Podcast transcript #80: Discover how a social platform for collaborative product development is disrupting the production industry in China and in the entire world
Find here the China Paradigm 80 and learn more about the disruption of the production industry in China and in the world, through the story of Wikifactory, a social platform for collaborative product development which has built a strong and wide online community for the production industry.
Full transcript below:
Matthieu David: Hello everyone. This is China Paradigm where we, Daxue Consulting, interview seasoned entrepreneurs in China. Hello everyone. I am Matthieu David, the founder of Daxue Consulting and this podcast, China Paradigm. And today, I am with Nicolai Peitersen. You are the co-founder of Wikifactory, a social platform for collaborative product development aiming to build an online community for the production industry.
I have to say it’s not easy to understand what you do. And I had a hard time when I went on your website. But here is your introduction; Wikifactory is a social platform for collaborative product development. Inspired by the proven collaboration tools from the open-source software world, Wikifactory empowers distributed product development teams to get their projects from design to production.
Nicolai Peitersen: Very clear, right?
Matthieu David: Sounds very clear. So, it’s very interesting, actually, because I went to your website. It’s active. People are active on the forum. I saw someone who sent a message 25 minutes before I went on the website. And you have raised $1.3M according to LinkedIn. And before we prepared the interview, you told me I should add up like $3M or $4M. So, you have raised up to $5M. You are both in the West and in China. So, you are based in Chengdu. And you also have offices in Madrid and London. At least, you have a presence in the West.
Nicolai Peitersen: Yeah.
Matthieu David: And people come from all over the world to participate in your online community for the production industry. Thanks for being with us. And my first question is, what is Wikifactory?
Nicolai Peitersen: Yeah. I mean, first of all, I guess it’s worth to say it’s a B2B platform. So, in that sense, maybe communication is not so consumer-focused. It’s more B2B. And, basically, it is giving product developers, product designers, product engineers, and everyone involved in product development the same tools that you have when you develop software. So, if you are aware of GitHub, GitHub is the platform that everyone uses when they develop software. On GitHub, you have different collaboration tools to be able to collaborate around the code. And we are now making the same collaboration tools possible for product design for hardware.
Matthieu David: So, what you are saying is that you are the GitHub for the production of hardware or real products and not software.
Nicolai Peitersen: Yeah.
Matthieu David: … because GitHub is focusing on software. It’s to share your code, libraries, or the code you created.
Nicolai Peitersen: Exactly. So, yeah, exactly. That’s what we are. So that’s one part of what we are. And that’s what we released. And now we’re working on the second part of the Wikifactory vision, which is kind of using Uber or DiDi or Airbnb to disrupt the production industry in China and in the whole world. So, what we’ll be doing in the next phase is that anyone in the world who has what we call a digital fabrication machine, which is a robot or 3D printers or CNC machines or laser cutters, can connect directly to our platform and be part of the globally distributed production system. This means that on our social platform for collaborative product development, you will be able to go from design to production all online as one online process. And that solves a lot of problems and barriers in the production industry, which we see today. I could go through all these barriers if you want.
Matthieu David: Sure, but let me be clear because a lot of people are using ‘We are the Google of something’ or ‘We are the Uber of something’.
Nicolai Peitersen: Yeah.
Matthieu David: How would you describe that you are the Uber or the Airbnb of the production chain because Uber is basically a decentralized provider or service where everyone can provide a service, but you have a central point where you look for this service? So, the central point will be Wikifactory. Everyone who wants to produce something and go through the different stages of production will go to Wikifactory and then find different people to work with them independently of where they are and independently of the connections, you have with them.
Nicolai Peitersen: Yes. So, if you take the case of Uber, you’d go to Uber as a service to get a car right of some sort. And in this case, you would go to Wikifactory to be able to produce something. So, every individual who has a car can be part of a car-sharing platform like Uber. Anyone who has a production machine can be part of the Wikifactory distributed system thanks to our online community for the production industry. So if, for example, you sit in Brazil and have a product and you have an order in China or in Russia, then instead of having to fly over to China and spend a lot of money to try to find a trusted supplier and build up a relationship to start using this, you’ll be able to sit in Brazil in your living room and connect directly to a machine that will be able to make your product where the demand is. So that’s the vision.
Matthieu David: Correct me if I’m wrong, but basically, you would participate in deglobalizing this world, making the production more local, but the idea coming from wherever it is.
Nicolai Peitersen: That’s right. So, the first part of Wikifactory about the social platform for collaborative product development is that we are building up a global and online community for the production industry with product developers. So right now, we have product developers from more than 130 countries now on the platform. We are growing by 20% every month. Every single month, this community is growing organically. We’re not even doing any PR, marketing, and etc. So, there’s a definite demand for being able to do online product development.
Matthieu David: To use a big word, you are participating in deglobalization because you are making it possible to produce locally when the idea can be global.
Nicolai Peitersen: Yes. So, it’s a global product development and local production. And then, it goes even further down the line. Once everything has been connected, then you can start to apply machine learning to the system, which means that you will also be very dynamic and, in real-time, be able to find the most optimal part of the production. So, depending on what are the available materials, available machines right now, where the demand comes from, and etc., then in real-time, you’ll be able to calculate the most optimal part of your supply chain. This means that what we are enabling is flexible supply chains.
So today, it’s very difficult to switch suppliers because a lot of the product designers just send the product design to a Chinese manufacturer or any manufacturer in the world and the manufacturer does all the product production engineering and all the know-how to actually turn the design to a product. And then the production processes lie on the factory floor with the manufacturer, which means it’s very difficult to switch suppliers. Whereas now, if you connect directly to the machines and you make available the software you need to turn the design to production, then all the data sits on Wikifactory in your all in one workspace, which means that the data for how to make this product on this type of machine sits with you. And therefore, you can send that same data to the same machine somewhere else.
Matthieu David: I see. I understand the idea, but it seems like you are taking into account a lot of parameters. When I’m thinking about Uber or Airbnb, basically, it’s one flat or one call to connect with one user—one person who needs to move to somewhere else. But production is very complicated.
Nicolai Peitersen: Yes.
Matthieu David: There are so many parameters. So how can a social platform for collaborative product development solutions that many parameters? Even with machine learning, you have too many parameters. It’s a product.
Nicolai Peitersen: Yes. And that’s why we call this an infrastructure project. This is not just an app or in China, I should say an APP. This is an infrastructure project. And we call it the Internet of Production. So, when I say infrastructure, what we are developing is more like an open infrastructure where third-party software can hook into that infrastructure. So, we’re not developing all the different software you need to go from design to production. But we enable an infrastructure where all those services can hook into the system. You can call it an App Store. So, when you need a slicer software, there will be third-party software available on the platform to slice your design. If you need simulation software, that’s available through third-party services on the platform. So, we’re enabling infrastructure for any provider to provide their services on our platform.
Matthieu David: So, what’s the difference with a directory? Because I understand if I want to produce something, I could have access to a lot of providers who can produce different parts of my product locally. So, what’s the difference with a simple directory I could go to that Wikifactory is providing?
Nicolai Peitersen: Well, I’m not quite sure what you mean by directory but let’s call it a sourcing agent, for example. That will then help you source your product, let’s say, in China. One of the many problems is, first of all, it’s very costly. So normally, you pay those providers or those service providers 30% of the cost to do that. Secondly, as I mentioned before, you’re kind of locked in with the Chinese manufacturer that you work with because that knowledge about turning this into an actual product sits with the manufacturer. So, what we’re trying to do is to socialize production. So, any industry that has become digital has been disrupted. And the production industry is becoming increasingly digitized.
So, the production machines are becoming more and more digitized because of robots. Now, it’s coming out with 3D printing production in China and around the world and all that. So that’s become more digitized. The product designs are being shared online. So, it doesn’t sit on your desktop anymore. It’s being increasingly shared online. So, you are starting to have all the ingredients for the disruption of the production industry in China and in the whole world because everything is digital. And once it’s digital, it can disrupt the business model of the industry. And this is why we are trying to become the platform for that change that’s happening.
Matthieu David: To be more specific and visual, so I have a product I want to develop. I think I can mention one example I saw on your platform. It was a kind of drone.
Nicolai Peitersen: Right.
Matthieu David: Let’s take this example. A drone.
Nicolai Peitersen: Okay.
Matthieu David: I have the idea of building a drone with a specific material, maybe an eco-friendly drone or whatever. And I go on your social platform for collaborative product development. What’s next? So, I have a plan. I need to know how to build it, right?
Nicolai Peitersen: Yeah. So, first, you upload your files—the files set you have for the project. Then you invite your team into a project. They will be able to then keep on developing or improving the design. So that would be Version 2, Version 3, and etc. Then you might invite your supply chain or your manufacturer into your all-in-one workspace where the manufacturer would be able to use what we call the issue tracker, where you say, “From an engineering point of view, this design doesn’t work”. Here is the next version. They will now take that into consideration. So, the collaboration with the entire value chain can then happen in a version way on the platform.
So, on the platform, you can visualize the design and you can explore it, so to speak, to see all the components that make up the design. So, for each of these components, you can then assign the type of materials that component would need and then start sourcing components for the design or sourcing a manufacturer that can then make those components. And then you can manage that process on the platform.
Matthieu David: I understand. Okay. You are also a bit of Trello where you can manage a project step by step, isn’t it?
Nicolai Peitersen: Yes, exactly.
Matthieu David: Okay.
Nicolai Peitersen: Yeah, that’s right. I know it’s not an easy platform to explain because it’s quite an ambitious one. The production industry is $30-trillion-dollar-market. It’s kind of the backbone of the real economy. But that’s also what makes it exciting; that the disruption of the production industry, in China and in the world, hasn’t really happened yet. And, of course, it’s a big project. So, we take it step by step. First, we’ve done the collaborative product development part.
Matthieu David: I see.
Nicolai Peitersen: It’s the GitHub for products and hardware to make sure that there is a product-market fit which I believe we have now because we have this organic growth of 20% every month of product developers doing this. And now we’re taking the next step. So, over the next three months, we’re going to release more and more capabilities to go from the design to production. So, we are taking very measured steps because it is a very big project. But we’re very focused on creating a service that has actual use value for our users. So, we involve them a lot in it.
Matthieu David: So, it’s very, very exciting, meaning that you make innovation much easier to go to the market.
Nicolai Peitersen: That’s right.
Matthieu David: I believe one thing that’s important for the listeners and myself to understand is the business model. Where do you have money? Who is paying? I feel you can have plenty of business models. Is it like GitHub? Is it based on the space or whether you want to make it private or public? I believe if you want to make it private, you have to pay. Or if you need more space, you have you pay. So, this is a GitHub model. If it’s Trello, you’d need software to use with many people in your team when you want to collaborate with many people. So, what’s your business model so far?
Nicolai Peitersen: So, our business model right now is very much like the GitHub model. So, if you are working on open projects or open-source hardware, it’s free to use. And if you want to do proprietary product development like most commercial companies would want to do where they wouldn’t want anyone to see what they are developing, you get a private subscription and then you pay a monthly fee depending on the size of your team for that private repository. So that’s the current business model.
And then of course, when we open up for the next feature sets, there will be other business models being rolled out, such as when you start sourcing components through our system, we’ll get a small cut of the cost of those components if you use the paid third-party software that we make available on the platform to go from design to production. We also have some sort of cuts from those third-party revenues on our social platform for collaborative product development. There are many different revenue streams. So, we’re not too fast about the revenue streams currently. We are more focused on building the online community for the production industry, getting the right projects, the right people on the platform, and making sure that we have a product-market fit. We know that if that’s working and we’re growing the way we do, there won’t be any lack of different business models. We are the types that rather want to pilot business models. So, we test business models to see what works. We pilot with the users to see what makes sense and then settle on some down the line.
Matthieu David: I see. Is it fair to say that you could be a very good tool for crowdfunding websites? You have a product. And there are a lot of crowdfunding websites that actually don’t produce at the end of the day. So, when we go to your website, it gives a feeling that you have the same design as a crowdfunding website where you see the project, you can click on the product, and see a description of the product. Does it make sense?
Nicolai Peitersen: So, what you just went through there is just the homepage of the projects. But what you don’t see there is the actual collaboration going on right now on the file level and on the design level. So, in that sense, it’s much deeper than what you just mentioned here. But it’s interesting that you mentioned it because we are right now discussing with one of the largest crowdfunding platforms in the world (I can’t say which one) about creating a global partnership.
Matthieu David: Sorry for the interruption but just so people listening know what crowdfunding is, you don’t necessarily have to put equity or buy shares. Actually, you buy a product in advance. The leader is Kickstarter. Then you have Indiegogo. And you also have Jingdong in China which is doing that. So, the challenge they have is that people have ideas which they can be very serious about it. But at the end of the day, they’re not able to produce it. And I bought $90 on Kickstarter from a friend of mine. It should have been a health product. It never came to life. And I lost my $90. So, I believe that actually, those platforms will need a partner to support the production.
Nicolai Peitersen: Exactly. That’s very sharp of you to observe this. So, we’ve been approached by one of these largest crowdfunding platforms. Especially when we are talking about crowdfunding for hardware, the failure rate is very, very high. So, they raise a lot of money, but either they never deliver like in your friend’s case, or they’re delayed for maybe two years or three years before they actually ship the product. And so, they are very interested in making Wikifactory available for the hardware projects. Not only do we help these product developers to make their products, build up the supply chain, and be able to manufacture on a global scale, but also for the crowdfunding platform, it’s kind of like part of the due diligence. They can actually see whether there’s any activity. They can see if it’s a new version of the product design. Are they now working with a manufacturer? So, they can step in earlier in case there are any problems in some of these projects.
Matthieu David: Yeah. And if at some point, the team handling the project is not able to make it, actually, the documentation will be solid enough on the platform to be taken by someone else. So, you would solve a lot of issues.
Nicolai Peitersen: Exactly.
Matthieu David: You talked about user acquisition. You said that your online community for the production industry is growing by 20% every month. Is it fair to say that it’s because it’s public? Some of the data is public. You have to pay to make it private. Is it fair to say it is an organic growth because of the data which is created online, and because people go through the search of Google to find some keywords, then they find a keyword which is published by your community, and then you grow through this way?
Nicolai Peitersen: Yeah, definitely. So, our growth is very content-driven. It’s by design, so to speak. So, it’s part of our strategy to drive our growth through content. So, we don’t only have, you can say, the projects themselves or tracking the projects, etc., but we also have where you can share stories. So, you can share stories about what you’re working, or your vision with your things, etc. So content is a key factor. The other factor is that we look at what are the most key online communities for the production industry out there. So, for example, in the open-source community, the leading open-source community is the Fab Lab community which is a global community of fabrication co-working spaces, you can call it. I think they have 1800 around the world.
Matthieu David: Can I interrupt you? Fab Lab. Is it a brand or company? Is it an association? What is this? Who is behind this?
Nicolai Peitersen: Yeah, that’s a good question. So, it was started by a professor at MIT, Neil Gershenfeld. And there’s a foundation. I think it’s just called The Fab Foundation. So, everyone can set up a Fab Lab. There are very low requirements. Okay, this is what a fab lab is. So, if you set everything up, then you can call it a Fab Lab. And then, there are some common resources. There’s a website. I think it’s called Fablabs.io where the Fab resources are available for these Fab Labs around the world. So, it’s a quite loose organization, but it’s still directed by Gershenfeld through The Fab Foundation but not in an institutional manner. It’s not like ownership or direct control but through providing the resources and the vision and leadership.
So that the online community for the production industry is very active. They also have an academy where they train people. And we are now the platform for the global Fab Lab community in regards to product development. So, all the Fab Labs around the world are signing up to our platform. They start sharing their projects and start collaborating around those projects between the Fab Labs.
Matthieu David: I see. You have mentioned one keyword that my team actually insisted on when they prepared the interview. It’s about 3D printing production in China and around the world. But you mentioned only one time. And actually, I thought that it would be a keyword you’d use 10 times before I could even ask a question about it. So how do you respond to those decentralized productions which are the premise of 3D printing?
Nicolai Peitersen: Yes. So, we call it a digital fabrication. That was the word I was using before because it’s not just about 3D printing production in China and around the world. But it’s also about robotic arms, CNC machines, and laser cutting. So, many different production technologies are now becoming digital, which means that you’ll be able to communicate with that machine and therefore, it can be part of a decentralized system. And 3D printing is one technology that has become more and more mature. I don’t know how historical you want it but 3D printing production, in China and around the world, is quite interesting because it’s actually a very old technology. And the reason why there’s been an explosion in the past, let’s say 15 years especially, is because of the expiration of the patents.
So, there were only a few players that had the patents. So, they provided some industrial 3D printers at some point but they were not very big or popular. And then, their patents expired. So, it’s like a 30-year patent. I don’t exactly know when it was but I think it expired 20 years ago. And since then, basically, 3D printer providers have grown from maybe 10 or less than 10 players to more than 5000 players around the world, which means there’s been an explosion of innovation in 3D printing production in China and around the world, in terms of the speed, the quality, the type of materials you can print, etc. So, 3D printing is like what the old printing was. Like Moore’s Law, every two years, the price hops and the capability doubles. This is what’s happening in 3D printing production in China and around the world.
Matthieu David: Maybe, I am being a bit skeptical about 3D printing because we have been talking about it for 10 years and when I buy a mug in the shop, it’s still not printed by a 3D printer in my area or district. And a mug is actually pretty simple to print, for instance. The easiest I see which is printed is a T-shirt with a logo on it. But so far, I am not actually seeing 3D printing production in China and around the world. And we are in 2019. And we’ve been talking about it for 10 years.
Nicolai Peitersen: Well, it’s because five years ago or seven or eight years ago, it went through this hype where people thought that you could just have a 3D printer at home and then you could just print everything. And now, it’s become much more mature. So, if you’re within the industry, there are what we call industrial 3D printers. They’re not these desktop 3D printers. They’re massive, very big, industrial 3D printers. And they now print many things that you’re not aware of. The casing for your laptop or your mobile phone is being done by CNC machines which do the digital fabrication. Specialized or customized components for the car industry or the space industry is done by industrial 3D printers.
So, it’s become very specialized and highly specific. Anything can be 3D printed and at the quality you want. But it’s very specific industries and very specific parts that are now being 3D-printed by the large players. So, it is becoming a bigger part of industrial production but not just everyone can do it because it’s not just about pressing a button. You also need to do post-production and other things like that. So, it does happen in the industry, but not on a consumer level.
Matthieu David: I’d like to go back home to the user acquisition part. I am still on your website and I see that you have a live chat section. How do you convert visitors or traffic? Do you hold events? Do you chat with them? Do you push them to send a message? Because it’s a pretty intense involvement you’re asking them to run into. You are asking them to open an account, put their data out, and work through your social platform for collaborative product development. So, it’s a huge step. It’s not as simple as buying a product on Amazon. Buying a product on Amazon is simple. But on your platform, it requires trust. It requires an assurance that you are going to stay in business for a very long time because I’m going to put my things on it. And it’s important also to make sure that you have the platform I’m going to work with.
Nicolai Peitersen: Yes. First of all, as I mentioned right in the beginning, that’s why I said this is a B2B platform. It’s about people that have a real interest in this. It’s for people working either as a hobbyist or professionally in their work. And the second part is that the reason why they are willing to do that is because of the barriers that I mentioned before. So, for example, when you have team members around the world, it’s very difficult to collaborate together because, one, these 3D design files are very, very heavy. So, once you have done the changes, and you need to send it to somebody else through email or Dropbox, upload takes a long time. They then need to download it and then make the changes and do the same process again.
So, what we’re enabling is something much easier. You just host it on one platform and you can visualize it. You can see the design on the platform. On Dropbox, you can’t see it. It’s just a file. On our social platform for collaborative product development, you can actually work with the file. You can actually see the file, turn it around, explode it, and do the changes. So, it makes it easier. And the second is that there is much different design software around the world like Autodesk and SolidWorks. All these different proprietary design software don’t necessarily speak together. So, they have different protocols. And that’s what we’re also enabling on the platform. It’s that we don’t care about which design software that you upload. We can visualize any design or engineering type of software on the platform. And then, when you convert it, you convert it to something called Step which then can convert to your specific software. So, these are very specific value propositions that make it worth it for people to use Wikifactory and therefore go through opening an account and dialoguing with us about it.
Matthieu David: It’s very interesting.
Nicolai Peitersen: These are some real pains for collaboration.
Matthieu David: Yeah, it’s very interesting because I think when people think about innovation, they think about a big innovation, which is good, but a big-picture sometimes actually begins with a small pain which is it’s difficult to exchange a file which is big on Dropbox. And you can actually hook the user by the simple fact that it’s easy to upload and share on your platform. And from here, you can build and collaborate. You can build a product or a big picture. This is an interesting value proposition to use in entering the market. And this is very, very interesting to understand.
Nicolai Peitersen: Just to add to that, besides these, it’s about having permission controls. So, what’s interesting is you then have the designs there and you can visualize and collaborate around it. But of course, along your supply chain, you don’t want everyone to be able to do all the things. So, having permission control is also unique compared to be on Dropbox or whatever and share your file to the manufacturer. So, on Wikifactory, you just say well this partner can only view but cannot download or this partner can make modifications and etc.
Matthieu David: Yeah.
Nicolai Peitersen: So that’s another key part. Sorry to interrupt.
Matthieu David: Yeah, you’re totally right. It reminds me of my accountancy in France. I had a company in France and the accounting software was not making it possible to have different types of authority. So basically, I only have to share my password with other people that had to manage the accounting with me. And they are based on software. It’s a software company. We are on China Paradigm and really, we have not said a single time, the word ‘China’. So why are you based in Chengdu? What are you doing in China? Is it for personal reasons? Is it because it’s the factory of the world? Why are you in Chengdu?
Nicolai Peitersen: There are two parts of that answer. So, I was part of starting Wikifactory when I already lived in China. So that was not the reason why I went to China. I came to China because of the book that I wrote called The Ethical Economy. It originally brought me to China. And then, while I was in China, I co-founded Wikifactory. Of course, it makes sense to do it in China because of the Chinese manufacturers, China is the manufacturing base of the world. So, it happens to make sense to be in China but it was not the reason why I came personally to China.
Matthieu David: So, we understand that from a purely theoretical point of view, it’s good to be in China because it’s the factory of the world with plenty of Chinese manufacturers. For instance, as a metric, 50% of the vendors on Amazon are Chinese manufacturers.
Nicolai Peitersen: Yeah.
Matthieu David: It’s easy to understand why China is the factory of the world, but it’s a very difficult place to manage a global business. You need a VPN to get access to Google, some social media, and so on. So, what is good to do in China in your business, and what is not good?
Nicolai Peitersen: So, it’s absolutely correct what you started off saying. So, my co-founders moved to Chengdu in the beginning when we started Wikifactory, but they actually had to move back to Europe because of the VPN. And the internet was too slow because when you are a software developer, you’re very reliant on GitHub. And it just made it too slow to be productive. So, they actually moved back to Europe. Our main team sits in Madrid, Spain, and do the development. So that is a problem. But on the positive side, for us, it is also a key value proposition. What Wikifactory is trying to solve is the connection between China and the rest of the world, because we started Wikifactory not only based in China but also with China in mind from the beginning.
A lot of companies have a solution they have developed internationally and then they want to enter China and market it or vice versa. And that often makes it very difficult. Also, in terms of the government, they are very aware of what we’re doing. They know the social vision of Wikifactory to disrupt the production industry in China and they’ve been supportive from the beginning. So, in that sense, we are already being seen as a quasi-local company and not just a foreign company coming to China. And what we’re trying to track between China and the West is that you are able to do the whole design production between China and the West in a seamless manner just through online meshes. And that will be quite a disruption of the production industry in China, compared to how that works today.
Matthieu David: Yeah, I feel that, actually, the timing for you is playing in your favor because Chinese factories and Chinese manufacturers over the last five years, I would say, have been implementing more and more design offices in their factories. And I feel that without that, it would have been difficult for you to connect with them. Am I correct?
Nicolai Peitersen: Yeah, I mean there are many trends in China. So, of course, it’s not by chance. I mean, it’s also by choice—our timing about Wikifactory—because it is the right timing also in China. So, one thing is, as you mentioned, design offices in the Chinese manufacturers’ factories. The other thing that the Chinese manufacturers are doing is upgrading. They’re becoming more intelligent in manufacturing. So, they’re applying the robots in the 3D printing production in China and the CNC. We need all these for our distributed production systems. So that’s happening already in China. And then thirdly, what they’re doing is creating an online presence.
A lot of the big Chinese manufacturers are now creating online order systems. And then they organize their supply chain. There are 250 suppliers behind the online page they have for orders. So, they’re like moving into a more and more internet-based model than before. It’s still very simple. But for us, it’s perfect that they organized their supply chain themselves and have an order system online because that makes it easier for us to connect and integrate with their order system. And therefore, there are 250 suppliers behind them.
Matthieu David: I understand it’s easier but there is no standard yet. Right? There is no standard—like one standard to connect all the factories. It’s still one by one.
Nicolai Peitersen: No.
Matthieu David: For instance, there’s no API.
Nicolai Peitersen: No, but there are two things. One is that the bigger players themselves are organizing their supply chains themselves. So, we don’t have to worry about that. They take the general contract, so to speak, right now for making a product that requires different suppliers. But there’s also a huge development in terms of creating sensors and software for production in China. So, we are working with different software providers in China that already are connecting like thousands of CNC machines through sensors and through their software. And they provide an API that we can link to.
Matthieu David: Interesting. For the production, they provide an API.
Nicolai Peitersen: Yeah.
Matthieu David: Could you exemplify a little bit?
Nicolai Peitersen: And also, there are the steps before the production. So, you can simulate the production before you start producing. So, they will have the software where you can say what level of quality you need. With this level of quality, you simulate your design and you make it ready for production. And then when it’s right to produce at the quality you want, it can go directly to the CNC and start being produced.
Matthieu David: Would you mind explaining what CNC is?
Nicolai Peitersen: As I mentioned before, the casing, for example, of a laptop or your mobile is done by a CNC machine. So, it either has three or five axes that can shape any type of material. If it’s materials that laptop casing needs, then it cuts it the way that you need for laptop casing, for example.
Matthieu David: Is CNC a kind of 3D printing?
Nicolai Peitersen: It is what you call a digital fabrication. Yeah. So, the difference is that CNC is what we call subtractive. So, it cuts. Whereas what you normally call 3D printing production is layers. That’s print and layers, but they’re part of the same revolution of what we call a digital fabrication. So, some cut. Some put layers on. Some do it through laser and etc. But they’re all part of digital fabrication.
Matthieu David: We are entering the last 15 minutes and I’d like to open up the discussion to bigger topics like economics. You have been working as a researcher in economics for the Central Bank in Europe and also at JP Morgan. We can see that capitalism is changing with the sharing economy and the fact that you can put all your data online. You can put your plan online. You are sharing to build a product, but you don’t care about the IP and making money out of the IP. How do you feel it’s sustainable? Do you think it’s a major change in capitalism? Or do you think it’s actually someone waiting to take advantage of it?
Nicolai Peitersen: Every change in a socioeconomic model all depends on what you call the Iron Cage. So that’s a theory by Max Weber, a sociologist, that said that any system becomes institutionalized through the corporate or commercial laws, through regulation, through the monetary system, etc. So, we are seeing a change in the socio-economic model away from the neoliberal model to a model that is much more open and collaborative. But for that system to actually become the main part of our economy, it needs to be institutionalized, which means, for example, the intellectual property laws and regulations need to change for a new system to emerge. So, yes, we are seeing a change. And we have many success stories for the new model. But the point is for that to become the model that this society and economy operating under, it requires political intervention. It requires changes in the intellectual property rights system. It requires changes in the monetary system, and etc.
Matthieu David: What would be one change that would make it possible to share your invention, but still making a profit or getting a benefit from it?
Nicolai Peitersen: Yes. So, let’s talk about intellectual property rights a little bit. So, first, let me explain why it’s going to be difficult to uphold in the future. So, for example, all smartphones are soon going to have 3D in-depth scanning devices. So, 5 billion people will be able to scan anything. For example, the cup that you mentioned before. So, I like this cup. I will scan it. And then, for example, you can upload it on Wikifactory or some other platform. And then we will have the 3D design of this cup. Then you can send it to any machine around the world and get it made. So, when 5 billion people are able to basically copy anything and send it to anywhere and get it made, then IP is going to be very difficult.
So, we’re looking at different models for the future. Of course, one is using blockchain. For example, when you have an open collaborative system on Wikifactory, we know who has uploaded the initial design. We know who has contributed to it. We know who has been downloading it or making it etc. So, you can start imagining a much more open and dynamic IP model. When revenues come through our system, we can distribute those proceeds to those who have contributed to the collaboration. So, it’s not that it’s one person who’s assigned the IP, but it’s a community of contributors that get allocated.
Matthieu David: I see.
Nicolai Peitersen: Then, of course, the other way is what happened in the music industry. So, it’s through subscription. So, it’s not about the individual song as such. It’s more than in the future, consumers in the production industry are going to subscribe to a platform and have access to a library of product designs. So, imagine this more like an IKEA of the 21st century. So, you want a table at home but maybe you want it in different dimensions. So, it’s very easy because it’s a file. So, you can just change it to the dimension you want. And then you get it made and sent to you, but what you’re paying for is a subscription to this library of designs.
Matthieu David: I see.
Nicolai Peitersen: And then the money that Wikifactory gets from this would go to the downloads. So, somebody downloads the design of this table. And then whoever gets the most downloads gets the bigger part of the revenues. So, there’ll be new models emerging in this industry – we are witnessing the disruption of the production industry in China but also in the whole world – —a bit like what happened in the music industry. And then thirdly, we are actually doing an experiment right now in China, where we’ve invited 10 international furniture designers to provide their designs open-source to Chinese manufacturers, but then we protect their brand and their logo.
So, through QR codes, we know this batch of furniture is from this designer and has the logo and the name of the designer. Chinese manufacturers can copy and make the same furniture. They can innovate on it, or change it, or whatever they want. So, you keep the innovation happening on the product level. But from the consumer level, they want to know that this is from this famous designer, or this is from this international product development company. So that’s what they’re paying for. They’re paying for the intangible value and not the tangible value of the product.
Matthieu David: Yeah, and to ensure the product is actually well done and the material is good and not actually cheating on the material used. The brand is a protection and a promise, right?
Nicolai Peitersen: Yeah. You cannot copy the designer themselves, but you can copy the product. So that’s what we’re trying to say. “Okay, let’s forget about protecting the product itself. Let that stay open-source and anyone can do. But then, have tight control regarding the batches that come from that specific brand and the logo of that designer. And that’s where the margins come because margins on products and hardware are very low, but the margins on the intangibles or the brand value are high. So, it makes more sense.
Matthieu David: I know what you are saying. I’m working in luxury. This is the only industry where you have a luxury margin. Basically, that’s the brand that is making the margin.
Nicolai Peitersen: Yeah. Exactly.
Matthieu David: Another topic I’d like to talk about is more linked to the past experience that brought you to China. It’s an ethical rating. As far as I understand, you worked on how ethics can be taken into consideration to invest or to make an economic decision if I’m correct.
Nicolai Peitersen: Yeah.
Matthieu David: How does it speak to China, because China has been developing fast but it has been a very materialistic development? So, I believe ethics has not been a key metric in investment in China. So, what about the ethical economy in China?
Nicolai Peitersen: So, let me just point out that when we call it ethics sphere of ethical economy in China or anywhere else, which is what the book is called, it’s not about having one set of ethical principles. It’s more of a dynamic system of values. So basically, in any economy, there are three main questions you need to answer for any model behind an economy. One is, how is the value being created? And who decides what has value? This is because what has value to you and to me is different? So, who actually decides that, because that’s what’s being priced? And then thirdly, how is that value being shared? So, who benefits? These are the three fundamental questions that any economy or society needs to answer.
And the ethical economy model is in all these three levels—the value creation, the value set, and the value sharing. It’s an open deliberation process where people are included. It’s open innovation in terms of setting what has value. It’s including, for somewhat we call, a general sentiment. So that’s the rating. So, what is so unique in history right now? It’s that for the first time in history, we actually know what people value. Before then, it’d always be analysts. If you go all the way back, it will be the church.
Matthieu David: So, you mean we know what people value with the number of likes and what they follow.
Nicolai Peitersen: Exactly. So, it’s through likes, comments, etc. And then you have sentiment crawlers. So, you can measure what is the general sentiment around a brand or a product. And so, for the first time in history, we actually know what people value. And that is valuation as a pricing mechanism because if you choose an Airbnb flat, you’d probably look at the rating and the comments. So, it’s not about the price as such, but it’s about the general sentiment or the general valuation of people around that product. And that’s what we call the ethical economy in China, but also in the entire world. Suddenly, the general sentiment of people in allocating resources. It’s people making purchasing decisions based on it. And then the question is, how can you do this so, it becomes a system.
So, the financial system is based on this, for example. So how can the financial system also start to allocate resources based on general sentiment rather than on a few financial analysts deciding that this asset is a good one? And this is what China kind of like in the ideas because China always likes to experiment with different models. So, there’s the famous quote from Deng Xiaoping that he doesn’t care about the color of the cat as long as it catches mice. It means it doesn’t really matter what the system or ideology is as long as you can leave poverty or create jobs or have the actual impact. So that’s why I was invited to China. It was to say, “Okay, maybe this ethical economy model in China can solve some of the issues that we have in China—all the environmental issues, the social issues, etc. It’s about all the other values than pure GDP growth. So, it’s a system that can balance these things in a different way. So that was why they found interest in it.
Matthieu David: And before we started the recording, you talked about China’s social credit system but you’ve not used the word. How does it link to your work?
Nicolai Peitersen: Yeah. So, in the book, as I mentioned before, we were using the term ‘general sentiment’ which captures what people like—so to speak, value. And it’s interesting. So, the first manuscript of this book was done 15 years ago before we had all these likes, and etc. Our thinking back then was more like a peer-to-peer based system, where you’ll be able to allocate resources based on general sentiment. So, what’s interesting for me is that the Chinese government has implemented a type of general sentiment model – a kind of ethical economy in China – with a social credit score. And this the first government or attempt in the world to do a general sentiment system. Of course, the way that China has done it is not how we envision it. In China, it’s more top-down, meaning that they have already set what is the value in the system. Whereas, in our system, again, it’s having an open valuation?
So, it’s more about people saying what has value to them. And that’s what they’re being measured on rather than it being set by a few people. So that’s the difference, but it’s still a very interesting development. And I think it’s the right development. I’m not saying that the approach that I’ve used is the correct one, but I think that that the general sentiment model, the ethical economy in China and in the entire world, is going to be the model for the future, in any case, because it means that it’s not just about economic growth. It’s also about social inequalities. It’s about the environment. It’s about other values than pure economic growth. So, a measurement that captures all these different values into one score is more balanced than having just one parameter like GDP growth.
Matthieu David: We are close to the end of the interview. One question I’d like to ask is if I like a video on Facebook of someone crying, maybe I like the fact that this person actually is crying but fighting for something, or maybe I like the fact that this person is crying because I don’t like that. That’s why I liked it. So basically, there’s still a lot of interpretation, even though you have the factual element that I liked it. I believe there’s still a lot of technology to implement to make sure that you know what you like when you actually like on Facebook or like on WeChat.
Nicolai Peitersen: Yeah, for sure. But there are two things. One for me is how things are being valued in our model. So, what is being priced in the system is open. So, it’s like everyone can go in. It’s an open public deliberation dialogue by saying, “Okay, what is important to me and you?” So, everyone is part of setting the value of the system. So, you can impact things. And the other thing is all systems have problems. So, would you rather have 30 financial analysts at the 10 biggest hedge funds in the world basically deciding employment and social developments in your country compared to actually having a democratic or inclusive dialogue about what is being valued and how to allocate that value to people?
So, of course, it’s not mature now because as you said, it’s difficult to assess whether a like is meant as positive or can be positive to something negative, or what have you. But when we’re talking big data across millions, if not billions, of people, it will probably be a good estimate of a general sentiment. It might not reflect your specific sentiment, but across a million people doing it, it will be a good approximate. So, it’s at least worth to try out Because I’d rather have a valuation system where people can get involved than having a system where a few analysts decide on behalf of us.
Matthieu David: Thank you. We didn’t go through the last questions I usually plan because actually, we had enough to discuss. So, thank you for your time. It’s already been one hour. It’s a very interesting conversation about everything you have achieved with Wikifactory, this social platform for collaborative product development. I am surprised the name was available. Wikifactory is such a good name. How did you get it? Wikifactory.com. Did you pay a lot of others?
Nicolai Peitersen: No, I guess we were the first ones thinking about linking those two. And actually, we just had a summit in Copenhagen two weeks ago when we had Jimmy Wales, the founder of Wikipedia there. And he also had no problems with us using this name.
Matthieu David: I enjoyed very much talking to you and talking to entrepreneurs who have a big plan to change the world and making it step by step in these strategic and tactical ways to reach a bigger goal. It’s always very interesting to listen to. So, thank you very much for your time. I hope everyone enjoyed the talk. I did. Bye-bye, everyone.
Nicolai Peitersen: Thank you very much. Bye.
China paradigm is a China business podcast sponsored by Daxue Consulting where we interview successful entrepreneurs about their businesses in China. You can access all available episodes from the China paradigm Youtube page.
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