how firms make friends: communities in private-collective innovation
DESCRIPTION
When firms contribute to open source projects, they in fact invest into a public good which may be used by everyone, even by their competitors. This seemingly paradoxical behavior is explained by the model of private-collective innovation where private investors participate in collective action. Previous literature explains that companies benefit through the production process providing them with unique incentives such as learning and reputation effects. By contributing to such open source projects firms are able to build a network of external individuals and organizations, who may participate in the creation and development of the software. As will be shown in this doctoral dissertation firm-sponsored communities involve the formation of interorganizational relationships which eventually may lead to a source of sustained competitive advantage. However, managing a largely independent open source community is a balancing act between exertion of control to appropriate value creation, and openness in order to gain and preserve credibility and motivate external contributions. Therefore, this dissertation consisting of an introductory chapter and six separate research papers analyzes characteristics of firm-driven open source communities, finds reasons why and mechanisms by which companies facilitate the creation of such networks, and shows how firms can benefit most from their communities.TRANSCRIPT
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
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Apple iPhone Nokia N810 Openmoko
low Degree of openness high
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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
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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
1. Research on motivation, governance, and competitive dynamics
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Motivations of individuals
von Krogh, Spaeth, Haefliger, and Wallin; working paper 2008
1. Research on motivation, governance, and competitive dynamics
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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.*
1. Research on motivation, governance, and competitive dynamics
* 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
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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
1. Research on motivation, governance, and competitive dynamics
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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
1. Research on motivation, governance, and competitive dynamics
* Markus (2007)
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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)
1. Research on motivation, governance, and competitive dynamics
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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.
1. Research on motivation, governance, and competitive dynamics
* Shah (2006), Dahlander and Magnusson (2005)** von Krogh et al. (2009)
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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
1. Research on motivation, governance, and competitive dynamics
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Hybrid software stack of Maemo
1. Research on motivation, governance, and competitive dynamics
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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
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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)
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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
2. Characteristics of firm-sponsored open source projects
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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→
2. Characteristics of firm-sponsored open source projects
Level 3
Level 2
Level 1
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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
2. Characteristics of firm-sponsored open source projects
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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
2. Characteristics of firm-sponsored open source projects
* http://public.smi.ethz.ch/files/MaemoOpenmoko/PublicDescriptiveStatistics.html
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Source code analysis
2. Characteristics of firm-sponsored open source projects
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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
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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
3. Why firms invest into open source software
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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)
3. Why firms invest into open source software
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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
3. Why firms invest into open source software
von Hippel and von Krogh (2006)
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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
3. Why firms invest into open source software
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Active Eclipse committers per month
3. Why firms invest into open source software
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Community contributions
Maemo-Mapper Maemo-Stars
Hundreds of applications on maemo.org for Nokia Internet Tablets, e.g.
3. Why firms invest into open source software
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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
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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
4. Community building as source of competitive advantage
* Porter (1980)** Wernerfelt (1984), Barney (1991)
*** Dyer and Singh (1998)
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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
4. Community building as source of competitive advantage
Dyer and Singh (1998)
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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.
4. Community building as source of competitive advantage
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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.
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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.