30 July 2009

Profits Without Intellectual Monopolies

Great interview with Mr Open Innovation, Eric von Hippel, who has these wise words of advice:

It is true that the most rapidly developing designs are those where many can participate and where the intellectual property is open. Think about open source software as an example of this. What firms have to remember is that they have many ways to profit from good new products, independent of IP. They’ve got brands; they’ve got distribution; they’ve got lead time in the market. They have a lot of valuable proprietary assets that are not dependent on IP.

If you’re going to give out your design capability to others, users specifically, then what you have to do is build your business model on the non-design components of your mix of competitive advantages. For instance, recall the case of custom semiconductor firms I mentioned earlier. Those companies gave away their job of designing the circuit to the user, but they still had the job of manufacturing those user-designed semiconductors, they still had the brand, they still had the distribution. And that’s how they make their money.

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Matt Asay said...

Good points, but Eric unfortunately conflates tangible goods (hardware) with intangible (software), and thinks the former has lessons for the latter. It really doesn't.

If customers could avoid paying for those semiconductors, they would. If those chips were software, bingo! They have a way out of paying while still getting all they want. That's the quandary for open source.

We like to talk about giving away the software to sell other scarce things (e.g., service, support, whatever), but the reality is that those are terrible business models (they don't scale, they don't pay well, and they don't generate good valuations for acquisition or IPO). They're doubly terrible in open source because, in theory, you're huffing and puffing with the SI next door that can support your software, too.

Hence, the hybrid model, which is not designed to lock in so much as to ensure a vendor can monetize even a tiny fraction of users. Once they're in the door, they're free to leave. But I increasingly think it's fair to at least ask them to come in and see what's on offer.

Glyn Moody said...

But Matt, you've read "Diamond Age", I'm sure: once nanorobots can build *anything* from source code, analogue goods become a compilation process, and hence the same as digital ones...so Eric is just ahead of his time.

And as to the business model side, I really will write that post on the subject soon....

Unknown said...

Sorry Matt, but really there is no difference between software and hardware. Both are comprised of ideas which have been given form. Yes, the form of one is electrons, and the form of the other is atoms, but the base is the idea, and ideas have form only when people act upon them.

Eric may be slightly ahead of his time, just as Steve Savitzky was ahead of his time, but both are right, and the time is closer than you think.

Crosbie Fitch said...

Creatures that are adapted to survival in a habitat without monopoly will out-compete and out-survive those that are adapted and dependent upon it.

There is a memetic mutation (aka paradigm shift) that distinguishes these two classes.

Fortunately for the species, in a few cases the mutation can be activated through repeated and sustained exposure (to the free software philosophy say). Unfortunately, the majority of creatures of the species are highly resistant. Moreover, the behavioural discrepancies that manifest as a result of the mutation significantly inhibit intercourse between the two classes.

There is thus an ethical conundrum: should those with the mutation attempt to activate it in others of their species in order to assist their chances of survival, or should they let nature take its course?

The problem is, it remains a possibility, however slight, that intellectual monopolies are simply in a natural trough and will rebound to absolute dominance of the digital and material domains. We would thus do our species considerable damage if few creatures remained adapted for such an environment...

Glyn Moody said...

Intellectual monopolies could get *worse*? Oh no....

Crosbie Fitch said...

We need the equivalent of a Google translate service between anti and pro monopoly. It's a bit like OldSpeak (pre-copyright/patent aka natural rights) vs NewSpeak (suing random members of the public $1-2m for sharing music is for the public's benefit).

What you term 'worse', the others would term 'enhanced' or 'reinforced'. After all, they believe monopolies 'protect' innovation by securing the inventor's rightful property, whereas we'd say they 'inhibit' innovation by prohibiting the natural, free exchange and improvement of published ideas and designs, i.e. the public's natural right to share and build upon public intellectual property.

With such memetic incompatibility probably at the root of religious wars, it is possible that the unthinkable happens, that the religious nutters win and the neo-freethinkers are martyred for sacrilege. It's not that unthinkable that laws are made to equate anti-copyright speech as constituting inducement to infringe (to be made an equivalent crime). The GPL could then be classed as a copyright antagonistic license and thus be made unlawful.

This doomsday scenario is as unlikely as a state deprecating a religious minority, Jews for example, but then that started off as just a few persecutions of a few individuals that the state deemed 'the enemy within'.

So yes, it could get worse. Grokking the goodness of intellectual monopoly (oops, I mean state protection of intellectual property) may well prove to be the better adapted survival trait.

We'll find out. :-}

Glyn Moody said...

Yes, there certainly seems to be a widening gulf between the two sides here. That's why I think it's important to get as many people as possible to understand that they're *monopolies*, which might at last give pause for thought...

Crosbie Fitch said...

That relies to a large extent on recognition that monopolies are an inherently bad idea, a priori economically unsound.

Given prevalent abuse there was far wider recognition of how detrimental monopolies were in the 18th century and yet copyright and patent still got enacted.

A sort of "Yes, it's heroin, and yes, normally that would rule it out of consideration, but in this case it's to be used in highly specialised circumstances so it'll be perfectly safe. No-one will get addicted to it, and so no-one will resort to mugging youngsters for their college fees so they can have one more fix."

I'm wondering if today's younger generation are polarising into file-sharers vs corporately groomed respecters of IP. The term 'monopoly' may not exist in the vocabulary of either. They may not even associate it negatively. To have a monopoly may even be an aspiration - to be the only supplier of something and thus be able to command a high price.

Perhaps individual liberty is more easily recognised as a good thing, than the recognition that a state granted monopoly necessarily suspends that liberty?

Perhaps this self-centered preservation of liberty is what helped the GPL take-off? "These are the four freedoms I want and I will do everything I can to preserve them for myself and everyone else."

The struggle may be better framed as 'for (individual) liberty' than 'against (corporate) monopoly'.

It all depends upon your audience.

Glyn Moody said...

Interesting food for thought - thanks.