Value Creation and Capture with Open Source Software: Understanding the Role of Value Networks Lorraine Morgan National University of Ireland, Galway

Introduction Shift from closed innovation to open innovation Open innovation - firms can and should use external as well as internal innovations/ideas Open source software seen as excellent exemplar of open innovation However, the very concept of OSS requires firms to rethink their strategy and reconsider the processes that underlie value creation and capture Emergence of OSS also poses a puzzle for conceptions of organisational and strategy theory

Value Creation Value defined as the perceived worthiness of monetary and non- monetary benefits of product/service on offer Value creation is the process of identifying key stakeholders eliciting their perspectives on the perceived worthiness of the product/service on offer, creating the value proposition for each and determining how business model will deliver that value Limited research on on value creation with OSS Existing research found that OSS vendors combined priced and un-priced complementary assets to create value Such complementary assets are often found in a value network

Traditional Approaches to Value Creation

Value Capture The process of appropriating monetary and non- monetary value from the value creation OSS has limited appropriability compared to proprietary software Existing literature found that the revenue model focuses on the sale of complementary goods/services to complete whole product A firm’s position in a value network of potential complementors determines the value captured

Traditional Approaches to Value Capture

The Importance of a Value Network for Value Creation and Capture Traditional methods take no notice of the importance of a value network Value networks defined as entities of several connected individuals/ organisational actors that transform and transfer various resources/knowledge When these networks work, they allow firms to create and capture value that no single firm could have created alone Substantial knowledge exchange in a network leads to value creation and capture as it facilitates joint learning, problem-solving and integration of complementary resources

In a network, value is co-created and co- produced All partners in the network need to be fully committed to cooperating with each other Need to keep in mind the divergent interests of all partners and ensure alignment of objectives Resources and capabilities have to be effectively combined and governed at the network level

Theoretical Propositions Proposition 1: Gaining access to a value network is critical to the ability of a firm to create value with OSS. Proposition 2: The greater the level of commitment, volume of knowledge exchange and alignment of objectives in a value network, the greater the potential for firms to create value with OSS. Proposition 3: The effective governance of a value network leads to greater value creation with OSS. Proposition 4: Gaining access to a value network is critical to the ability of a firm to capture value with OSS. Proposition 5: The greater the level of commitment, volume of knowledge exchange and alignment of objectives in a value network, the greater the potential for firms to capture value with OSS. Proposition 6: The effective governance of a value network leads to greater value capture with OSS.

Theoretical Model of Constructs & Relationships

Some findings to date

Most importantly, it was found that access to value networks of potential complementors is extremely important for both value creation and capture These networks allow companies to access, transfer and benefit from valuable resources in the form of skills, competencies, knowledge etc.

Some findings to date There has to be a high level of commitment Network members must exhibit high levels of commitment before they become trusted members of the network A high level of knowledge exchange strengthens relationships Resources and capabilities can be effectively combined through formal and informal governance mechanisms

Thank you very much! Any questions? This work is supported in part by Science Foundation Ireland grant 03/CE2/1303_1 to Lero - the Irish Software Engineering Research Centre