"You can observe a lot by just watching."
This article advances the thesis that "commons sourcing" is the emerging third wave of commercial transformation. It begins with the iCommons concept and its origin in open source software (OSS) methodologies and emergence in other business models. It then defines commons sourcing and situates it with respect to the two earlier waves of commercial transformation. It concludes with some reflections by a commons sourcing lawyer.
Tragedy of Commons vs Treasury of iCommons
The Tragedy of the Commons is a leading social science paradigm largely based on a Garret Hardin's 1968 Science article by that name. Hardin postulates a commons pasture that is open to all and examines the position of a commons herdsman who is deciding whether to add an animal to his herd. Hardin applies the following utility model:
- if the herdsman adds the animal, he will gain the full benefit from the sale of this animal (+1)
- while there will be a cost to the commons due to additional overgrazing (-1), the effects of overgrazing by this additional animal are shared by all of the herdsmen (n) and this herdsman will only bear a fraction of that cost (-1 / n)
- after calculating the net utilities, the rational herdsman concludes that the only sensible course is to add the animal
As a result, the herdsman adds the animal and then continues to add animals. In parallel, the same conclusion is reached and the same course of action is taken by every other herdsman that is sharing the commons pasture. In the words of Hardin: "Therein is the tragedy. Each man is locked into a system that compels him to increase his herd without limit--in a world that is limited. Ruin is the destination toward which all men rush, each pursuing his own best interest in a society that believes in the freedom of the commons. Freedom in a commons brings ruin to all."
This article is focused on an iCommons: a shared pool of information which, unlike a physical commons, is not subject to the physical constraints of scarcity. By removing scarcity from the Hardin paradigm, the cost and benefit equation of the resulting utility model is fundamentally altered. Since the information is not consumed as it is shared and used, the "tragedy of the commons" now becomes the "treasury of the iCommons".
The OSS movement is the earliest and best example of an operating iCommons. While it is daunting, if not impossible, to distill the diverse range of OSS activities into a single methodology, the following principles are central to the OSS movement:
- advantages are achieved when software development is done as a collaborative activity
- optimal collaboration requires the sharing of source code across broad communities of interest
- this sharing must be done in a manner that promotes and preserves certain fundamental freedoms
- these freedoms are reflected in two major OSS software licensing models: permissive and reciprocal
We focus on the broader iCommons phenomenon; in particular, the iCommons pooling of shared information resources under OSS methodologies for use by companies for commercial purposes. This author has coined the term "commons sourcing" for this phenomenon. As set out below, the commons sourcing approach is increasingly being found at the core of new commercial initiatives.
Commons sourcing is the emerging third wave of commercial transformation. The first wave of commercial activity in the industrial revolution can be best characterized as in-sourcing since companies of necessity focused on doing everything themselves in vertically integrated business structures in a world of tariff protected nation states.
With the emergence of globalization and trade liberalization, out-sourcing emerged as the second phase of commercial transformation. In this era, companies became very focused on core competencies and looked for opportunities to out-source other business functions. Many of these opportunities were driven by the availability of skilled work forces in developing countries at extremely attractive labour rates. These labour rate variations, which were largely a legacy of the formerly tariff-protected nation states, initially drove strong business cases based on market arbitrage. However, these cases have generally become much less compelling as labour rate gaps narrow and as the total costs of out-sourcing become increasingly apparent to companies.
Companies are now looking at new business transformation opportunities and commons sourcing models are being increasingly adopted. Unlike the 1:1 limitations inherent in outsourcing models, commons sourcing affords companies the opportunity to leverage the n:1 ratio. This n:1 ratio allows companies to achieve order of magnitude efficiencies in the cost structures of some business input without many of the attendant business costs of out-sourcing. Applying the prior tragedy of the commons utility model to commons sourcing:
- if an iHerdsperson adds valuable information to the iCommons, all iHerdspeople gain benefit (+1 x n)
- since contributed information is not subject to scarcity constraints, the average cost to each user of the iCommons is represented by her fractional share of the overall contribution cost (-1 / n)
- the rational iHerdsperson concludes that contributing to the iCommmons is a sensible course of action
While this recasting of the tragedy of the commons paradigm is neither comprehensive, as it fails to take market conditions into account, nor precise, as it fails to probe relative contribution value or taking without giving, it does provide a simple illustration of the impact of removing scarcity from the equation.
This author has the following reflections on the commons sourcing model:
- Think abundance. Commons sourcing is about abundance, not scarcity, and provides a number of collaborative models for value creation.
- But keep enough scarcity. Apart from some pure play opportunities, most companies need to maintain some commercial differentiators and remain separate from the iCommons pool.
- Remember Goldilocks. The core challenge under a commons sourcing business model is getting it "just right". A company that commons sources too much will end up lacking the differentiators that are key to its commercial success. Perhaps less obviously, if a company commons sources too little, it will most likely end up facing uncompetitive cost structures for any inputs which its competition is commons sourcing.
- Reset the risk paradigm. Commons sourcing activity requires a reset of the risk paradigm to properly weigh the risks involved in the activity against the risks of not being so active.
- Allow for some optimism. The commons sourcing movement and its communities are based on a strong ethos and value system.
- Embrace the Gordian knot. Since commons sourcing exists at the intersection of very complex business, technical and legal issues, the commons sourcing lawyer must be ready, willing, and able to fully commit to a technical and business deep dive while addressing legal issues.
This article is based on a February 13, 2008 presentation to The Ottawa Network.