Arturo Di Corinto

Implementing a Digital Business Ecosystem vs. 0.2

The European economy is slowing. The rise of the euro is taking a toll on exports because the its appreciation has boosted the cost of European products and many Europeans think is better to buy from the dollar area.

In a scenario marked by a modest growth of the global economy (mainly for the higher price of oil) the strengthening of the euro cuts deeply into the competitiveness of European companies. Especially the IT sector is exposed to the risk of new monopolies, consolidation and the ultimate colonization of European IT firms by large enterprises, especially from Usa and Japan.

Naturally this situation has many other reasons. Once again, we are facing a major shift in the way in which IT is promoted and used around the world. European economies have to face challenges that are not only technological, but also related to finance, investments, innovation and so on.

What is in the horizon? What is our possible reaction? We claim that to be successful we have to move up and really deal with new applications and support a new kind of economy – the knowledge economy, an economy that is based on innovation.

Dealing with Innovation
Innovation is important in every industry, in every businesses, large or
small. Even in difficult economic times, small businesses continue to
thrive and entrepreneurship is on the rise – when driven by innovation.

Truly groundbreaking innovation occurs when the introduction of something new results from someone deviating from an expected belief. In business this rarely happens, unless a company is earnestly and openly listening to its customers. Deviating from an expected belief by listening openly to customers is what made the success of open source.

Is this what can happen in an open source “digital business ecosystem”?

The employment of open source principles says that no organisation can ever dominate the ecosystem, like on the Internet itself. All contributors will be given equal opportunities to compete, but at the same time it is important to have an holistic approach to software and service engineering for end users who are, in turn, programmers, investors, entrepreneurs, public administrators.

A digital product (or service) incorporates support for testing, fault localization, and assertions integrated in a fine-grained and incremental manner with the environment. In particular, the software engineering knowledge should be embedded in the system, since the user is not always expected to have expertise in software engineering.

Fully dynamic web service integration would be necessary to implement some of the ways in which techniques common to the general domain of “Software Planning and Programming” can be used to extend and embrace the industrial web service standards aimed at e-business. This can be the DBE.

To rightly address this mission in a collaborative approach which takes into account the issues of trust, contracts, level of service, and common semantics, we need major efforts to create a useful cooperative ecosystem. We need to create a community and maintain a virtual network among all the stakeholders of the business ecosystem.

Yet a favorable e-business environment for small enterprises can lower market thresholds and the costs of ICT investments.

First comes a best use of technology and e-business. ICT usage contributes to productivity and efficiency gains, but focusing only on e-commerce activity is not sufficient. In fact e-business is related to information flows and in turn to productivity and growth, because a good flow of information makes possible a virtual network where to plan, think ad work together sharing common resources.

The reason is that high costs for new technologes can easily become a barrier, especially for SMEs because of the costs of human capital and of IT infrastructures maintenance. Few resources, few investments bring to a digital divide between large and small-medium enterprises.

In this sense tools to enhance business and recruiting skilled workforce are critical factors.

Again, could an open source environment (and community) be the model? Or, what could be the model?

What is needed?

It is widely recognized that in order to foster SMEs productivity and growth we need:

1) A stable legal and regulatory framework, notably for cross-border trading;

2) Full liberalisation of the telecommunications market, resulting in lower prices and a higher quality and speed of Internet access;

3) E-government services, which reduce companies’ administrative overheads and thus create an incentive for enterprises to engage in e-business.

4) Managerial understanding and skills for e-business in SMEs

5) Availability of e-business friendly solutions, in order to facilitate a real participation of SMEs in electronic marketplaces and business networks.

Points 4 and 5 are the most important if, generally speaking, we need to promote restructuring towards the knowledge economy through a real knowledge transfer that will improve organizational skills.

Shaping shared business practices in an inclusive environment

“Innovation requires the protection of a process of creation rather than the preservation of a state of ownership”

In respect to ICT applications, SMEs have different needs from large companies. They need cost effective solutions that can be up and running quickly and that are scalable, interoperable, affordable, preferably based on open-source solutions.

It has been said that the solution for SMEs are user friendly, affordable and interoperable technical products. SMEs can benefit from their participation as technology users in e-business research programmes. Here they have the opportunity to collaborate with large ICT firms and identify user needs, test new technologies and exploit them completely in their actual business environments. This is exactly what the DBE can do.

The goal of truly automated supply and demand chains can be attained only with the participation of SMEs. However, most SMEs may not have the means to keep apace with technological developments, let alone to decide to test expensive and often experimental technical solutions without proof of concept and clear indications of return on investment.

The DBE can be a concept proof environment, a transanational test bed for a collaborative network.

Virtual collaborative networks

“Collaboration requires protection, protecting collaboration protects
Innovation. Protecting creation as static “property”, though, restricts collaboration, and may restrict innovation as well”

In different occasions the EU Commission has released a series of statements regarding e-business solutions for SMEs:
“Enterprises, especially SMEs, need a business roadmap and ready-to-use examples of practical e-business solutions. A national test-bed or, even better, a network of national test-beds for e-business, preferably based on open source software solutions, would provide for a practical venue for SMEs to develop their e-business processes. The aim should be to create communities with fully operational e-business networks of public and private business, resulting in a model for other communities. Successfully carried out and documented for learning purposes, such an initiative would increase confidence in e-business and provide a roadmap to be followed by others”.

“Conducting electronic transactions via specialised e-marketplaces for businesses – the so called B2B e-marketplaces – may represent an efficient and cost-effective way to trade goods and services, both within and across national borders. By creating on-line communities of buyers and sellers, e-marketplaces can facilitate transactions over large geographical areas and with previously unknown business partners, thus generating cost savings through increased market transparency and a more efficient transaction process”.

“Many of these collaborative networks are regional in character and based on close cooperation among former competitors, in order to operate as a new unit on the market. This requires SMEs to overcome their inherent resistance to sharing knowledge with others’’.

If we consider one of SMEs main problems to fill the European workforce gap in ICT what should be the solution?

OSS-based DBE is a training environment that increases the earning capacity of the participants, without any explicit investment in training. Is this a novel form of technology transfer?

In a study supported by the European Commission presented in Zagreb on September 27th 2004 by Rishab Aiyer Ghosh, is showed:

What FLOSS developers expect of each other:
– “share their knowledge”: 78%
– “respect my contribution”: 32%
– “write beautiful and aesthetic programs”: 24%

and that they participate in the FLOSS community to:
– “learn new skills”: 70%
– “share their knowledge and skills with others”: 67%
– “improve the products of others”: 40%
– “improve job opportunities”: 30%
– “make money”: 12%

Is it the right model to leverage new business?

The answear can be positive. Oss encourages not only passive “use” but active participation in the creative process. OSS provides a relatively slight learning curve for creativity and, considered in a wider framework, it represents a technology transfer from big companies to SMEs that cannot afford or can invest little in formal training.

If we consider that part of the EU commercial deficit is represented by the costs of software imports what is the solution?

OSS-based DBE is an economic environment that empowers the earning capacity of local economies by requiring small investments. Is this a novel form of “ecomomy transfer”?

By allowing local entrepreneurs to contribute with a greater share to the overall added value, the DBE fosters economic growth maintaining a greater share of profits within the local economy.

As with proprietary software, free software platforms can be used as a (modifiable!) base on which new services or software are built. Neverthless in the OSS case, 100% of the added value is local. For example, the entire sale price can be retained locally, since there are no royalties or licence fees to be paid. Support, integration, customisation, represent local value addition since 100% of this kind of services can be provided locally.

Custom or in-house software represents about 67% of total software produced (in the US). Custom solutions based on OSS greatly benefit the provider who captures 100% of the total value, not just the local added value – no royalties/licences paid.

OSS allows providers to reuse the code rather than build it from scratch, and to reuse a huge base of code written by others. Re-using (and modifying) the code allows, with the same effort, the creation of much better end-user solutions than writing it from scratch. To sum up, OSS provides a higher value for profits and for customers, and higher margins for local service providers.

Local companies are limited in the integration and support services they can provide for proprietary software. Deep support: fixing software bugs, customising it to user requirements, or integrating extensively with other software requires deep access, as in OSS. On the contrary, deep access to proprietary software is controlled by the owner (who limits access or asks for royalties, thus diminishing the value retained locally). Deep access to OSS is available to anyone, being limited only by their skills. This allows every provider to provide potentially deep support services, and retain 100% of the value.

This means “Building local ICT competencies”.

Open source
The success of OSS showed that the most important reason to developers for participating in open source communities was to learn new skills – for free. These skills are valuable, help developers get jobs and help create and sustain small businesses. Meanwhile, the most important reasons given by users of open source software were not the lower costs but higher security and better performance as compared to proprietary software. Therefore the open source method of development is clearly seen as being innovative and providing the same or a better quality.

A FLOSS survey realized by UNCTAD also showed that while 30% of all developers earn income directly from support, development or administration of open source software, a further 20% earn income indirectly, including being given jobs because of their experience developing open source software. This finding was also supported by the FLOSS survey of user organisations. To a considerable degree, therefore, the open source software community must be regarded as an informal and “costless” skills development environment that provides good training and competitive advantages on the labour market. It is “costless” in that the costs for training are not explicitly sustained, in monetary terms, by any of the parties benefiting from the new skills made available in the market. Neither universities or companies are paying for this training, they are the individual developers themselves who are giving their time and intelligence to learn and teach each other in an informal “apprenticeship” system.

This is particularly valuable for small businesses and for less wealthy regions and economies, where high direct costs of training ICT professionals may otherwise hinder the development of a local information economy, and where open source community participation can help to offset such costs. Moreover, the development of this kind of skills extends to the creation of new, local businesses, that are able to provide commercial support and build upon open source software thanks to its low thresholds, in a way that it would not be possible with proprietary software.
Total Cost of Ownership (TCO) studies show varying results in rich countries, where labour costs are high and the relative low license fees of open source software need not necessarily reduce total costs of using and maintaining systems. But in developing countries, even after software price discounts, the price tag for proprietary software is enormous in purchasing power parity terms.
ICTs are supposed to be an “enabler” for growth in developing countries. Such growth cannot spread much beyond a very small elite if the basic “enabling” infrastructure requires the investment of several months’ worth of GDP on software license fees. In the interest of sustainable, long-term and widespread economic growth and ICT development, European countries must adopt and promote open source software in order to develop local skills and businesses, and to avoid unnecessary expenditure.