Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation

1. Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation - Carliss Baldwin, Eric von Hippel 기술경영학협동과정 박사과정 조인성

2. Contents 1. Definitions 2. Research Framework 3. Collaboration and Modularity 4. Bounds on Viability 5. Bring Back Production and Transaction Costs 6. Discussion

3. Definitions

4. Definitions

5. Research Framework Producer Innovation Production cost / Transaction cost 고정 Design cost / Communication cost Single-User Innovation Bounds on Viability Modularity / Technologies (PC, standard design language, representations and tools) What else? Open Collaborative Innovation 복잡한 수식이 들어간 논문이 아니라 새로운 현상의 설명에 도움을 주기 위한 도구이며, 중요한 implication은 Discussion에 있음.

6. Collaboration and Modularity Modular design architectures are an important aid to collaborative work. • Within each module, elements of system are densely interdependent • Across modules, however, elements are independent or nearly so (Baldwin and Clark 2000) • “information hiding”(Parnas 1972): Most design-relevant knowledge and information does not need to cross module boundaries. Modularity is important for collaboration in design because separate modules can be worked on independently and in parallel, without intense ongoing communication across modules. In open collaboration projects, modularity and actionable transparency generally go hand in hand, with both factors contributing to the divisibility of tasks (Colfer and Baldwin 010)

7. Bounds on Viability

8. Bounds on Viability; Single-User Innovation • Communication costs do not enter the analysis because the user is a single agent that both designs and benefits from the use of an innovation. • As advances in design technology progressively reduce design cost, more innovation opportunities become viable for more users.

9. Bounds on Viability; Producer Innovation • As we show in the figure, the design costs are higher than the value of the innovation to a single user; hence the single-user innovation model is not viable for this design. • First(P), through the demand curve, a producer’s profit is determined by its customers’ willingness to pay. Producers’ incentives are derived from and depend on users’ valuations. Second(Q), like large-scale single-user innovators, producer innovators are affected by the size of the market for their goods. Finally(Cp), the need to communicate differentiates producer innovators from single-user innovators.

10. Bounds on Viability; Open Collaborative Innovation Communication cost • Emergent modularity is compatible with the constraints of open collaborative projects, where the design cost of each contributor (including project architects) needs to be relatively low. Communication costs are a major concern for open collaborative innovation projects. • User innovators will choose to participate in an open collaborative innovation project if the increased communication cost each incurs by joining the project is more than offset by the value of designs obtained from others. • Vs. Ancillary contributors (learning, reputation, and the fun) User innovators (Probability, fraction) Ancillary contributors (Nonuser participants) Design cost (average value) Value of participating (net of comm. cost)

11. Bring Back Production and Transaction Costs • if production costs or transaction costs are systematically higher for a particular model of innovation, • In terms of the bounds derived above, the single-user innovator’s bound would move • to the left, the producer’s bound would move toward the origin, and the open collaborative project’s bounds would move both down and left. • Production Costs • In such cases, the input is the design instructions (the recipe) plus the materials, energy, and human effort specified in those instructions; the output is a good (the design converted into usable form). • One of the major advantages producers have historically had over single-user innovators and open collaborative innovation projects is economies of scale with respect to mass production technologies. • “mass customization”: mass producers can design their production technologies to be independent of many of the specifics of the designs they produce.

12. Bring Back Production and Transaction Costs • Transaction Costs • If producer innovators have a production cost advantage for some (but not all) production technologies, free-revealingsingle-user and open collaborative innovators have an advantage with respect to transaction costs. • Single-user innovators, including process innovators, incur transaction costs when they seek to assert exclusive rights over their innovative designs. • They often find it more practical and profitable to freely reveal their designs to achieve network effects, reputational advantages, and other benefits and/or to avoid the cost of protecting their innovations. • Open collaborative innovation projects do not sell products, nor do they pay members for their contributions. In this respect, they do not incur transaction costs. • However, when an open collaborative project becomes large and successful, its members generally find that they must incur costs to protect the now-valuable design from malfeasance and expropriation. (e.g., GPL) • In this respect, free-revealing single-user innovators and open collaborative innovation projects have a transaction cost advantage over producer innovators.

13. Discussion • This means that producer innovators increasingly must contend with single-user innovators and open collaborative innovation projects as alternative sources of innovative products, processes, and services. • Interactions Between the Three Models • How will the presence of one influence the other(s)? In other words, how will the models interact? [Single-user & producer] • When single-user innovation and producer innovation are both viable, the single-user innovators must evaluate an innovation opportunity, not only in relation to their design cost but also in relation to the producer’s product and price. • Indeed, because of their distinct roles, producer innovators and single-user innovators may develop a symbiotic relationship. • By monitoring and incorporating lead-user innovations into their own offerings, producer innovators may enhance their product and service offerings while at the same time reducing their design costs and increasing their likelihood of success in the marketplace (Lilien et al. 2002, von Hippel 2005). • In other instances, individual lead users may found companies for the purpose of commercializing their designs.

14. Discussion [Open collaborative & producer] • Open collaborative innovation projects are more likely to pose a threat to producer innovators than are single-user innovators. • The existence of a free design, even if it must be adapted by end users, puts price pressure on a producer innovator. • In contrast, users directly gain from any price drop and hence will benefit by supporting a collaborative project aimed at breaking the producer’s monopoly (Baldwin and Clark 2006b). • Alternatively, producers may become contributors to open collaborative projects for which they supply complements. Thus, in 1999, IBM became an important supporter of and contributor of code to Linux. IBM sells products and services that complement Linux, ranging from computers to proprietary software to consulting services. Similar examples are legion, such as Google’s support for an open source software stack for mobile devices (Android).

15. Discussion • Hybrid Innovation Models • Innovation platforms and the innovations appended to them are often a hybrid of single-user innovation, producer innovation, and/or collaborative open innovation. • Platforms can range from interface standards such as an application programming interface or a screw thread specification, to open source software platforms like Apache or Linux, to social networking sites like Facebook. • Innovation platforms can be a great source of profit for their owners when entry costs are low and network effects are strong. • Closed collaborative innovation, often termed “crowdsourcing,”is a hybrid of open collaborative innovation and producer innovation. • In this hybrid model, a producer innovator poses a problem, solicits proposed solutions from numerous third parties (the “crowd”) and then selects the best solution or combination.

16. Discussion; Open Innovation vs. Producer Innovation • Open Innovation vs. Producer Innovation • an organization’s “openness” to the acquisition of new ideas, patents, products, etc., from outside its boundaries, often via licensing protected intellectual property (Chesbrough 2003). • Design cost / Communication cost / Production cost / Transaction cost

17. Discussion; Motivations for Open Source Project Andersen-Gott M, Ghinea G, Bygstad B. Why do commercial companies contribute to open source software? International Journal of Information Management 2012; 32 (2): 106-117.

18. Discussion; OpenStack Cases Current (May, 2015) Total Activity • Commercial companies의 open source software project에 대한 참여 의도가 변화되고 있는 것은 아닌가? 이때의 각각의 design/communication/production/transaction cost http://activity.openstack.org/dash/browser/scm-companies.html?page=1 http://stackalytics.com/

19. Discussion; OpenStack Cases Company Activity History