In reply to your questions:
"I find commercial open source conservation technology to be a very exciting space, plenty of challenges but also opportunities. The example of the company Arduino comes to mind – plenty of cheaper (legal) “copy” products but these guys are still operating. Of course, the context is very different to a hypothetical open-source conservation tech device (think AudioMoth) but would be interesting to look deeper into a few examples within the hardware world."
It sounds like there were a lot of people asking questions about financial sustainability of open source hardware for last night's virtual meetup. I've been involved in open source hardware commercially for over 12 years now. I helped LadyAda set up her first assembly line for Adafruit, was a board member of the Open Source Hardware Association, and watched the open source hardware community as it went through it's evolution to what it is today.
Commercial open source hardware is definitely viable and doesn't necessarily need to be artificially sustained by grant funding. That said, you do need to understand basic principles about business and manufacturing if you are going to survive as a manufacturer.
I think the most basic mistake I often see beginning manufacturers make is moving straight to design and production without marketing. Marketing is the most important part of maintaining a financially sustainable business, no matter open source or not. What usually happens is people often overestimate the demand for their widget and get a large amount made and assembled. They then discover a critical mistake or feature that they overlooked because they didn't work closely enough with potential customers. For the AudioMoth, this seems like it was mitigated by working closely with the acoustic survey community and also verifying demand ahead of time using the Group Gets platform.
Beyond marketing, it's not enough to design working hardware. The first working version is just the start of an iterative process to either bring the manufacturing cost down or improve the feature set of the device. As the cost comes down, the margins improve and those cost savings can either be passed on to the customer to be more competitive (if there's a lot of price competition), reinvested into the company to improve capabilities (ie: buy an automated pick and place machine or hire employees), or kept as profit.
For FreakLabs and Hackerfarm, we have our own automated assembly line which allows us to manufacture specialty or low-volume production runs, usually up to around 100 boards. Beyond that, we normally send it out to an assembly house in China. We focus on production of custom designs for specific consulting projects but also run a small webshop with some of our mainstay products.
When we design, we design for both functionality and production. When possible, we normally select parts that are commonly found on motherboards, mobile consumer electronics, or otherwise are commonly found in the wholesale markets in China where many of the other low cost manufacturers source parts for their products. The reason why is that if a part ends up on a motherboard or cellular phone other than the main processor, it's basically a commodity product and the price has already been driven into the ground.
For example, the MCP73831 lithium-ion charging IC from Microchip is about $0.43 in quantities of 100 from Digikey. The equivalent TP4057 lithium-ion charging IC commonly found in consumer tablets and mobile USB chargers is about $0.03. It's also a part commonly found on projects by Adafruit and Sparkfun. All of us have purchasing and shipping agents in China to source and ship parts to us from these wholesale markets.
The average markup for a design at Arduino, Adafruit, or Sparkfun is usually 4-6x the BOM (Bill of Materials) cost. For example, the BOM cost for an Arduino Uno is around $4.5 and the price at the Arduino webshop is $22 for a markup of ~5x. I would say the minimum markup for a manufacturer would be 3x the BOM cost, not including assembly cost since we all have our own assembly lines. You're pretty close to break even at this point if you factor in shipping, packaging, handling, testing, development expenses, and time. I normally wouldn't do a project below this markup since there are often more productive uses of time.
I also used to teach manufacturing to industrial designers at MIT Media Lab and my friend bunnie Huang and I would do an annual six week tour in Shenzhen, China where we took students from MIT Media Lab to various factories, had them design and manufacture a product "almost" from scratch, and let them understand the realities of production and how it differs from design.
If you're interested to hear more about manufacturing and sustainable business models for open source hardware manufacturers in conservation tech, let me know. It's actually very do-able.
"Can commercial companies co-exist with cheaper open-source products? Is there a niche for higher-end more expensive company-supported devices when one can buy way cheaper ones? I think there is scope for some degree of niche differentiation that keeps commercial companies alive in this brave new world. What do you think?"
Oh of course. Truthfully I don't think it is too difficult to compete with cheaper open source products, especially from low cost "pancake" factories in China. They have the name "pancake" since they crank out designs like pancakes. The most powerful tool a manufacturer has is the ability to write. If you're manufacturing an open source tool and you're a native English speaker, I think theoretically you shouldn't have any problem competing with a low cost Chinese knockoff company. People don't just buy a product, they buy the story behind the product. If you can write in native English, you have a tremendous advantage over a company that does not have that ability. If someone buys the cheaper product with no documentation, no story, and no recourse if there's a problem, you don't really want them as a customer.
This is where marketing becomes very important. Every company has a "right customer", which is someone who feels like the products are tailor made for them and understands the mission of the company, the purpose, story, and is willing to support the company and products. This is especially true for conservation tech which has a very strong purpose and story. Focusing on these customers and building relationships with them when you find them is one of the most important things you can do. Trying to win sales from people who only want the cheapest price is a losing game. It's much better to focus on blog posts, customer support, documentation, learning materials, case studies, and help them understand how the product makes their life better in some way. There's little chance any knockoff company could compete with that.
There are a lot more strategies along these lines, but if you're an indie manufacturer without economies of scale, you want to avoid focusing on price as much as possible. Price is something you compete on when you don't have anything else going for your products. If you have a well thought out marketing, pricing, and differentiation strategy, then things should work out quite well.
Anyways these are some thoughts on manufacturing in general and open source hardware in particular. Having open source designs and source code is an advantage rather than a disadvantage but the rest of the business model also needs to be aligned with this. Open source hardware businesses are based on community and this is where the focus should be. This also includes customer support. With this in mind, I think there are plenty of opportunities in conservation technology for sustainable open source businesses because of the passionate community around it...and even more so if you think of parallels to other industries.
For us (FreakLabs and HackerFarm), we also work in developmental infrastructure monitoring with World Bank and open source agriculture technology. There are uses for a lot of conservation tech in those areas (ie: dataloggers, wireless sensor networks, general purpose timers, timelapse/camera traps, etc). This also helps us in designing conservation technology. We know there are crossover markets that could potentially use these products or slight variations of them. Also wildlife conservation fits in thematically with many of our efforts to work with technology in a specific context and purpose. This is why we're really excited to be part of this community. We're looking to contribute in a way that can benefit the community but we have to make sure it will also benefit us. In that way, our contributions and participation can have longevity and be sustainable.
Hope that answers your questions :)