Friday, August 4

Open Source & Open Innovation (Cont'd)

Below are reasons why IT services firms will begin to look beyond supporting third party open source communities and instead will look at open source as way to enable rapid innovation, rapid diffusion and market acceptance of those innovations.

Overcome Frontloaded Investment Model

Major successful open source communities represent cumulative effort running into billions of dollars. Many IT service vendors would abandon pursuing such opportunities due to capital constraints and risks involved.

De-risk early adopters

Open source reduces risks for early adopters, which is especially important for enterprise IT customers. Enterprise IT customers are among the most risk-averse. They assiduously avoid building in any dependencies on specific IT service vendors. Open source model allows them access to source code and any derived work or modifications can used under the same terms as the original work.

Software especially un-proven, "innovative" code needs to be observed to make sure it performs the desired operation without undesired side effects. Using software means placing an enormous amount of trust on the IP provider’s intentions, capability and future roadmap and viability. Making source code available mitigates a significant amount of these risk perceptions in an effective manner. Clients can now maintain independence from vendor in the event of technical difficulties and/or bankruptcy of the software vendor.

In-Built viral marketing model

General Public License (GPL) and similar licenses guarantees your right to share and change software. This encourages developers to share their work and modifications. Key strength of OSS is the ability to customize to satisfy heterogeneity of demand. By creating, building and maintaining external communities, the firm can now engage in serious, in depth discussions with influential individuals, companies & organizations. This puts the firm in a position to demonstrate leadership & vision and enable us to influence the direction and structure of the competitive landscape.

Network Externalities & Complements

By being the first mover in the market, a firm can “cross the chasm: and build a large user base, leading to network externalities especially if the innovation can act as a platform on which others can innovate upon. But the biggest gains come from reputation of being a thought leader and building relationships with the most likely early adopters who will reveal themselves as participants in the open source project.

Network externalities manifests itself in multiple ways 1.) New users are always influenced by what previous users have chosen, 2.) Early entrant in market can acquire superior reputation, capabilities, alliances & resources 3.) Having one's innovation accepted a standard in certain situations may lead to user lock-in 4.) Tap into ingenuity of outsiders to develop complements on the firm's IP. All of these increases the value of underlying innovation to the market and hence higher the chances for making money.

Open source community can now supplement a company's sales force as a lead generator and an effective channel to push IP assets that then generates demand for high margin services. Incubation & stewardship of successful open source projects can act as an inexpensive (based on opportunity cost of status quo) reputation building tool to extract higher margins. Being the gatekeeper of the open source projects can act as a sustainable competitive advantage.

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