Section 21.3. Reframing: Where Does Innovation Come From?

21.3. Reframing: Where Does Innovation Come From?

Why have we overlooked the fact that so much creative and innovative activity stems from the everyday behavior of regular people? Three factors are likely to have played a role: Schumpeter's legacy, the low visibility of user-innovators outside their own community, and the deliberate creation of a consumer culture.

Firms and entrepreneurs are generally recognized as the primary agents of product change and economic progress (Schumpeter 1934; Nelson and Winter 1977; Dosi 1982). Firms are motivated by profits and invest in research and development to create new products for consumers. As the instigators of change, it is incumbent upon firms to either educate the consumer to want what they produce or to identify and satisfy consumer needs. The consumer's role is a passive one: producers, not consumers, innovate and consumer preferences do not change without producer influence. The consumer merely chooses to make or not make a purchase based on price and comparison with other products and services. In broad and oversimplified terms, this is what is taught to students in management, marketing, economics, and engineering. There is no simple term by which to refer to the "everyday" person who also innovates. Enthusiast, hobbyist, tinkerer, and developer are all possibilities; but they all carry distinct connotations. The term user-innovator is better, but is neither perfect nor widely used.

The relatively low visibility of user-innovators may have also prevented us from noticing their activities or viewing them as more than mere anomalies: while firms are likely to heavily promote their innovations to the mass market, consumer innovations are more likely to be diffused through word of mouth or be written up in small, specialist newsletters, journals, or, more recently, web sites. Although it appears that users have always innovated, the advent of the Internet made their activities more visible to those outside of innovation communities and the success of some open source software development provided an extreme example of the power and effectiveness of user communities.

Nobel (1977) argues that the rise of the corporation and the engineer in the 1900s led to "the deliberate creation of a consumer culture, through advertising, to absorb and diffuse potential revolutionary energies." Institutions, namely corporations, sought to identify themselves with innovation, and relegate the consumer to a passive role (recall that historically individuals were anything but passive, producing much of what they used and consumed themselves). Corporations worked to inhibit innovation by consumers through a variety of means, including advertising and creating closed designs (i.e., product designs that made it difficult for a consumer to alter or tinker with the product).

As a result, two characters dominate the landscape of managerial, economic, and sociological thought in the area of innovation: firms and consumers. Firms produce. Consumers consume. As we have seen, however, users have played and continue to play a dramatic role in the development, diffusion, and commercialization of innovations. What does this mean for government policy and firm strategy?

21.3.1. Building and Preserving the Intellectual Commons

The commons are a crucial resource for fostering innovation. Keeping a resource in the commons both allows others to draw upon the resource and mitigates the number of strategic games played by those seeking to influence the innovative and commercial activities of competitors and potential competitors (Lessig 2001a, p. 72. For additional data and analysis regarding the strategic uses of patents and copyrights, see Parr and Sullivan 1996; Hall and Ziedonis 2001; and Shapiro 2001). Government policy plays an important role in developing and maintaining these commons.

The goal of intellectual property policy is to promote technological and cultural progress for the benefit of society. One of the underlying assumptions of these policies is that investment in innovative and creative activities is highly contingent on the ability to derive pecuniary profits from that investment. To that end, government policy in much of the world seeks to strike a balance between granting temporary control rights over innovative and creative work to originators of the work, and allowing others to access and build upon that work. These temporary control rights take the form of patent and copyright protection; patents generally offer protection for 14-20 years, copyrights for 95 years.

From the perspective of community-based innovation, however, benefit is derived primarily through use rather than pecuniary profit. As the examples in this chapter illustrate, users working within communities actively choose to partake of the benefits derived from allowing others to freely use their work rather than pursue benefits derived from control. Thus, protecting the ability of users to tinker and share their work is critical for fostering community-based innovation; the provision and exercise of exclusionary control rights, in contrast, might do little more than act to deter community-based innovation.

Both patent and copyright laws affect the users' "right" to tinker. Here, I will focus on some issues around fair use to show how these laws might influence community-based innovation. Fair use makes copyrighted work available to the public as raw material without the need for permission or clearance, so long as such use promotes progress. What activities do and do not constitute fair use? The answer to this question is unclear in many instances, providing users with little guidance regarding the legality of their actions. Law in this area is complicated and continuously evolving through legislative and judicial action. These decisions, however, do not move in lock-step. From the perspective of protecting fair use, the Digital Millenium Copyright Act (DMCA) is a setback and Sony v. Connectix (2000) is a victory.

Many are concerned that the DMCA has gone too far in restricting fair use in the digital domain (see, for example: Samuelson 1999; Nimmer 2000). The DMCA was intended to prevent consumers from illegally making copies of protected works. Unfortunately, the DMCA can also have a number of unintended side effects, one of which is preventing users from modifying the products that they purchase. Specifically, the DMCA outlaws technologies designed to circumvent technologies that protect copyrighted material. "The trouble, however, is that technologies that protect copyrighted material are never as subtle as the law of copyright. Copyright law permits fair use of copyrighted material; technologies that protect copyrighted material need not. Copyright law protects for a limited time; technologies have no such limit. Thus, when the DMCA protects technology that in turn protects copyrighted material, it often protects much more broadly than copyright law does. It makes criminal what copyright law would forgive" (Lessig 2001b).

The judgment of the Ninth Circuit Court of Appeals in Sony v. Connectix upheld and extended the limits of fair use. In the case, Sony alleged that Connectix illegally reverse engineered the Sony BIOS to develop its Virtual Game Station, which played Sony PlayStation games on Windows. The court concluded that "Connectix's reverse engineering of the Sony BIOS extracted from a Sony PlayStation console purchased by Connectix's engineers is protected as a fair use. Other intermediate copies of the Sony BIOS made by Connectix, if they infringed Sony's copyright, do not justify injunctive relief." The court determined that it was acceptable for Connectix to not just copy and study Sony's code, but to actively use that code in the process of developing a noninfringing product and make multiple copies of the code. The judgment established new precedents in fair use law, opening up some areas for fair use that were previously risky from a legal perspective.

Restricting the ability of others to build upon ideas may slow the overall rate of innovation; the modification of existing ideas, products, and artistic work is the source of much creative and innovative production by firms, researchers, and users. Evidence of this can be found in many areas. Consider, for example, the development of Linux versus Minix (DiBona, Ockman et al. 1999, Appendix A: The Tanenbaum-Torvalds Debate). Software developers were free to tinker with Linux and adapt it to suit their own needs and desires. They were also able to share what they had learned with one another and build upon each other's efforts. In contrast, enhancements were generally not accepted to Minix to preserve its integrity as a teaching tool. As a result, disgruntled Minix users chose to adoptand work to improveLinux. Also consider the "anticommons" effect. The anticommons effect is a side effect of patent protection in fields where innovation is cumulative. A commons is a resource that everyone has the right to use. In contrast, an "anticommons" is a resource which many have the right to prevent others from using (Heller 1998; Buchanan and Yoon 2000). In such a context, innovation may be stifled as innovators become reluctant to innovate because too many others have the right to prevent or raise the costs of use and commercialization (see Heller and Eisenberg 1998 for evidence from biomedical research). Finally, recall the importance of tinkering and bricolage in the examples of community-based innovation presented in this chapter.

The impact of intellectual property policy on the activities of innovation communities deserves careful consideration. As a society, there are important decisions to be made regarding intellectual property protection that will influence not only the rate of technological progress, but also control over its direction, our own ability to "tinker" with and adapt those products to suit our own desires, and the variety of commercial products that are available to us.

21.3.2. Firm Strategy

Not all firms are choosing to enclose their intellectual property inside hermetically sealed black boxes. Some firmsranging from video-game makers to manufacturers of airplane kits to Legohave found that it is in their self-interest to permit and even encourage innovation by user communities. Contributions by user communities can complement a firm's own R&D and marketing efforts, extend a product's life, and cater to market niches not targeted by the firm's marketing department. As discussed, user communities often generate a variety of functionally novel and incremental, dimension-of-merit innovations; firms can observe which of these innovations are adopted by community members. Firms, with their specialized engineering, design, manufacturing, and marketing departments, can then streamline, promote, and produce these innovations for the many consumers who are unable or unwilling to construct the product or service themselves. Firms may choose to incorporate these innovations into the core product or service, sell these features as optional modules, or allow a third party to freely distribute or sell the modules.

User groups often form and operate independently of firms. Many groups, however, are open to participation by firms so long as firms support the general goals of the community and abide by the community's rules, norms, and practices. Businesses seeking to encourage user activity around their products have found it useful to open all or part of their product design and establish or support forums where users can congregate and share information (see von Hippel and Katz 2002; Jeppeson 2005, in press).

Building a business around freely revealed user innovations is more straightforward when the product is physical rather than virtual. In the case of physical products, a fraction of users will build their own, but many will prefer the convenience of purchasing a copy. In other words, even if product development by users displaces that of manufacturers, manufacturers can still profit from manufacturing activities and product innovation. Manufacturers may compete against each other for customers based on complementary assets such as brand name, and distribution and production capabilities. Firms may also choose to provide services that go with the producte.g., in the case of sports equipment, lessons, facilities, or equipment maintenance.

The case of virtual products is more complicated for manufacturers, because many more users will be able to access and deploy the product themselves. One option is to sell services that support the product. A second option is to build and sell proprietary platforms on which users can develop and build their own products.

There are two general approaches to platformsthe "walled garden" and the "open range." Walled gardens place limits around the ability of others to build on and use the platform. For example, this may mean that outside vendors are restricted in their ability to offer commercial products based on the platform or that the platform owner controls the content available to users. While users and outside vendors may have considerable latitude within the walled garden, the platform owner often retains ultimate control rights and establishes both the boundaries and rules of the garden. Open ranges, in contrast, allow users and other firms to build on and use the platform in limitless ways. The platform owner typically retains few, if any, control rights. NTT DoCoMo explicitly created a walled garden within a larger open range, with respect to content, when setting up its i-mode wireless Internet service. "Official" content partnerssubject to strong editorial and usability rulespopulate the walled garden, however users are also allowed open Internet access to "unofficial" sites. There is a long-standing debate between proponents of the walled garden and open range approaches. However, from the perspective of the platform owner, it is not yet clear which of these approaches will yield greater profits.