Horizontal innovation networks - by and for users Eric von Hippel (evhippel@mit.edu) MIT Sloan School of Management 50 Memorial Drive, Room E52-556 Cambridge, MA, 02141, USA Publication Information Industrial and Corporate Change, (2007) 16:2 ABSTRACT Innovation development, production, distribution and consumption networks can be built up horizontally ��� with actors consisting only of innovation users (more precisely, ���user/self-manufacturers���). Some open source software projects are examples of such networks, and examples can be found in the case of physical products as well. In this paper we discuss three conditions under which user innovation networks can function entirely independently of manufacturers. We then explore related empirical evidence and conclude that conditions favorable to horizontal user innovation networks are often present in the economy. Keywords: horizontal innovation networks, user innovation, information revealing. 1

Horizontal innovation networks - by and for users 1.0 Introduction Innovation development, production, distribution and consumption networks that are distributed horizontally across many software users exist in the field of ���free��� and ���open source��� software projects, 1 and in many other fields as well. These horizontal user innovation networks have a great advantage over the manufacturer-centric innovation development systems that have been the mainstay of commerce for hundreds of years: they enable each using entity, whether an individual or a corporation, to develop exactly what it wants rather than being restricted to available marketplace choices or relying on a specific manufacturer to act as its (often very imperfect) agent. Moreover, individual users do not have to develop everything they need on their own: they can benefit from innovations developed by others and freely shared within and beyond the user network. In the functional sources of innovation lexicon, economic actors are defined in terms of the way in which they expect to derive benefit from a given innovation. Thus, ���users��� are firms or individual consumers that expect to benefit from using a product or a 1 ���Free��� or ���open source��� software means that a user possessing a copy has the legal right to use it, to study the software���s source code, to modify the software, and to distribute modified or unmodified versions to others. A software author uses his or her own copyright to guarantee these rights to all users by affixing any of a number of standard licensing notices, such as ���Copyleft,��� to the code. Well-known examples of free or open source software are the GNU/Linux computer operating system, Perl programming language, and Internet e-mail engine SendMail (Raymond 1999). The practice of granting extensive rights to users via licensing began with the free software movement started by Richard Stallman in the early 1980s. Stallman founded the Free Software Foundation (FSF) to counter the trend towards proprietary development of software packages and release of software without accompanying source code. The open source movement was started in 1998 by a number of prominent computer ���hackers��� such as Bruce Perens and Eric Raymond. This group had some political differences with the free software movement, but agreed in general with the licensing practices it had pioneered, and also had new ideas as to how to spread these practices more broadly. Many thousands of free and open source software projects exist today and the number is growing rapidly. A repository of open source projects, Sourceforge.net, lists in excess of 40,000 projects and more than 400,000 registered users. Implementing new projects is becoming progressively easier as effective project design becomes better understood and prepackaged infrastructural support for such projects, such as is provided by SourceForge, becomes available on the Web. 2

service. In contrast, ���manufacturers��� expect to benefit from selling a product or a service. Innovation user and innovation manufacturer are the two general functional relationships between innovator and innovation. Users are unique in that they alone benefit directly from innovations. All others (here lumped under the term ���manufacturers���) must sell innovation-related products or services to users, indirectly or directly, in order to profit from innovations. Thus, in order to profit, inventors must sell or license knowledge related to innovations, and manufacturers must sell products or services incorporating innovations. Similarly, suppliers of innovation-related materials or services must sell the materials or services in order to profit from the innovations. (For example, an oil supplier benefits from the development of an improved oil lamp via increased sales of oil.) By user ���network��� we mean user nodes interconnected by information transfer links which may involve face-to-face, electronic or any other form of communication. User networks can exist within the boundaries of a membership group but need not. User innovation networks also may, but need not, incorporate the qualities of user ���communities��� for participants, where these are defined as ������networks of interpersonal ties that provide sociability, support, information, a sense of belonging, and social identity.��� (Wellman 2002 p. 4). It is our contention that complete fully-functional innovation networks can be built up horizontally ��� with actors consisting only of innovation users (more precisely, ���user/self-manufacturers���). Users participating in the network design and build innovative products for their own use ��� and also freely reveal their design information to others. Those others then replicate and improve the innovation that has been revealed and freely reveal their improvements in turn ��� or they may simply replicate the product design that has been revealed and adopt it for their own, in-house use. Non-users also may contribute to what we are calling user innovation networks. For example, in the case of open source software innovation networks, manufacturers of complementary goods and purveyors of complementary services can be motivated to contribute, if and as the innovations they freely reveal enhance profits from what they sell (E.g., manufacturers of proprietary computer hardware can have an incentive to create and contribute novel open source software that will improve the link between a popular open source software program and their proprietary hardware.) (Harhoff et al 2003). Also, computer programmers that have no use for the software they are developing may 3

contribute, driven by enjoyment of the work itself, reputation effects, etc. (Lerner and Tirole, 2002). It is also the case that users may apply pre-existing products commercially produced by manufacturers and/or apply pre-existing commercial processes to create or reproduce user innovations. It is only our contention that innovation-specific investments and activities by such non-users are not essential, and that horizontal, distributed innovation networks containing only user participants can be fully functional. Specifically, we propose that user-only innovation development, production, distribution and consumption networks can flourish when (1) at least some users have sufficient incentive to innovate, (2) at least some users have an incentive to voluntarily reveal information sufficient to enable others to reproduce their innovations, and (3) user- self production can compete with commercial production and distribution. When only the first two conditions hold, we propose that a pattern of user innovation and trial will occur within user networks, followed by commercial manufacture and distribution of innovations that prove to be of general interest. In this paper we will explore these matters and will attempt to show that conditions favorable to user innovation networks often do exist in the real world economy. 1.1 Examples of user innovation networks User innovation networks have existed long before and extend far beyond open source software. Such communities can be found developing physical products as well. Consider and compare the following two examples of early stage user innovation networks, the first in software, the second in sports. Note especially their ���user-only��� nature with respect to both innovation development, the diffusion of innovation-related information, and innovation self-manufacture. Apache Server Software Apache open source software is used on web server computers that host web pages and provide content requested by Internet browsers. Such computers are the backbone of the Internet-based World Wide Web infrastructure. The server software that evolved into Apache was developed by University of Illinois undergraduate Rob McCool for, and while working at, the National Center 4

for Supercomputing Applications (NCSA). The source code as developed and periodically modified by McCool was posted on the web so that users at other sites could download, use, and modify and further develop it. When McCool departed NCSA in mid-1994, a small group of web masters who had adopted his server software for their own sites decided to take on the task of continued development. A core group of eight users gathered all documentation and bug fixes and issued a consolidated patch. This patchy web server software evolved over time into Apache. Extensive user feedback and modification yielded Apache 1.0, released on December 1, 1995. In the space of four years and after many modifications and improvements contributed by many users, Apache has become the most popular web server software on the Internet, garnering many industry awards for excellence. Despite strong competition from commercial software developers such as Microsoft and Netscape, it is currently in use by about 70% of the millions of web sites worldwide. Rodeo Kayaking Rodeo kayaking involves using specialized kayaks to perform acrobatic ���moves��� or ���tricks��� such as spins and flips in rough whitewater. Heinerth (2006) reports that the originator of rodeo kayaking was an avid kayaker named Walt Blackader. Blackader was the first to focus in a sustained and serious way on developing methods to ���play��� in really big whitewater in a kayak. He began evolving his techniques between 1968 and 1970 using standard fiberglass alpine kayaks produced commercially by local manufacturers. Later, other ���extreme paddlers��� joined him and formed a small community. Additional, similar communities of enthusiasts began to form soon thereafter. Commercial products developed specifically for rodeo kayaking did not exist for several years. Instead, rodeo kayakers designed and built the specialized kayaks and related gear and safety equipment that they needed for themselves. They also shared their innovation-related information openly with other users who also ���built 5