Open Innovation: Bottom-up & Peer-to-Peer

Dipl.-Inform. Robert A. Gehring

Technische Universität Berlin

Informatik und Gesellschaft

Institut für Weltwirtschaft (Kiel)

Workshop „Open Source Software“

Putbus auf Rügen 8./9. Juli 2004

„Das Charakteristische der gegenwärtigen technologischen Revolution ist nicht die zentrale Bedeutung von Wissen und Information, sondern die Anwendung dieses Wissens und dieser Information zur Erzeugung neuen Wissens und zur Entwicklung von Geräten zur Informationsverarbeitung und zur Kommunikation, wobei es zu einer kumulativen Rückkopplungsspirale zwischen der Innovation und ihrem Einsatz kommt.“

Manuel Castells (2001): Das Informationszeitalter I. Die Netzwerkgesellschaft, Opladen: Leske + Budrich, S. 34.

The Network Society 1

„[D]ie Anwender [haben] die Technologie durch Verwenden gelernt, haben am Ende die Systeme neu konfiguriert und neue Anwendungen herausgefunden.

...

Die neuen Informationstechnologien sind nicht einfach Werkzeuge, die benutzt werden, sondern Prozesse, die entwickelt werden (müssen). Anwender [können] Entwickler werden. Also können Anwender die Kontrolle über die Technologie übernehmen.“

Manuel Castells (2001): Das Informationszeitalter I. Die Netzwerkgesellschaft, Opladen: Leske + Budrich, S. 34.

The Network Society 2

The Theory of the Firm 1
(simple neoclassical model)

[ Technology ]

Input

Output

Profit

(Private Benefit)

(Social Benefit)

The Theory of the Firm 2 (Coase 1937) –
Two Ways of Organizing Production

Firm

Market

Production Costs

Production Costs

The Theory of the Firm 3 (Coase 1937) –
Two Ways of Organizing Production

Firm

Market

Transfer of Resources

(i.e. Property Rights)

Transaction Costs:

Seeking

Contracting

Enforcing

etc.

Production Costs

Production Costs

The Theory of the Firm 4 –
The Principal-Agent-Version

Firm

Firm

„Outsourcing“

(i.e. Contracting)

Asymmetric Information

Problems:

Moral hazard

Adverse selection

Signaling

etc.

Goals

Goals

Principal

Agent

The Theory of the Firm 5 (2004) –
More Ways of Organizing Production 1

Firm

Market

Products/Prices

Demand/Wages

Community

The Theory of the Firm 6 (2004) –
More Ways of Organizing Production 2

Firm

Market

Demand/Wages

Products/Prices

Community

Basic Research,

Infrastructure

Human Capital

etc.

Properties of Software (in short)

High development costs for first copy of a product („sunk costs“)

Low marginal costs for additional copies

Public good properties

Nonrival consumption

Nonexclusion

Free rider problem

Incremental, sequential development after initial development

Complementary components (e.g. operating system + application program)

Components-based systems (replacement, modification possible)

(In)compatibility

Properties of the Software Market (in short)

Network externalities

„Winner-take-all“-market

Favors dominant players

Favors strategic behavior

Overlapping (intellectual) property rights

[Trade secrets] (to hide in binary code and/or NDA)

Copyright (expression)

Patents (function = „ideas put into action“)

Trademarks

Information goods => asymmetric information problems

The Theory of the Firm 7 (2004) –
Ways of Organizing Software Production 1

Firm

Market

Demand/Wages

Products/Prices

Community

Open Source Code

Closed

Source

Code

The Theory of the Firm 8 (2004) –
Ways of Organizing Software Production 2

Firm

Market

Demand/Wages

Products/Prices

Community

Open Source Code

Closed

Source

Code

Exclusive

Intellectual

Property

Rights

Non-Exclusive Intellectual

Property Rights

The Theory of the Firm 9 (2004) –
Ways of Organizing Software Production 3

Firm

Market

Demand/Wages

Products/Prices

Community

Open Source Code

Closed

Source

Code

Costs?

Benefits?

Transaction Costs Compared

Prorietary Closed Source Code

Seeking:

Low (monopoly)

High (depending on market fragmentation)

Contracting:

High (monopoly)

Low-High (depending on IPR-fragmentation)

Prohibitive (extreme IPR-fragmentation → „anticommons“)

Enforcing: varying

Open Source Code

Seeking:

Low (central repositories)

High (special demands)

Contracting: negligible (due to nonexclusive IPRs)

Enforcing: low (almost negligible)

Asymmetric Information Problems

Proprietary Closed Source Code

Moral hazard: frequently

Adverse selection: common

Signaling: hard, only indirectly

Branding

Advertising

Liability

Open Source Code

Moral hazard: hard

Adverse selection: hard

Signaling: easier, access to source code and open communication reveal

„hidden characteristics“
(of developers)

„hidden properties“
(of product)

„[T]he structure of an industry may change rapidly as costs shift.“

Dennis W. Carlton & Jeffrey M. Perloff (2000): Modern Industrial Organization, Reading, MA: Addison-Wesley, p. 6.

Costs and Structure

Open Innovation & the Community (e.g.) I

Eric von Hippel (1988): The Sources of Innovation, Oxford University Press.

Eric von Hippel (1994): Sticky Information and the Locus of Problem Solving: Implications for Innovation, Management Science Vol. 40, Iss. 4, 1994, pp. 429-439.

AnnaLee Saxenian (1994): Regional Advantage, Harvard University Press.

Etienne C. Wenger & William M. Snyder (2000): Communities of Practice: Warum sie eine wachsende Rolle spielen, Harvard Business Manager, 4/2000, S. 55-62.

C. K. Prahalad & V. Ramaswamy (2000): Wenn Kundenkompetenz das Geschäftsmodell mitbestimmt, Harvard Business Manager, 4/2000, S. 64-75.

Atila Ardal (2000): Open Source – das Beispiel Linux. Ökonomische Analyse und Entwicklungsmodell eines erfolgreichen Betriebssystems, Diplomarbeit, TU Berlin,
<http://ig.cs.tu-berlin.de/oldstatic/da/059/ardal-opensource.pdf>.

Bruce Kogut & Anca Metiu (2001): Open-Source Software Development and Distributed Innovation, Oxford Review of Economic Policy, Vol. 17, No. 2.

Ilkka Tuomi (2001): Internet, Innovation, and Open Source: Actors in the Network, First Monday, Vol. 6, Iss. 1, 08 Jan 2001,
<http://www.firstmonday.dk/issues/issue6_1/tuomi/>.

Susan L. Graham (2001): From Research Software to Open Source, LNCS 2000, pp. 195-208.

Eric von Hippel (2001): Innovation by User Communitites: Learning from Open-Source Software, MIT Sloan Management Review, Summer 2001, pp. 82-86.

Open Innovation & the Community (e.g.) 2

Alan MacCormack (2001): Product-Development Practices That Work: How Internet Companies Build Software, MIT Sloan Management Review, Winter 2001, pp. 75-84.

Yochai Benkler (2001): Coase's Penguin, or, Linux and the Nature of the Firm,
<http://www.benkler.org/CoasesPenguin.PDF>.

Stuart L. Hart & Clayton M. Christensen (2002): The Great Leap. Driving Innovation From The Base of the Pyramid, MIT Sloan Management Review, Fall 2002, pp. 51-56.

Michael Friewald, Knut Blind & Jakob Edler (2002): Die Innovationstätigkeit der deutschen Softwareindustrie, Wirtschaftsinformatik 44 (2002) 2, S. 151-161.

Ilkka Tuomi (2003): Networks of Innovation, Oxford University Press.

Henry W. Chesbrough (2003): The Era of Open Innovation, MIT Sloan Management Review, Spring 2003, pp. 35-41.

Nikolaus Franke & Eric von Hippel (2003): Satisfying heterogeneous user needs via innovation toolkits: The case of Apache security software, Research Policy, Vol 32, Iss. 7, pp. 1199-1215.

Robert A. Gehring & Bernd Lutterbeck, Hrsg. (2004): Open Source Jahrbuch 2004, Lehmanns Media.

Steven Weber (2004): The Success of Open Source, Harvard University Press.

Eric von Hippel (forthcoming 2005): Open source software projects as „user innovation networks“ - no manufacturer required.

OECD data, Eurostat data, ...

Open Innovation: How, When & Why...

No doubt: Innovation in the community is a matter of fact!

But...

How...

When...

Why...

... does it happen?

Motivational Aspects 1:
Incentives to Innovate

User innovates when:

expected benefits outweigh costs (von Hippel 2001);

opportunity costs are low (small, incremental innovative steps are cheap to integrate with source code access);

not to innovate is costly (e.g., for reasons of security).

When „agency-based“ (i.e. firm-based) innovation is too costly:

User: costs of changing code vs. costs of getting code changed

„Sticky“ information (von Hippel 2005), i.e. information is hard to transfer from principal (user) to agent (firm).

„Agency costs“ are too high (e.g., due to strategic behaviour).

Small, incremental innovative steps vs. product-innovation.

Motivational Aspects 2:
Incentives to Reveal Innovation

Outsourcing production (e.g. promote individual innovation into mainstream distribution in order to avoid costs of reimplemention with next release).

Costly to hide (information security).

Expected loss (from foregone IP protection) is low because rivalry with potential adopters is low (Harhoff u.a. 2000).

User-user vs. Competitor-competitor.

Expectation of rivals to reveal innovation anyway (Lakhani & von Hippel 2000).

Costs of revealing are low and small benefit is available (e.g. reputation, reciprocity, enhanced possibilities for information exchange, etc.) (Lerner & Tirole 2000, von Krogh 1998).

Motivational Aspects 3:
Incentives to Reveal Innovation

Positive externalities (e.g. security enhancements in networked environment) (Gehring 2004).

Strategic behavior (e.g. avoid lock-in, enter market, promote competition etc.).

Intrinsic motivation („Just for fun.“)

[Erkenntnisse aus `behavioral economics' verweisen auf weitere Motive.]

Organizational Aspects 1

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Developer

Maintainer

Distributor

Hoster

Selection + Feedback = Evolution!

Peer-to-Peer Cooperation

Bottom-up Propagation

„virtual principal“

„virtual agents“

Organizational Aspects 2

Global Project

Distribution

Local Project

Bottom-up Propagation

Governance Structures

Local Code

End-user

Platform

End-user

Platform

Peer-to-Peer Propagation

Further Information...

http://ig.cs.tu-berlin.de/forschung/OpenSource/

http://www.Think-Ahead.Org

http://opensource.mit.edu

2004-07-06T23:36:49