how firms make friends: communities in private-collective innovation

How Firms Make Friends:Communities in Private-Collective Innovation

Doctoral Thesis by Matthias Stuermer, ETH Zürich, [email protected]

LIIP Tech Talk, July 16th 2009, Zürich

2July 16th 2009 How Firms Make Friends: Communities in Private-Collective Innovation

Apple iPhone Nokia N810 Openmoko

low Degree of openness high


Overview

1. Research on motivation, governance, and competitive dynamics

2. Characteristics of firm-sponsoredopen source projects

3. Why firms invest into open source software

4. Community building as source of competitive advantage


Motivation within open source communities

Greatest puzzle since the beginning of research in open source communities: Why do top-notch programmers contribute to open source projects?

No single motivational factor

Motivation is diverse: Review of 20 studies shows 10 different types of motivation



Motivations of individuals

von Krogh, Spaeth, Haefliger, and Wallin; working paper 2008



Evolution of motivation

Before 2000: contributions mostly driven by intrinsic and internalized extrinsic motivations

After 2000: commercialization of OSS increased, today many (if not most) relevant OSS projects driven by firms

Example: Linux kernel development Started by unpaid programmers Today >73% of code from Red Hat, Novell, IBM, Intel, etc.*


* Linux Kernel Development: How Fast it is Going, Who is Doing It, What They are Doing, and Who is Sponsoring It', The Linux Foundation. 2008


How firms gain influence on OSS projects

Influence of corporations increases when... firms reveal previously proprietary code firms employ core developers who previously

contributed as unpaid volunteers firms contract intermediary OSS entrepreneurs

New challenges in firm-driven OSS projects Possible crowding-out effects of intrinsic motivation

Create incentives to attract external contributions



Governance within open source communities

Definition of governance in OSS projects The means of achieving the direction, control, and

coordination of wholly or partially autonomous individuals and organizations on behalf of an OSS development project to which they jointly contribute.*

Governance mechanisms solve collective action problem Viral effect of GNU GPL Non-profit foundations


* Markus (2007)


Differences in how to gain control

Community-driven OSS projects Meritocracy: exercise of control on the basis of knowledge *

Technical contributions and organizational-building

behavior lead to authority and control **

Firm-driven OSS projects Business model: value creation and value appropriation

Firms need control to appropriate returns of investment

Balancing act between openness and control* Weber (1978)

** O'Mahony and Ferraro (2007)



Balancing act between openness and control

Control decreases contributions * Transparency increases contributions strongly Accessibility increases contributions slightly **

Balancing is difficult Too much control: communities may not contribute with

all of their energy, interest, and creativity Too little control: results may not serve the firm's goals.


* Shah (2006), Dahlander and Magnusson (2005)** von Krogh et al. (2009)


Competitive dynamics in OSS

Why do firms give away for free valuable investments in the form of source code? Because they have to (GNU GPL) Unique benefits through the innovation process

Is imitation by competitors a threat? Selective knowledge revealing strategies Public explicit knowledge, proprietary tacit knowledge The firm's community is core competitive advantage



Hybrid software stack of Maemo



Overview






Community-managed governance model

1. Independence: not dependent on any sponsor etc.

2. Pluralism: diversity of contributors etc.

3. Permeable representation: contributors can decide etc.

4. Decentralized decision-making: commit access etc.

5. Autonomous participation: new people may join etc.

2. Characteristics of firm-sponsored open source projects

O'Mahony (2007)


Are Firm-driven OSS projects the opposite?

1. Dependence on a single sponsor

2. Dominance of one company

3. Undisputed control by one sponsor

4. Centralized decision-making by the company's management

5. Restricted participation

→ Hybrid models are most common



Adoption level of the open source model

Building of a firm-sponsored community by

renouncing some of the project's governance

Revealing of proprietary source code under an

open source license full control by the firm→

Integration of externally available

open source software open innovation→


Level 3

Level 2

Level 1


Own research on firm-managed OSS projects

Eclipse Started off strongly controlled by IBM Today pluralistic non-profit foundation as legal authority

Maemo Mostly controlled by Nokia Now community council for more influence

Openmoko Firm-initiated Strongly dependent on community



Own research on firm-managed OSS projects

Data sets quantitative archival data: CVS (63m LOC) and messages (>350'000) expert interviews: ~ 25 interviews >1h, ~ 300 pages of transcripts online survey: 1233 responses, 28% response rate *

Methods longitudinal data: contributions of IBM vs. non-IBM employees grounded theory building: incentives and costs of OSS contributions structured equation modeling:

impact of control and reputation on motivation and contributions


* http://public.smi.ethz.ch/files/MaemoOpenmoko/PublicDescriptiveStatistics.html


Source code analysis



Overview






Three Innovation Models

1. Private investment model Appropriation of financial returns from innovations through

IPRs patents, copyright, licenses, trade secrets→ Knowledge spillover reduces innovator's benefits

2. Collective innovation model Investments in public goods non-rival, non-excludable→ Free riding problem public funding, governments→

3. Private-collective model of innovation Combination of both previous models Innovators privately fund creation of public goods



The private-collective model of innovation

Model explains conditions when innovators receive rewards from private investments in public goods

Rewards from process of innovation surpasses rewards of free-riders involvement in innovation process→

Explicit knowledge is revealed, tacit knowledge remains protected in the brains of people

Example: OSS is a public good when firms invest in →OSS, they conduct private-collective innovation

von Hippel and von Krogh (2003)



Incentives for private-collective innovation

1. No cost of controlling knowledge

2. Learning benefits

3. Reputation gain

4. Fast and widespread diffusion of innovations

5. Lower costs of innovation

6. Lower costs of manufacturing


von Hippel and von Krogh (2006)


Licensinginnovationsto other firms

Current concept of open innovation

Exploitation of existing ideas

Free revealing ofknowledge

Push model of open innovation

Inducing new external innovations useful for the firm



Active Eclipse committers per month



Community contributions

Maemo-Mapper Maemo-Stars

Hundreds of applications on maemo.org for Nokia Internet Tablets, e.g.



Overview






Sources of competitive advantage

Traditional views Industry structure view * Resource-based view **

New view: Relational view *** Network of relationships with other organizations

Embedded interfirm resources are difficult to imitate

Results in interorganizational competitive advantage


* Porter (1980)** Wernerfelt (1984), Barney (1991)

*** Dyer and Singh (1998)


Characteristics and sub-determinants

Determinants of relational rents Subprocesses facilitating relational rents

Relation-specific assetsDuration of safeguards

Volume of interfirm transactions

Knowledge-sharing routinesPartner-specific absorptive capacity

Incentives to encourage transparency and discourage free riding

Ability to identify and evaluate potential complementaritiesComplementary resources

And capabilities Role of organizational complementarities to access benefits of strategic resource complementarity

Effective governance Mechanisms

Ability to employ self-enforcement rather than third-party governance enforcement

Ability to employ informal versus formal self-enforcement governance mechanisms


Dyer and Singh (1998)


Ari Jaaksi, head of OSS operations at Nokia

But we believe the world is changing and

the competitive advantage comes from how

many others can you get from participating

in this network. This network becomes more

important than trade secrets.



References

Barney, J. (1991), 'Firm Resources And Sustained Competitive Advantage', Journal of Management 17(1), 99-120.

Dahlander, L. & Magnusson, M. G. (2005), 'Relationships between open source software companies and communities: Observations from Nordic firms', Research Policy 34(4), 481-493.

Dyer, J. H. & Singh, H. (1998), 'The Relational View: Cooperative Strategy and Sources of Interorganizational Competitive Advantage', Academy of Management Review 23(4), 660-679.

von Hippel, E. & von Krogh, G. (2006), 'Free revealing and the private-collective model for innovation incentives', R&D Management 36(3), 295-306.

von Hippel, E. & von Krogh, G. (2003), 'Open Source Software and the "Private-Collective" Innovation Model: Issues for Organization Science', Organization Science 14(2), 209-223.

Kroah-Hartman, G.; Corbet, J. & McPherson, A. (2008), 'Linux Kernel Development: How Fast it is Going, Who is Doing It, What They are Doing, and Who is Sponsoring It', Technical report, The Linux Foundation.

von Krogh, G.; Spaeth, S.; Haefliger, S. & Wallin, M. (2008), 'Open Source Software: What we know (and do not know) about motives to contribute', ETH Zurich.

von Krogh, G.; Spaeth, S.; Stuermer, M. & Hertel, G. (2009a), 'The credible sponsor: Participants’ motivation and firm attributes in collaborative digital innovation', ETH Zurich.


References

Markus, M. L. (2007), 'The governance of free/open source software projects: monolithic, multidimensional, or configurational?', Journal of Management and Governance 11(2), 151-163.

Porter, M. E. (1980), 'Competitive Strategy', New York: Free Press.

O’Mahony, S. (2007), 'The governance of open source initiatives: what does it mean to be community managed?', Journal of Management and Governance 11(2), 139-150.

O'Mahony, S. & Ferraro, F. (2007), 'The Emergence Of Governance In An Open Source Community', Academy of Management Journal 50(5).

Shah, S. (2006), 'Motivation, Governance, And The Viability Of Hybrid Forms In Open Source Software Development', Management Science 52(7), 1000-1014.

Spaeth, S.; Stuermer, M. & von Krogh, G. (2009a), 'Enabling Knowledge Creation Through Outsiders: Towards a Push Model of Open Innovation', International Journal of Technology Management(Forthcoming Special Issue on Open Innovation).

Weber, M. (1978) Economy and society. Berkeley: University of California Press.

Wernerfelt, B. (1984), 'A Resource-Based View of the Firm', Strategic Management Journal 5, 171-180.