1. CHALLENGES OF OPEN INNOVATION: THE PARADOX OF FIRM INVESTMENT IN OPEN-SOURCE SOFTWARE
Course: Strategic Management of Technology
Professor: Deok-Joo Lee, PhD.
Presented by: Pablo Rosales and Aida Mercado

2. Presentation contents
Goals of the presentation
Introduction to the paper
Paper Analysis
Conclusions
Questions ?

3. 1. Goals of the Presentation

4. Goals of the presentation
To make an analysis of the paper considering the following aspects of it:
Goals
Research design
Contribution of paper’s authors
The link to the contents of the course
To make a presentation of the results of our analysis

5. 2. Introduction to the paper

6. Title Authors Publisher Year General facts
Challenges of open Innovation: the paradox of firm investment in open-source software
Authors
Joel West and Scott Gallagher
Publisher
R&D Management, Blackwell Publishing
Year
2006

7. Goals of the paper 1
How do firms embrace open innovation approaches as part of their R&D efforts? 2
Why would firms commit their IP and outgoing human resources to an effort that they know will benefit others, including competitors ? 3
Why do individuals contribute their IP to a project that benefits firms without receiving financial remuneration?

8. Research Design Research methodology Based on qualitative data
Sources of data
Primary
Secondary
Interviews to for-profit
firms
Industry conferences and
seminars
800 news articles from:
Trade Journals
Business press
Websites

9. Contributions
Open Source Software in the context of the Open Innovation Paradigm
4 strategies used to deal with the challenges of the Open Innovation Paradigm 1. 2.

10. 3. Paper Analysis

11. Analysis framework Challenges of OIP Strategies Maximizing internal
Background
Challenges of OIP
Strategies
Maximizing internal
R&D
1. Pooled R&D
2. Spinouts
2. Incorporating
external innovations
Address
3. Selling
complements
3. Motivating spillovers
4. Donated
complements

12. Analysis framework Challenges of OIP Strategies Maximizing internal
Background
Challenges of OIP
Strategies
Maximizing internal
R&D
1. Pooled R&D
2. Spinouts
2. Incorporating
external innovations
Address
3. Selling
complements
3. Motivating spillovers
4. Donated
complements

13. Background In this paper, what does Open Source Software (OSS) mean ?
Examples of relevant OSS projects
The link between Open Innovation (OI) and OSS

14. In this paper, what does Open Source Software (OSS) mean ?
OSS that complies with criteria
Free Redistribution
Source Code
No Discrimination Against Persons or Groups …
Set of licenses
GPL
MIT License
Apache License
Dev.
Method
Geographically dispersed programmers collaborate to jointly produce software

15. Examples of relevant OSS projects
GNU/Linux, OS
Firefox, Web Browser
Apache, Web Server
OpenOffice,
Office Suite

16. The link between Open Innovation (OIP) and OSS
Paradigm
Open-source
Software
Shared rights to use
the technology
Represents a
Strategy that
helps to
deal with
Collaborative
development
of technology

17. Analysis framework Challenges of OIP Strategies Maximizing internal
Background
Challenges of OIP
Strategies
Maximizing internal
R&D
1. Pooled R&D
2. Spinouts
2. Incorporating
external innovations
Address
3. Selling
complements
3. Motivating spillovers
4. Donated
complements

18. Challenge 1: Maximizing internal R&D
Feeding the company’s
product pipeline
Licensing of IP
Building absorptive capacity
and use it to identify external
innovations
Giving away technology

19. Challenge 2: Integrating
Scanning
Absorptive capacity,
Political willingness to
incorporate the external
innovation

20. Challenge 3: Motivating
How can firms work to insure
that a stream of external
innovation is replenished ?
Why would firms contribute
IP that was going to be made
available to their rivals
This is the Paradox !

21. Analysis framework Challenges of OIP Strategies Maximizing internal
Background
Challenges of OIP
Strategies
Maximizing internal
R&D
1. Pooled R&D
2. Spinouts
2. Incorporating
external innovations
Address
3. Selling
complements
3. Motivating spillovers
4. Donated
complements

22. Strategies categories
1st Category:
Structural approach,
driven by relationships
between contributors
1. Pooled R&D
2. Spinouts
3. Selling
complements
2nd Category:
Product centric, driven by
value proposition
4. Donated
complements

23. Structure to study each category
The basic idea behind the strategy
Main characteristics
Strategy variants
Example projects

24. 1. Pooled R&D
The basic idea: Firms donate IP to the open- source while exploiting the common benefits of all contributors to facilitate the sale of relates products

25. 1. 2. 1. Pooled R&D Main characteristics:
Allow non-members to accrue many of the same benefits as members
Technical contributions to these projects extend beyond the sponsoring companies to include user organizations, academics, individual hobbyists and other interested parties 1. 2.

26. 1. Pooled R&D
Example projects:
GNU/Linux, OS
Mozilla, OS

27. 2. Spinouts
The basic idea: Firms transform internal development projects to externally visible open- source projects

28. 1. 2. 2. Spinouts Main characteristics:
The donated IP generates demand for other products and services that the donor continues to sell
Firms maintain an ongoing involvement on the project 1. 2.

29. 3. 4. 2. Spinouts Main characteristics (…continued):
Makes sense for technologies that either are not yet commercialized, or that will eventually become commoditized
Help firms to establish their technology as de facto standards 3. 4.

30. 5. 6. 2. Spinouts Main characteristics (…continued):
Attract improvements and complements that make the technology more attractive
The innovation and complements enable the sale of related products 5. 6.

31. 7. 2. Spinouts Main characteristics (…continued):
Generates mindshare and goodwill with the same audience that includes the potential customers for these related product 7.

32. 2. Spinouts
Example projects:
Eclipse Tools

33. 3. Selling complements
The basic idea: a pre-existing code is available; firms build internally complements to the product that includes products and services.
Pre-existing code
(for free)
Complements
(payed)

34. 3. Selling complements Variants: Selling complements
2. Pre-existing code is internally developed
1. Pre-existing code is externally developed
Variants:

35. 1. 2. 3. Selling complements 1st variant characteristics:
Pre-existing open-source being developed without the intervention of the focal firms
Firms were willing to contribute back to the existing projects on an ongoing basis to:
assure that the technology continued
meet their respective needs, to maintain absorptive capacity
to avoid discouraging external innovators 1. 2.

36. 3. 3. Selling complements 1st variant characteristics (continued …):
The firms could continue to yield returns for internal innovation by combining the internal and external technologies to make a product offering that was not directly available through open source. 3.

37. 1. 2. 3. Selling complements 2nd variant characteristics:
A firm creates and sponsors an open-source project with their own software.
The firm continues to provide development resources to develop and improve that software. 1. 2.

38. 3. 3. Selling complements 2nd variant characteristics (continued …):
Firms use a price discrimination (versioning )strategy. 3.

39. 3. Selling complements Example projects: 1st Variant 2nd Variant
Apache Web Server
MySQL DB
IBM WebSphere
Oracle DB

40. 4. Attracting donated complements
The basic idea: Firms make their money off of the core innovation but seek donated labor for valuable complements
Core innovation:
Internally developed
Payed
Complements:
Externally developed
Donated

41. 4. Attracting donated complement
Main characteristics:
Publishers release editing tools for their products to encourage contributors to participate.
Complements extend the demand period for the product. 1. 2.

42. 4. Attracting donated complement
Main characteristics (…continued):
Practices to motivate contributions:
Availability of dev. tools
Creating infrastructure to facilitate collaboration
Recognition for contributors 3.

43. 4. Attracting donated complement
Example project:
Half Life game

44. Analysis framework Challenges of OIP Strategies Maximizing internal
Background
Challenges of OIP
Strategies
Maximizing internal
R&D
1. Pooled R&D
2. Spinouts
2. Incorporating
external innovations
Address
3. Selling
complements
3. Motivating spillovers
4. Donated
complements

45. Pooled r&d Strategy Addressing the Challanges
Challenges of OIP
Participants jointly contribute
to shared effort
Maximizing internal
R&D
Pooled contributions
available to all
2. Incorporating
external innovations
1. Pooled R&D
3. Motivating spillovers
Ongoing institutions
establish continuity

46. Spinouts Strategy Addressing the Challanges
Challenges of OIP
Seed non-commercial technology
To support other goals
Maximizing internal
R&D
2. Incorporating
external innovations
Supplants internal innovation
2. Spinouts
3. Motivating spillovers
Free access to valuable technology

47. Selling Complements Strategy Addressing the Challanges
Challenges of OIP
Maximizing internal
R&D
Target highest value part of
whole product solution
External components
Provide basis for internal
development
2. Incorporating
external innovations
3. Selling
complements
3. Motivating spillovers
Firms coordinate ongoing
supply of components

48. Donated Complements Addressing the Challanges
Challenges of OIP
Provide an extensible platform
For external contributors
Maximizing internal
R&D
Adding variety and novelty
to established products
2. Incorporating
external innovations
4. Donated
Complements
3. Motivating spillovers
Recognition and other
Non-monetary rewards

49. 4. Conclusions

50. Conclusions
Companies adopt OSS strategies because they allow them to deal with Open Innovation challenges.
Individuals contribute to OSS projects because they
can
obtain benefits from them:
Recognition
Valuable tools
Knowledge about a technology
Personal satisfaction

51. Goals of the paper 1
How do firms embrace open innovation approaches as part of their R&D efforts? 2
Why would firms commit their IP and outgoing human resources to an effort that they know will benefit others, including competitors ? 3
Why do individuals contribute their IP to a project that benefits firms without receiving financial remuneration?

52. 5. Questions ?