for free as long as they abide by the CC BY license and give attribution to the original creator. Revenue is generated when users do not want to give attribution. Using the symbols without attribution requires users to pay. In addition the Noun Project has built out a range of additional tools and services to support bulk use for a fee, integration of symbols and icons to apps using an API, and is about to release a new Lingo app for organizing collections. All these additional tools generate revenue. Revenue is split between designers and the Noun Project.
Example #2: Tribe of Noise is a fast-growing online community which represents over 20.000 artists from 170 countries and supplies music (licenses) to the film, TV, video production, gaming, and in-store media industry.
Tribe of Noise offers musicians two options. To generate awareness and interest in your music, you can upload music to your profile in the community (under a CC 4.0 BY-ShareAlike license) which allows others to share and remix your song free of charge — even for commercial projects — as long as they attribute the work and license their project under the same license.
The second option is to upload music to the Tribe of Noise PRO licensing platform (under a non-exclusive exploitation contract). Tribe of Noise curates what music is posted on the PRO platform and also helps those musicians secure music deals. Revenue generated through those deals is split between Tribe of Noise and the artist.
Method #4: Value-Add Services
In this method services are built on top of a resource that is free and open. Revenue is generated through sale of premium services rather than sale of the resource itself.
There are lots of different value-add service model types:
Customization — this value-add service type charges for customization services.
Example #1: Figshare is a repository where academics and other users can make all of their research outputs available in a citable, shareable, and discoverable manner. Figshare offers a free service for academics to upload, store, and share their research as openly licensed CC BY resources, and their data as CC0 (note: CC0 is not a license per se but a Creative Commons no rights reserved way of putting works into the public domain.)
Figshare offers paid customized services for publishers and institutions. Institutions can get their own custom branded implementation of Figshare along with data metrics, data management (public or private storage), data dissemination, and user group administration. Publishers get to upload data and resources associated with their research articles which generates click through to the journals themselves and are provided with data visualization tools.
These custom paid services by institutions and publishers fund the free Figshare service to academics.
Example #2: Musician Jonathan Mann builds reputation by licensing his songs CC BY-NC but will write a custom acoustic or produced song for a fee. He says this about this custom service “My superpower is that I can take any idea, no matter how complex, and distill it down into a short, catchy, memorable song.”
Hosted Supported Service — this value-add service type charges a fee for hosted and supported access and use of openly licensed resources.
Example: Lumen Learning curates Creative Commons licensed education content into Candela courses which provide a set of low cost e-textbook alternative to expensive commercial textbook high enrolment college courses. These courses can be accessed for free off Lumen’s site. Or, alternatively, for a fee, these courses can be integrated into a college learning management system with additional faculty and technical support services.
Lumen courseware places no paywall between students and the materials they need to succeed in their courses, so every student enjoys day one digital access to course content through the LMS. Instead of a student paywall, Lumen contracts with institutions for a low-cost $10 per student fee based on the number of students enrolled in Lumen-supported courses. Many Lumen clients recoup this cost with a course materials fee.
Supplemental Resources — This value-add service type charges a fee for resources that supplement a core Creative Commons licensed resource.
Example: OpenStax provides free, Creative Commons CC BY licensed, peer-reviewed, high quality textbooks for college courses. OpenStax partners with with third party companies that provide, for a fee, high quality online homework tools that supplement those books. A portion of the fee generated from these supplemental resources goes back to OpenStax as a way of sustaining their business model.
Training and Education — this value-add service type charges a fee for training and education related to Creative Commons licensed resources.
Example: The Open Data Institute connects, equips and inspires people around the world to innovate with open data. Open data is data that anyone can access, use or share. When big companies or governments release non-personal data, it enables small businesses, citizens and medical researchers to develop resources which make crucial improvements to their communities. Data is usually made open through Creative Commons CC0.
Open data is free and open but the Open Data Institute offers courses and training for a fee on the benefits, opportunities and practices associated with open data.
Method #5: Members
One of the surprising results of our work so far is the absence of advertising as a revenue generation component of open business models. There seems to be a general abhorrence of advertising and a sense that it conflicts with mission and adversely affects business perception.
Instead of advertising some rely on members, sponsors or partners to directly fund creation and availability of Creative Commons openly licensed content.
Example: The Conversation is a reliable source of high quality, evidence-based information and news. It aims to promote better understanding of current affairs and complex issues and allow for a better quality of public discourse and conversation. The Conversation licenses its content Attribution CC BY-ND.
The Conversation ensures its integrity by only obtaining non-partisan sponsorship from education, government, and private partners. To avoid commercial conflict it takes no advertising and doesn’t carry advertising pop-ups or annoying autoplay.
The Conversation information and news is generated through partnerships with scholars at universities. Professional editors at The Conversation work with academics to convert their expertise into something understandable and readable by the public.
The Conversation generates revenue through a university membership model. Universities are massively deep repositories of research, knowledge and expertise but a lot of that stays behind the paywall of their own walled garden or ivory tower. Being part of The Conversation helps universities get good at presenting their knowledge and information to the general public and increase the reputation of their scholars.
Mix and Match
Open business models use diverse means to generate revenue. Many of the businesses and organizations we interviewed make use of more than one method mixing and matching them together.
The integration of different methods is an area of open business model innovation. Combinations can be devised to custom-fit a particular business purpose and generate unique value and differentiation. Diversification of revenue methods mitigates risk and provides multiple paths to sustainability.
Revenue = a means to an end
The initial draft of this post aimed to define a taxonomy of open business model types. Based on feedback from Sarah and our co-creators (thank you co-creators) I decided to shift it to simply depicting methods of open business model revenue generation. It became clear to me that an open business model taxonomy cannot be based solely on revenue and that more work was needed to ensure an open business taxonomy was based on facets other than money.
For open business models revenue generation is a means to an end, not the end itself. The end game for everyone we’ve spoken to is not profit but impact.
Traditional business models start with exclusivity, denying access to a good until money is paid. There is no impact without first a financial transaction.
Open business models start with inclusivity, participation, and universal access. Impact is enabled up front and revenue generation follows.
I hope this post helps you see this difference and realize that just because a business is open doesn’t mean it can’t generate revenue. In many ways I think open business models are more sustainable and beneficial to the world than closed ones.
Go open and prosper.
Special thanks to Sarah Pearson and co-creators Bernd Numberger, Benedikt Foit, and Jason Blasso for their many suggestions and improvements to this post.