Economic model

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An open value network embodies new processes for creation and capturing of value. The underlying economic model depends on the type of value network.

This page only contains general considerations.

Read also Open Value Network: A framework for many-to-many innovation

About production

OVN's are commons-based peer production systems. When we think of peer production, we think of a new, self-sustaining system of production of resources.

Peer production: Is a way of production of goods and services that relies on self-organizing networks/communities of individuals. In such networks/communities, the actions of affiliates or agents is coordinated towards a shared outcome, while facilitating access to the resources required in the process. It describes a new model of socio-economic production in which the labor of individuals is coordinated (usually with the aid of the Internet) mostly without traditional hierarchical organization. Wikipedia

Commons-based peer production: Is a subset of peer production alluding to new regimes of property and resource access rules. In order to accelerate innovation and the flow of resources within the network/community, towards hubs of production, resources are turned into commons. Within the SENSORICA OVN affiliates distinguish between Commons, reserved for shared immaterial assets, and Pool of shareables, reserved for shared material assets. We also need to note that commons-based peer production contains two terms that are associated with two very different political economy movements. The commons side is closer to the traditional left, to communitarism, and puts the emphasis on sharing. The peer side is closer to the traditional right, to libertaniarism, and puts the emphasis on individual freedom and autonomy. Hence commons-based peer production announces a compromised tension between the two tendencies, increasing individual freedom and autonomy by putting in place new property regimes, new rules for access and use of resources. Commons-based peer production is often used interchangeably with the term social production. Wikipedia

See peer production on P2P Foundation.

About resources

OVNs are unbounded structures when it comes to resources. Since the network is transparent (in terms of access to information) and open (in terms of access to participation), it can always attract new affiliates who are willing to make different types of contributions: time, cash, materials (tools and equipment, physical spaces), social capital, etc. In that sense, the network is not bounded by a limited pool of resources (budget or a given number of employees) like classical organizations are. Its resources can expand very dynamically according to needs and incentives.

It is important to understand that resources are used by actors in peer production processes. Peer production is a process of co-creation of value. Unlike in traditional settings, in which the process of value creation relies on exchanges (labor against tangible benefits, money for example), leading to the enclosure of the output by the entity that assumes the risk (the company for example), co-creation processes rely on contributions and the risk, as well as the output are shared. Thus, human assets are not commodified, because they are not exchanged during the co-creation process. Labor is not commodified in peer production. No one is working for anyone else.

Property

Two forms of property are used within the OVN: private property and nondominium. Private property can be individual or co-ownership.

The OVN infrastructure allows affiliates to contribute with their material assets (physical space, equipment, tools, consumable materials, etc.) in value creation processes. The notion of individual ownership is preserved, and the use of these assets are considered as contributions. Owners set the rules of access/use in order to protect their assets. NOTE: there is no exchange as in renting an asset, or debt generated towards the project group for using the asset, although a hybrid model (exchange + contribution) has been advocated by some. This amalgamation of material assets to serve a process is called the pool of shareables.

For some physical assets ownership is transferred to a trust (usually on non-profit organization), which acts as a custodian and guarantees access to OVN affiliates according to a set of rules chosen by a consensus. No affiliate is owner or part-owner of these assets, but access is guaranteed. This is the nondominium form of property, which is also extended to immaterial assets, like brands for example. The custodian signs a custodian agreement by which it promises to transfer all the assets it holds for the OVN to another entity, if OVN affiliates are't satisfied.


See CAKE, the custodian of SENSORICA.

Types of resources

See also Resource types in the context of the value accounting system

Human resources

OVNs are open (in terms of access to participation) and transparent (in terms of access to information), and run on an Internet-based platform. OVNs that focus on high tech products (material of software) can operate on the [1] long tail mode of production, meaning that they can integrate a large number of agents distributed across the planet. In other words, their pool of participants is practically the world's population.

See also the Role system, Reputation system - [NOTE to participants: expand on this...] discussion for this page

Incentive system

OVNs embody an incentive system, which sends specific signals that connect the required efforts to benefits of all sorts, including fluid equity. The function of this system is to build and maintain awareness about the meaning and the importance of each affiliate’s actions. It is designed to make affiliates conscious about why they are doing what they are doing. In other words, the incentive system helps with value attribution.

Tibi's note: According to my new conception of value the incentive system can be used to manipulate affiliates and influence activity, if it is seen and designed as a modulator for value attribution.


Affiliates of an actual OVN (like SENSORICA) have expressed multiple interests in the network because of the extrinsic incentives that the system can provide. First, the OVN gives affiliates entrepreneurial opportunities to generate revenue. It uses a value accounting system to record contributions (time, cash, materials...) and a value equation to build a piechart of relative contributions to [[[projects]], representing fluid equity in projects. This piechart is used to redistribute revenue generated by projects that reach maturity (through market exchanges). Second, an OVN offers a variety of valuable assets. The most important ones come from access to other affiliates’ skills and material resources. Its affiliated labs offer expensive tools and equipment as well as other material assets that can be shared within the network’s collaborative space. Third, the OVN offers a context for technical and scientific research. Some SENSORICA affiliates for example have already generated scientific publications from their work within the network. Since SENSORICA has been already awarded a few prizes, all members are more or less associate with these victories.

More importantly, an OVN offers affiliates intrinsic incentives for joining the network. First, affiliates are driven by the interest or enjoyment in the tasks they take, without being subject to any external pressure. Second, working within an OVN helps them learn and satisfy their curiosity. Third, the OVN uses recognition as reward. The recognition plays an important role in harmonizing and stabilizing the value network. Furthermore, the recognition has a higher positive impact when members are publicly acknowledged. The OVN is a collaborative environment, a tight network where individuals can share and help each other at many levels. Within an OVN individuals are treated as peers and have a high sense of autonomy. Also, since the OVN is transparent (in terms of access to information) it is also forced to be ethical. Openness (in terms of participation) makes the network grow around widely accepted values. For this reason, projects are often attached to solving important social problems. The mobility within the OVN, and the unrestricted exposure to all the activities give [affiliates] the possibility to grow their skills and experience.

NOTE: The above text was adapted from the IGC-HEC case. It was produced by Mai Thai (prof at HEC) in collaboration with SENSORICA members.

Currency

The OVN operates on peer-production, which is about co-creation of value, relying on contributions, risk-sharing and expecting a portion of benefits in proportion to one's contributions. A value accounting system is used to keep track of contributions, and describes how these contributions amalgamate into a product. There are no exchanges in a process of co-creation, therefore an internal currency is not needed in a pure peer production system. But hybrid models have already been advocated by others.

OVNs exchange the value they create with the market through the Exchange firm. Different exchange mechanisms can be used: barter systems or different types of currencies. Tangible value that flows back into the network is called revenue. All revenue is immediately redistributed to network affiliates according to their fluid equity, using the value accounting system. A portion of that goes to maintain the infrastructure. Network affiliates use a portion of their revenue to invest back into projects, as a financial contribution.

Shared material assets

See Pool of shareables

Knowledge commons

See Commons

Resource allocation

An OVN is decentralized in terms of allocation of resources. In other words, most of the resources needed to create and distribute value are given by affiliates, in the form of investment. Like in traditional open source projects, every affiliate decides where to allocate resources for reasons that are purely individual and/or collectively agreed upon. In the pure p2p form there is no budget for project development. If cash is needed for something (pay for a service or for a piece of equipment, if it can't be sourced within the network as a contribution) a crowdfunding process is used, and those who participate can decide to turn that into a financial contribution.

In practice, SENSORICA has used grants, which have gone into a pool, a budget, and has been administered in a democratic way to advance projects.

Crowdfunding hardware projects also produce a pool of money before the product reaches the market, and needs to be managed by the project's affiliates. The custodian offers financial services to projects, by holding the money in its bank account and administer it according to the collective will of project affiliates.


The Pool of shareables is a centralized pool of resources, but only centralized in terms of ownership (it legally belongs to a custodian giving access to affiliates) not in terms of governance or allocation. The rules for access (to use) are decided by the network through some democratic process. The network also decides how much to allocate for maintenance, replenishment, and new acquisitions of shared material assets. The maintenance and management is also done by the network. In order to incentivize maintenance, a % is extracted from revenue generated by commercial activities that use these assets, and it is used to pay for the work. The custodian is not allowed to exploit these shareables (extract rent or generate revenue by using them in any way shape or form).

About marketing

OSH Start-ups’ Business Development Challenges: The Case of SENSORICA from a Total Integrated Marketing Perspective, by Normand Turgeon, Mai Thi Thanh Thai, Gheorghe Epuran (temporary restricted to SENSORICA members).

From a service perspective

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Service diagram for OVN, made by Yasir, based on observations at SENSORICA








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OVN ecosystem mapping

By Yasir from observations at SNESORICA








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OVN from a legal perspective

by Yasir from observations at SENSORICA








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OVN interfaces

Made by Yasir from observations with SNESORICA







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About entrepreneurship

Products and services

OVNs are transparent in terms of access to information about products and internal processes. That erases the informational asymmetry often seen between corporations and their market. This informational asymmetry gives raise to abuse, higher prices and unethical practices. Among other things, this makes possible programmed obsolescence and deliberate environmental negligence. On the other side, transparency incites for better practices and increases accountability. In the current economy, OVNs can capitalize their higher ethical standards, which are a corollary of their openness and transparency, and can charge a premium on their products, to recover a portion of the loss due to the informational symmetry (which reduces the bargaining power).

Because of transparency the product design philosophy fits better the widely accepted norms. Openness, which allows a larger participation to the design process can result in products of higher value (higher quality, user friendly, environmentally friendly, interoperable, etc.).

See SENSORICA's product design philosophy document.

See How to play the open game in the present and future economy

Clients

The OVN integrates a lot of feedback from clients by maintaining an open communication channel with them, like in the case of open source projects with users. Clients are also invited to become contributors to the network, or network affiliates. Unlike traditional companies, OVNs reward feedback through the value accounting system in a tangible way, if this feedback adds value to the network in a tangible way (in terms of product design, improvement of internal processes, etc.).

Strategy

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Organizational design

created by SENSORICA

The OVN is designed to be a commons-based production system in which a network of members work together to create and market products under a Creative Commons license commons. The knowledge on which commons products are built is open. Most processes within the OVN are in the open and transparent to outsiders.

Although the OVN’s products are created by individual members, the exchange with the market must be performed in the name of the community, for the community. Members are not allowed to complete transactions with the market. Rather, they have to pass through an Exchange firm. This policy helps alleviate two problems. First, members might be tempted to cheat for large deals and not disclose the full amount. The Exchange firm allows the community to know exactly the market value the product service is exchanged for. Second, some members can monopolize the interface with the market, through which they can gain disproportionate influence within the community. The Exchange firm facilitates members’ interface with the market and ensures that members have equal chance to access the market.

None of the members is paid any salary but they share profits from successfully commercialized products and can conduct their own business outside the OVN. Contributors of each product collectively decide the value of each type of contribution and thus the share of the revenue. These contributors are called affiliates. Anyone who promises to create a product or to increase the market value of an existing product can become an active affiliate. Active affiliates are individuals or organizations with resources and technical skills (e.g., hardware, software, optics, biology, etc.) as well as business skills (e.g., marketing, accounting, community building, etc.) that take part in the business cycle of a product from R&D (research and development) to sales and after sales service. However, people offering simple services only are not eligible to become active members. For example, machining a mechanical piece from a 3D model made by an active affgiliate does not quality the service provider to be an active affiliate because this service does not increase the market value of the product.

The OVN may produce a lot of commons but only some of these products are expected to have real market values. Affiliates are not awarded for ideas or non-used products/processes. They get revenue only when the final products get sold. Product development as well as financing and marketing the final product are the responsibility of active affiliates. Any affiliate can take the lead at his/her own initiative at any stage of the value chain from product development to distribution. Active affiliates must assume the task of persuading other affiliates to engage in their project and/or use the results of their work in the next activities in the value chain. At any stage of the value chain, active affiliates can decide whether source/develop upon an existing product/process from within the OVN or from the market. On the same token, they can decide to sell their work at any stage or get their work used in the next stage. It should be noted that only work whose results get used is compensated when revenue flows back to the value chain. OVN affiliates understand that failure is a part of R&D processes and thus failures for good causes are rewarded by in the form of reputation building. Furthermore, activities with high risks of failure are given higher weight in the value equation with which active affiliate calculate the share of each affiliate’s contribution toward the product/process sold.

Redistribution of revenues from each product is calculated by the OVN’s value accounting system – a part of the OVN’s infrastructure entirely under the control of OVN’s active affiliates. The value accounting system is made of the value, reputation and role systems that interact with each other (Figure 2).

Each affiliate's activity types are recorded in a role system; the quantity of each member’s contribution is recorded in a value system; and the value of each contribution is quantified a value equation collectively decided by contributors of the product. The role of affiliates within the network is emergent (it is not assigned). As a result, the role system incites voluntary subordination and is important for self-organizing. The reputation of each affiliate is the result of peer-evaluation, by all other affiliates, taking into consideration the role played. The evaluation focuses on performance, behavior, drive, etc. The reputation is connected to the value system and affects the ability of an affiliate to extract value from the network. The reputation system incentivizes good behavior within the network and helps to focus attention. Therefore, the reputation system plays an important role in the creation and the flow of value within the network by filtering participants for adequate tasks. SENSORICA’s experience with this value accounting system has been positive.

NOTE: The above text was copied from the IGC-HEC case. It was produced by Mai Thai (prof at HEC) in collaboration with SENSORICA members.

Infrastructure

See the Infrastructure page

External resources

IGC-HEC case on SENSORICA

See event summary Open database of studies and papers !!!Access temporary restricted to SENSORICA members, contact Tibi, Francois or Ivan!!!

Growth model

Network level

An OVN grows by affiliation. It's size is only limited by coordination. In terms of infrastructure, for every project that creates exchange value a value accounting system is used to describe how value amalgamates into a product. Products of some projects can represent inputs for other projects, in which another value accounting system is used.

Network of networks level

The infrastructure of OVNs is designed to be applied to fractal structures, or Network of Networks. An OVN can be considered as an individual contributor in a project in another OVN . Some have used the term super-value network. In theory, the OVN concept can be applied to the entire global economy.

We are thinking about value accounting at the project level, which is federated at the network level and use a protocol for inter-network exchanges and co-creation.


We observed around SENSORICA 2 growth modes for Network of Networks.

  1. by affiliation - independent networks that already exist affiliate with other networks. See work on the Open Alliance.
  2. by incubation and spin off - individuals with project ideas join a network, grow their projects which grow into networks, use local resources to develop and are spun off once they reach critical mass. This is the case with Drone and 3D Printing projects in SENSORICA.


We are now thinking about giving OVNs the internal mechanisms to nest and incubate embryo networks to be spun off later.

Papers on SENSORICA