The Two Faces of Open Innovation: Network Externalities and Learning

Abstract

In this paper I differentiate between two types of benefits of open innovation. Network externalities effect happens when open innovation increases the participation of one group of users which increases the value of adoption for another group of users. Learning effect happens when economic actors increase their knowledge through access to external sources of knowledge. I investigate how each effect can be dominant depending on nature of products, by drawing upon previous research in product modularity. In addition I discuss the factors which will strengthen or weaken the effects of each dimension. These factors are tacitness of knowledge, technological opportunities, appropriability of knowledge and turbulence.