Modeling a Paradigm Shift: From Producer Innovation to User and Open Collaborative Innovation

We are in the midst of a major paradigm shift: technological trends are causing a change in the way innovation gets done in advanced market economies. In addition to the model of producer-based design—the idea that most important designs for innovations would originate from producers and be supplied to consumers via goods and services that were for sale—two increasingly important models are innovations by single user firms or individuals, and open collaborative innovation projects. Each of these three models represents a different way to organize human effort and investments aimed at generating valuable new innovations. HBS professor Carliss Y. Baldwin and MIT Sloan School of Management professor Eric von Hippel analyze the three models in terms of their technological properties, specifically their design costs and architectures, and their communication requirements. The researchers argue that as design and communication costs decline, single user and open collaborative innovation models will be viable for a steadily wider range of design. These two models will present an increasing challenge to the traditional paradigm of producer-based design—but, when open, they are good for social welfare and should be encouraged by policymakers. Key concepts include:

• When it is technologically feasible, the transition from closed producer innovation or single user innovation to open single user or open collaborative innovation is desirable in terms of social welfare and is worthy of support by policymakers.
• Free dissemination of innovation designs is associated with the open model. Open innovation generates innovation without exclusivity or monopoly, and so should improve social welfare, other things being equal.
• Intellectual property rights grants can be used as the basis for licenses that help keep innovation open as well as closed.
• Policymakers should seek out and eliminate points of conflict between present intellectual property policies designed to support closed innovation that at the same time inadvertently interfere with open innovation.
• As design costs fall, many more innovations will originate with single users.
• Open collaborative innovation projects thrive on low communication costs.