Session 14 – Reaction Paper



Session 14 – Reaction Paper

In their paper “Open Source Software and the “Private-Collective” Innovation Model: Issues for Organization Science”, Hippel, Von Krogh argue, that the open source software projects do not fit within either one of the two currently known models of innovation introduced in organizational science - the “private investment” model of innovation and the “collective” model of innovation. They then conclude that “open source” is an exemplar for a new compound “private-collective” model of innovation.

As a basis for their discussion, the authors try to prove that open source projects deviate from the traditional private investment model of innovation. In this reaction paper, I will try and show that this argument has several problems. Although I do believe that open source projects differ from traditional innovation models, I do not agree with the authors as to the way that they differ.

Private investment innovation model, as defined by Demsetz and quoted in this Article, assumes that innovation will be supported by private investments and that private returns can be appropriated from such an investment[1]. This definition can be broken down into two elements:

- Private investments

- Potential private returns

The authors argue that open source projects cannot fit within the private investment model of innovation for two reasons.[2] First, software users rather than software manufactures are typically the innovators in open source projects. Second, open source innovators freely reveal the propriety software that they have developed.

It is my argument that these two deviations are not sufficient to determine that open source projects do not fit within the traditional definition of the private investment model. As can be seen from the definition of private investment model of innovation, neither one of its conditions contain any restrictions as to “who” should be the innovator. Put differently, the definition of the private investment model does not limit itself to inventions by manufacturers rather than users. The model does not “care” who makes the invention, as long as someone does it. Even the authors acknowledge this fact when they say that “[t]he model places no additional constraint on who will tend to innovate”[3]. It is unclear from the Article, why they chose to add a new constraint. Additionally, I believe that the statement regarding the identity of the innovators is not necessarily correct. Many of the high-tech start-up companies (which I believe the authors will have no problem in categorizing as private investment innovations) are users that found a need for an artifact and therefore started an innovation process. To that extent, even Microsoft started as a user who detected a need for a new operation system. In other words, many times the innovation process even in the traditional private investment model is initiated by a “need” of a “user”.

The second deviation the authors mention refers to the free availability of the invention, which relates to the second prong of the definition of private innovation model – potential private returns. Again, I do not think that this is really a deviation from the traditional definition of private innovation. The authors themselves explain how open source developers do enjoy economical benefits (through network effects, low diffusion costs and other means of rewards such as elevated reputation)[4]. One should also note that the definition of private innovation model referred to potential private returns and not the maximization of those returns. The fact that the inventor could receive more returns using a different business model is irrelevant according to the authors’ own definition.

One can argue that open source projects are actually even a more “pure” form of private investment innovation model because there is no need to complement the model with intellectual property protection to enhance the incentive to create. While traditionally society has granted intellectual property rights to artificially create an incentive to innovate, in the case of open source software the incentive to innovate exists a priori in the market place.[5] This way we even eliminate the need for artificial intervention in the marketplace.

In sum, it seems that if we do not unnecessarily and artificially constrain the definition of private investment innovation model, as the authors of this Article do, open source models can fit into this model.

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[1] P. 212.

[2] P. 213

[3] p. 214.

[4] P. 215.

[5] One can also claim that some open source inventors revel their inventions for ideological reasons, rather than economical. However, this is beyond the scope of this paper. In this paper I am trying to show that even if we adopt the economical view of the authors, there are flaws in their argument.

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