In this guest blog post, CREATe Fellow Kris Erickson (former director of postgraduate research at CREATe) discusses findings from his recently published study, which explores how creative firms use free and open materials to generate value.
An enduring puzzle has animated my research for a number of years: ‘what inspires people to contribute their labour to an online community, when they don’t directly benefit from that contribution?’. We’ve seen people do this all over the web, on old-school discussion forums, news aggregators like Reddit, and social networking services like twitter. The collective labour of online communities generates $ billions in revenue for platforms that do little more than provide an opportunity for communities to share their work with one another. In projects like the Wikimedia Commons, this labour is not appropriated for commercial ends by the website, but neither are individuals materially rewarded for their contributions.
As a busy academic without much time to generate online content myself, in an economic downturn when many also struggled to find and keep paid employment, I found this all very puzzling.
A few years ago, I read a paper that went a long way toward answering this question. Eric von Hippel and Georg von Krogh, two influential innovation scholars, looked at the problem in open source software communities. Here, the paradox is even more pronounced, since software development is a highly paid job, while open source projects are sometimes monumental in scope and effort. Why would so many talented programmers give their valuable knowledge and time away for free?
The answer is that after a cost-benefit analysis, sometimes giving away an innovation can be preferable, so long as the cost of doing so is low enough. Incentives, while not directly monetary, can still overcome costs. Digitalisation has enabled low-cost sharing, and platforms like Github permit open source tinkerers to share ideas with greater ease than ever before.
Even certain firms contribute to free and open projects. One possible explanation, per the authors, is that inside information obtained from group membership could complement existing product offerings. For example, a mobile phone company may give away aspects of its operating system code, if it entices more developers to create applications for their ecosystem. The cost (of a competitor benefitting from a jump-start to their R&D efforts) is outweighed by the promise of thousands more app creators attracted to the first firm’s network. Hippel and von Krogh termed this overlap of individual incentives and open sharing ‘Private-collective innovation’.
It is unlikely that Private Collective Innovation (PCI) explains all the reasons why people create and contribute to communities. PCI is a neoclassical economic way of looking at what is probably a squishy and contradictory admixture of cultural factors. Research by my colleagues in CREATe has explored with artists the reasons why they create, and economic incentives (whether direct or indirect) are not always high on that list.
However, PCI – and its key observation that selective benefits accrue to those who engage in open communities – can help us understand why some individuals share with firms and why some firms share with users.
In a recent paper to be published in Business Horizons, I examine this phenomenon among a sample of 22 creative businesses that commercialised freely available work from the public domain. The sample of firms was comprised of creative SMEs in the UK, employing between 1-50 people. With the help of research assistants from CREATe, I interviewed managers and those with product development responsibility within firms. Interviews were focused on why they chose to work with freely available materials and what mechanisms they used to capture value and remain competitive when doing so.
Most interesting is that some firms choose to double down on openness, by working with an upstream community to develop a product, and freely sharing the underlying intellectual property with their downstream audience as well. Being so radically open would seem to put the firm in a precarious spot, neither controlling the upstream portion of their value chain, nor the final product sold.
The way that firms turned this to an advantage lines up with observations from PCI. Being embedded in a larger community – let’s say, the H.P Lovecraft fandom – a firm can more intimately understand the market wants of its customers. Trusting their audience to re-write and modify their product in turn increases attractiveness to core fans, making any less authentic commercial offering uncompetitive. Even though the works of H.P. Lovecraft are out of copyright and anybody may enter the market, a company with an open community carefully built around itself is protected from competition.
In some media, audience expectations are changing to favour content which resonates directly with personal tastes and can even be directly modified. Early access computer games on the Steam platform are one example where consumers can be satisfied with a rougher, less-polished product as long as it gives them the opportunity to take part in shaping its development.
The fact that open source creative business models are viable should come as no surprise – we have anecdotal evidence of their success across a range of sectors. The main contribution I hope to make with this study is a better understanding of the dynamics that enable these business models to emerge and survive. I also hope that more colleagues will take an interest in private-collective innovation, as a lens through which to observe puzzling processes of open sharing.
Open access link to study:
Can creative firms thrive without copyright? Value generation and capture from private-collective innovation. Forthcoming Business Horizons 61(5).