In organizational science there are two prevalent models of innovation:
(1) Private investment model
(2) Collective action model
Open source contains elements of both models, and represents private-collective model
The private investment model
In the private investment model an innovator earns from private goods thanks to intellectual property protection. Intellectual property laws are simply the innovators’ rights to their work. They are an incentive to create new knowledge for the innovators. However, intellectual property protection diminishes knowledge dissemination.
The collective action model
The collective action model works under conditions of market failure, where innovators collaborate in order to produce a public good.
Provision of public goods implies that if any user consumes it, it cannot be feasibly withheld from other users. This infers two main problems:
(1) Free riding problem
(2) Incentive problem
General solution to those problems is to provide monetary and reputation-based rewards to innovators.
Private-collective model
Private-collective model comprises of both models where incentives for private investment and collective action coexist.
First of all, software users rather than software manufacturers are the typical innovators; a fundamental incentive is using the software. Secondly, innovators freely reveal the proprietary code they developed. This implies (1) an increase of innovator benefits (e.g. sales of complementary goods) and (2) private losses will typically be quite low, rivalry with potential adopters is low – but the reward may be significant (e.g. reputation, reciprocity, building a community)
In private investment model it is assumed that free revealing of code leads to a loss of private profits. Conversely, in OS projects free revealing can result in net gains for the company. For example, free revealing can increase innovation diffusion and so increase an innovator’s profits through positive network effect.
Collective action model assumes a free rider can obtain equal benefits to those a contributor can obtain. Conversely, in OS projects contributors gain private benefits which are stronger than those available to free riders, e.g. learning and enjoyment, sense of ownership and control over the work, they can choose the project, the task and the technical approach to suit their own interest, and last but not least participating in a community. These rewards reduce the free riding problem.
It is worth noting, that free riders can be good for the company. There are two reasons for that (1) their adoption of the software increase its market share and help to set it as a standard in a marketplace, (2) some users do not write code – but contribute by reporting bugs.
Source: Eric von Hippel and Georg von Krogh (2003) "Open Source Software and the 'Private-Collective' Innovation Model: Issues for Organization Science" Organization Science 14, 209-223.
(1) Private investment model
(2) Collective action model
Open source contains elements of both models, and represents private-collective model
The private investment model
In the private investment model an innovator earns from private goods thanks to intellectual property protection. Intellectual property laws are simply the innovators’ rights to their work. They are an incentive to create new knowledge for the innovators. However, intellectual property protection diminishes knowledge dissemination.
The collective action model
The collective action model works under conditions of market failure, where innovators collaborate in order to produce a public good.
Provision of public goods implies that if any user consumes it, it cannot be feasibly withheld from other users. This infers two main problems:
(1) Free riding problem
(2) Incentive problem
General solution to those problems is to provide monetary and reputation-based rewards to innovators.
Private-collective model
Private-collective model comprises of both models where incentives for private investment and collective action coexist.
First of all, software users rather than software manufacturers are the typical innovators; a fundamental incentive is using the software. Secondly, innovators freely reveal the proprietary code they developed. This implies (1) an increase of innovator benefits (e.g. sales of complementary goods) and (2) private losses will typically be quite low, rivalry with potential adopters is low – but the reward may be significant (e.g. reputation, reciprocity, building a community)
In private investment model it is assumed that free revealing of code leads to a loss of private profits. Conversely, in OS projects free revealing can result in net gains for the company. For example, free revealing can increase innovation diffusion and so increase an innovator’s profits through positive network effect.
Collective action model assumes a free rider can obtain equal benefits to those a contributor can obtain. Conversely, in OS projects contributors gain private benefits which are stronger than those available to free riders, e.g. learning and enjoyment, sense of ownership and control over the work, they can choose the project, the task and the technical approach to suit their own interest, and last but not least participating in a community. These rewards reduce the free riding problem.
It is worth noting, that free riders can be good for the company. There are two reasons for that (1) their adoption of the software increase its market share and help to set it as a standard in a marketplace, (2) some users do not write code – but contribute by reporting bugs.
Source: Eric von Hippel and Georg von Krogh (2003) "Open Source Software and the 'Private-Collective' Innovation Model: Issues for Organization Science" Organization Science 14, 209-223.
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