Innovation and The Knowledge Economy

BMAN61001
Innovation and the

Knowledge
Economy
Individual Essay on von Hippel (2003)
Professor: Prof Andy McMeekin
Student ID: 9564023
Programme: MSc Innovation Management and Entrepreneurship
Date: 11th Dec 2014

Content

1) Introduction ................................................................................................................................. 1
2) Summary of the Paper .............................................................................................................. 1
3) Significances ............................................................................................................................... 2
3.1) Open Source as an Alternative to Patents ................................................................................ 2
3.2) Role of Innovators as Users .......................................................................................................... 3
3.3) Network of Innovators ................................................................................................................... 3
4) Limitations .................................................................................................................................. 4
4.1) Only Applicable to Non-rivalry & Non-excludable Goods ................................................... 4
4.2) Free-riding Culture vs. Innovation Diffusion .......................................................................... 5
5) Applications to Other Innovations ....................................................................................... 6

5.1) Niche Innovations – Electric Vehicles ........................................................................................ 6
5.2) Creative Works – Open Music ...................................................................................................... 6
6) Conclusion ................................................................................................................................... 7
References ........................................................................................................................................ 8
MSc Innovation Management and Entrepreneurship -‐ 9564023
1) Introduction
This essay first provides a brief summary of the paper written by von Hippel, which
introduces the ‘private-‐collective’ model. The significances and limitations of this model
are the focus of this essay in order to analyze the values and applicableness of the
model. The last part gives real applications that are in use in the commercial sector.
2) Summary of the Paper

The paper written by von Hippel and von Krogh (2003) discussed the current ‘private
investment’ model and ‘collective action’ model by outlining the history of development
and each of their merits and limitations. They proposed that open source software
development was an exemplar of the ‘private-‐collective’ model, which combined the
elements from both current models so that it could offer the society an overall better
model.
‘Private investment’ model assumes that innovations are funded and developed
privately. Profits are also appropriated privately as the ultimate motivation. This is
usually used for personal or business problem solving. There is no public collaborations
involved.
‘Collective action’ model assumes that innovations are public goods, which are non-‐rival
and non-‐excludable. The limitation is that contributors lack motivations as anyone can
simply wait and free ride on the others’ contribution to the project.
The hypothesized ‘private-‐collective’ model is a blend of these two models, where open-‐
source software development is cited as an exemplar of it. It is privately funded, but
instead of claiming proprietary rights over programme codes, innovators reveal it as a
public good. The motive behind revealing it to the public is that innovator could
appropriate private returns from network effect and sales of complementary goods.
Besides, open source software can also be customized and packaged as private goods
that generate returns, therefore users are motivated to develop on it.
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3) Significances
The following parts will discuss the concept of the ‘private-‐collective’ model in terms of
its significances and values to innovators. Related literature is included for discussion.
3.1) Open Source as an Alternative to Patents
One of the significances of the ‘private collective’ model is that it introduces an

alternative to patenting for technology developers while returns could still be
appropriated.
Patents can backfire sometimes. They are widely used in technological industry to
protect innovator’s interest by prohibiting competitors from using the same technology.
However, patents have been accused of overprotecting intellectual rights and
reinforcing economic inequality if misused (Stiglitz, 2013). Stiglitz discussed that right
owners could overcharge the public for using their services as they were the monopoly
in that part of the technology, one disastrous example being patenting human DNA.
Another journal criticizes the current patent regime as inhibiting democratization in the
workplace, fettering development of people’s capability and causing economic
development to slow down (Pagano, 2014). In response to these problems, Pagano
suggested redistribution and collective sharing of knowledge assets be carried out in
order to restore open science and open markets.
Clearly, the existing regime is not a perfect solution to protect intellectual rights and
there is room for a better system. The aforementioned recent critics have drawn
attention to the downsides of the patent regime. The ‘tragedy of anticommons’ occurs
when people underuse scarce resources because of patents’ protections (Heller &
Eisenberg, 1998). So if the idea of ‘private-‐collective’ introduced by von Hippel can be
adopted widely in the technological sector, it should be promoted to more developers. It
allows other parties to use the already patented technologies and further develop on
them and utilize the technologies in more efficient ways. It also allows more
collaboration into any specific projects.
Adopting a ‘private-‐collective’ model enhances technological advances too. In fact, it has
been argued that technology advances are a result of the co-‐evolution of generic
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knowledge and specific practices, which are public and private goods respectively
(Nelson, 1989). Therefore, technological advances in nature are partly public and partly
private too. This view shares similarities with open source software development.
Programme codes are shared as generic knowledge; on the other hand, software can be
customized to specific practices, which make it a private good. The concept of this
‘private-‐collective’ model, if spread across the industries, could encourage sharing and
enhance technological advances too. Examples are discussed in the latter application
part of this essay.
3.2) Role of Innovators as Users
Users in a ‘private-‐collective’ model could be innovators. In another article by von

Hippel, it was mentioned that lead-‐users, whose strong needs will become mainstream
in the future are a good source of marketing research information (von Hippel, Lead
Users: An Important Source of Novel Product Concepts, 1986).
In the open source example, the role of users is illustrated to the next level, that they act
as innovators in the process of development. Users of the software have clear
understanding of their own needs, therefore they can make the exact changes that they
desire. Software codes, as a form of knowledge, can be improved and developed through
use. As the software becomes better through refinement, developers as well as users
both benefit from having better software.
In terms of output, the ‘private-‐collective’ model yields faster product improvements,

through subsequent effort made by contributors. The product is enhanced cumulatively
over time. Its development follows the path of the majority of innovation, which is
incremental rather than radical (Conway & Steward, 2009). They are usually minor
modifications or improvements that accumulate and raise efficiency towards a stable
state where a technological bottleneck is reached. With public engagement, the product
improvement process can be speed up and reach almost maximum efficiency in a
shorter time.
3.3) Network of Innovators
The ‘private-‐collective’ model uses a more flexible innovator network. It employs an

‘invisible college network’, which is characterized by a highly fluid and informal
3
network among innovators, contributors and users. The importance of this network is
that it yields collaboration without having contributors to commit themselves formally
into a project.
Android system, as an open source platform example can adequately demonstrate the
benefits to each party. While other mobile phone manufacturers, e.g. Samsung, use and
develop on the Android system, they benefit by selling phones that use their customized
version of Android. In other words, they turned it into private goods and gain returns.
On the other hand, Google, the owner of Android, benefit from higher sales of
complementary goods, such as apps on Google stores due to higher diffusion. More
importantly, in such a network, Samsung is not committed to Google by using Android,
but both sides mutually benefit from the process. This flexibility of this loose network
does not come at the expense of efficiency, as knowledge is widely and promptly shared
among the developer community.
4) Limitations
While this model is as perfect as it is discussed, it is not commonly seen elsewhere
among business firms in reality. This phenomenon might be explained in this section.
4.1) Only Applicable to Non-rivalry & Non-excludable Goods
The idea of ‘private-‐collective’ model can only be applied to public goods, which are
non-‐rival and non-‐excludable. In open source’s case, software being in electronic form,
it can be easily copied and shared over the Internet. One’s consumption of the software
will not deter the others from using the same software, so it is non-‐rival. Besides, once
the software code is published, information spread quickly through the Internet, so it is
hard to exclude anyone from using it. However, when it comes to commercial goods,
many of the commercial goods are tangible and rival in nature. Only non-‐rival
commercial goods such as designs, films, software and algorithms, which are intangible
rather than ‘physical’ can be made open source. The applicableness of the model is
limited by a large extent.
Moreover, public goods are less attractive to be developed by commercial firms. When
everyone has access to that particular product, there is no incentive to develop on that
4
product and benefit everyone in the system. Commercial firms have to devise a revenue
model that captures profits in indirect ways, for example, sales of complementary
goods.
4.2) Free-riding Culture vs. Innovation Diffusion
Free-‐riding is often cited as a major drawback in the ‘collective-‐action’ and ‘private-‐

collective’ models. When resources are open to everyone, and collaborations are public
and voluntary, there must be free-‐riders who simply use the resources without
contributing back to the community.
However, there are some benefits that free-‐riders could not enjoy. von Hippel (2003)
argued that contributors were rewarded with enjoyment in the process, personal
learning and sense of ownership, but not free-‐riders. So the question of whether it is
equitable to allow free-‐riders to use the same improved resources very much depend on
the value of personal rewards each developer perceives.
Some others argued that having free-‐riders was not a total disadvantage. A research on
Wikipedia (Antin & Cheshire, 2010), which was an example of collaborative action
model, pointed out that free-‐riders had their values, and reading was a form of
participation. The amount of free-‐riders, i.e. people who only read, but never edit on
Wikipedia, served as an indicator of the value of Wikipedia articles (Bryant, Forte, &
Bruckman, 2005). Another research on Chinese Wikipedia also suggested that smaller
audience size resulted in lower motivation in contributing (Zhang & Zhu). This
mechanism applies to open source software development as well. As more people use
the software, even though they are free-‐riders, the software gains values and higher
diffusion. In the long term, if people get used to using the same product, this may create
lock-‐ins due to the path of open source development, that new entries could not easily
make users switch.
5
5) Applications to Other Innovations

Having learnt the significances and limitations, one can possibly apply the ‘private-‐
collective’ model to some non-‐software commercial scenarios too. Examples are niche
hi-‐tech innovations and creative works.
5.1) Niche Innovations – Electric Vehicles
Tesla Motors Inc., an American car manufacturer made electric car techlogies open
source and shared their patents to the public, said CEO Elon Musk (2014). It was said
that after realizing the sales of electric cars were too small (less than 1% of total car
sales) in major manufacturers, there was a huge market that Tesla and other
manufacturers could capture. As a result, it was hoped that the environment would
benefit in a greater extent compared to Tesla’s own benefits by patenting electric cars
technologies.
This example has demonstrated Geel’s view on the socio-‐technical low-‐carbon

transition (Geels, 2012). If we view the transition in multi-‐level perspective, electric
cars, having so low relative sales, are niche-‐innovations. By revealing the complex
technology involved in electric cars, it is hoped to form a small network that align other
manufacturers’ effort to compete against the dominant, non-‐zero emission car designs,
which constitutes the regime. In the long term, if the landscape, such as the government
or users’ habitual change favours electric cars, and gives rise to windows of
opportunities, electric cars will join the regime and become stabilized. So, open source
could potentially reinforce niche-‐innovations and align global efforts from other car
manufacturers towards greener technologies.
5.2) Creative Works – Open Music
In music industries, “Open Music” has been invented that music is available in their
source code form, allowing public users to rework on music for non-‐commercial
purposes (Magnatune, 2014). Remixes, sampling, covers are encouraged that users are
free to download any music they like, thus enhancing music development and enriching
one’s resources. However, if one uses the online materials for commercial use, they have
6
to share the returns to the platform as well as the original artists. This is an example of
creative commons.
Such an open source model, although deviates from the ‘private-‐collective’ model in
terms of revenue generation, allows creative sharing and enhances the music industry.
Therefore, the purpose aligns with von Hippel’s ‘private-‐collective’ model and at the
same time could produce returns for the platform and for contributors in a different
way.
6) Conclusion
The idea of ‘private-‐collective’ model and the demonstration of it using open source
software development has provided important insights to technology development. It
could serve as an alternative to patents, involve users as a part of the innovator
community and create a collaborative network without rigidity while returns can still
be appropriated. Although its applicableness is debatable that it is only applied to public
goods and encouraging free-‐riding culture, it is especially beneficial in reinforcing
niche-‐innovations, as demonstrated in Tesla’s example. It also helps develop creative
works.
(2052 words)

7
References
Antin, J., & Cheshire, C. (2010). Readers are Not Free-‐Riders: Reading as a Form of
Participation on Wikipedia. Proceedings of the 2010 ACM conference on Computer
supported cooperative work (pp. 127-‐130). Savannah: ACM New York, NY, USA.
Bryant, S., Forte, A., & Bruckman, A. (2005). Becoming Wikipedian: transformation of
participation in a collaborative online encyclopedia. Proceedings of GROUP: International
Conference on Supporting Group Work, (pp. 1-‐10). Sanibel Island.
Conway, S., & Steward, F. (2009). Technological Regimes and Trajectories. In Managing
and Shaping Innovation.
Geels, F. (2012). A socio-‐technical analysis of low-‐carbon transitions: introducing the

multi-‐level perspective into transport studies. Journal of Transport Geography (24), 471-‐
482.
Heller, M., & Eisenberg, R. (1998). Can Patents Deter Innovation? The Anticommons in
Biomedical Research. Science , 280 (5364), 698-‐701.
Nelson, R. (1989). What Is Private and What Is Public About Technology? Science
Technology Human Values , 14 (229).
Musk, E. (2014, Jun 2). All Our Patent Are Belong To You | Blog | Tesla Motors. Retrieved
Dec 9, 2014, from http://www.teslamotors.com/blog/all-‐our-‐patent-‐are-‐belong-‐you
Magnatune. (2014). What is "Open Music"? Retrieved Dec 9, 2014, from

http://magnatune.com/info/openmusic
Pagano, U. (2014). The crisis of intellectual monopoly capitalism. Cambridge Journal of
Economics , 38 (6), 14099-‐1429.
Powell, W., & Grodal, S. (2006). Network of Innovators. In D. C. Jan Fagerberg, The
Oxford Handbook of Innovation. Oxford University Press.
Stiglitz, J. (2013, Jul 14). How Intellectual Property Reinforces Inequality. New York
Times .
von Hippel, E. (1986). Lead Users: An Important Source of Novel Product Concepts.
Management Science , 32 (7), 791-‐805.
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.
Zhang, X., & Zhu, F. Group Size and Incentives to Contribute: A Natural Experiment at
Chinese Wikipedia. American Economic Review , 101 (4), 1601-‐15.
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BMAN61001

Innovation and the

Individual Essay on von Hippel (2003)

Professor: Prof Andy McMeekin

Student ID: 9564023

Programme: MSc Innovation Management and Entrepreneurship

Date: 11th Dec 2014

2) Summary of the Paper .............................................................................................................. 1

5) Applications to Other Innovations ....................................................................................... 6

2) Summary of the Paper

3.1) Open Source as an Alternative to Patents

One of the significances of the ‘private collective’ model is that it introduces an

3.2) Role of Innovators as Users

Users in a ‘private-­‐collective’ model could be innovators. In another article by von

In terms of output, the ‘private-­‐collective’ model yields faster product improvements,

3.3) Network of Innovators

The ‘private-­‐collective’ model uses a more flexible innovator network. It employs an

4.1) Only Applicable to Non-rivalry & Non-excludable Goods

4.2) Free-riding Culture vs. Innovation Diffusion

Free-­‐riding is often cited as a major drawback in the ‘collective-­‐action’ and ‘private-­‐

5) Applications to Other Innovations

5.1) Niche Innovations – Electric Vehicles

This example has demonstrated Geel’s view on the socio-­‐technical low-­‐carbon

5.2) Creative Works – Open Music

Geels, F. (2012). A socio-­‐technical analysis of low-­‐carbon transitions: introducing the

Magnatune. (2014). What is "Open Music"? Retrieved Dec 9, 2014, from

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