Managing the Innovation Process Standards, Patents, and Open Source Overview • Take-Away • Required Readings • Supplemental Readings • Caveats 2 Take-Away • Innovation may not always lead to efficiency • Innovation process takes on many different forms • Innovation can rise out of standards wars • Innovation is the subject of many economic theories 3 (David, 1985) • “Clio and the economics of QWERTY” • QWERTY vs Dvorak Simplified Keyboard (DSK) (standardization on the “wrong” system) • Possible Explanations (technical interrelatedness, economies of scale, and quasi-irreversibility of investment) • Implication (beware that path dependence can result from chance) 4 (Raymond, 1999) • “The cathedral and the bazaar” • Cathedral vs Bazaar (carefully crafted by individuals vs large masses) • Examples (Microsoft Windows vs Linux Kernel) (Qualcomm Eudora vs FetchMail) • 19 Lessons (e.g., great programmers know what to rewrite and reuse, release early and often, recognize good ideas) 5 (Shapiro & Varian, 1999) • “Information Rules: A strategic guide to the network economy – Waging a standards war (pp. 261-296)” • Standards Wars (two incompatible technologies vie for de facto standard) • Examples (DVD vs Divx, Lotus 1-2-3 vs Excel, Netscape vs IE) • Key Assets (control over an installed base, intellectual property rights, ability to innovate, first-mover advantage, manufacturing abilities, strength in complements, reputation and brand name) 6 (Teece, 1987) • “Capturing value from technological innovation: Integration, strategic partnering, and licensing decisions” • Innovators vs Imitator-Followers (innovators do not necessary hold the long-term market) • Examples (RC Cola Diet vs Diet Coke, DEC vs IBM PC) • Explanations (appropriability, dominant design, and complementary assets) 7 (von Hippel, 2001) • “Innovation by user communities: Learning from open-source software” • User Innovation Communities (ability to create exactly what it wants without requiring a manufacturer to act as its agent) • Examples (Apache open-source software, high-performance windsurfing) • Required Incentives (want to innovate, want to reveal innovations) 8 Caveats • What are signs that an innovation should be killed? • How does bureaucracy facilitate innovation? • When do standards lead to less innovation? • Can economic theories predict rather than explain? 9