Jarno Huurinainen, Marko Torkkeli, Sari Viskari & Pekka Salmi

Motives, Circumstances and Driving Forces for Open Innovation: Using Open Source to run profitable business CASE: Nokia 770 (analysis at product level) CASE: IBM (analysis at company level)

LAPPEENRANNAN TEKNILLINEN YLIOPISTO

LAPPEENRANTA UNIVERSITY OF TECHNOLOGY

TEKNISTALOUDELLINEN TIEDEKUNTA TUOTANTOTALOUDEN OSASTO FACULTY OF TECHNOLOGY MANAGEMENT DEPARTMENT OF INDUSTRIAL MANAGEMENT

TUTKIMUSRAPORTTI RESEARCH REPORT

174

TUTKIMUSRAPORTTI –RESEARCH REPORT 174

Jarno Huurinainen, Marko Torkkeli, Sari Viskari & Pekka Salmi

Motives, Circumstances and Driving Forces for Open Innovation:
Using Open Source to run profitable business CASE: Nokia 770 (analysis at product level) CASE: IBM (analysis at company level)

Tuotantotalouden osasto Department of Industrial Engineering and Management

Lappeenrannan teknillinen yliopisto Lappeenranta University of Technology

FI-53851 Lappeenranta, Box 20, Finland

ISBN 952 214-280-8 ISBN 952-214-281-6 ISSN 1459-3173

(paperback) (pdf)

Lappeenranta 2006

Abstract The open innovation model highlights the importance of using a wide range of sources of knowledge for a company’ innovation activities, including customers, collaborative firms, rivals s and academics. Research stresses the significance of balancing the use of internal and external knowledge in R&D-processes, because critical knowledge can come from different sources. Commercial companies have to invest in basic research (exploration) to understand external information better, and exploit this knowledge better in their business (exploitation). This ability is called the company’ absorptive capacity. Today’ companies need this capacity because there are s s several tied factors which erode the viability of the old closed innovation model.

For many years now, the dominant business approach employed by the commercial software industry has been proprietary software. Now this traditional approach is changing and a new way to develop software is appearing. Open source development is the most prominent example of using external sources in R&D. Companies are encouraging this new way of development more and more, when simultaneously building profitable business models around it. The study introduces two companies (Nokia, IBM), which use the open source in their business. Short design-build-test cycles, low costs of new releases, and a great number of ideas are common motives that push commercial companies near to open source communities. There are also some market factors, including technological convergence, growing product complexity, and interoperability of the software, which push companies to consider the open innovation model and the open source as a part of this new approach.

Open source development is also an interesting territory from the business point of view. Building a competitive advantage around open source business is very challenging, but possible. According to venture capitalist, the most famous model is the open architecture (standards) model, where the open source is used to build a mature software platform, and in-house development to build proprietary parts to new products (IBM). But this is not the only possible option. Nokia has developed a whole new product (770 Internet Tablet) for new markets, which uses the Linux operating system. 770 is based mainly on open source software and represents the original idea of open source development.

Keywords: Open innovation, innovation management, open source

Tiivistelmä

Avoimen innovaation malli korostaa erilaisten ulkoisten tiedonlähteiden, kuten asiakkaiden, kilpailijoiden, yliopistojen ja yhteistyöyritysten käyttöä yrityksen innovaatioprosesseissa. Tutkimus korostaa sisäisten ja ulkoisten tiedonlähteiden käytön tasapainottamisen merkitystä

innovaatiotoiminnassa, koska kriittinen tietopääoma voidaan saavuttaa eri tietolähteistä. Yritysten tulee investoida edelleen perustutkimukseen ymmärtääkseen paremmin yritysrajojen ulkopuolisen tietopääoman merkityksen. Hyödyntääkseen ulkopuolista tietoa omassa liiketoiminnassaan, täytyy yrityksen kehittää omaa absorptiokykyään. Yritykset tarvitsevat tätä kykyä, koska suljetun innovaatiomallin elinkelpoisuutta heikentävät tekijät korostuvat entisestään.

Suljettuun lähdekoodiin perustuvat ohjelmistot ovat hallinneet kaupallista ohjelmistoteollisuutta useiden vuosien ajan. Nyt perinteinen lähestymistapa on muuttumassa. Avoimeen lähdekoodiin perustuva kehittäminen on tunnetuin esimerkki ulkoisten tietolähteiden hyväksikäytöstä ohjelmistojen kehitystyössä. Yritykset ovat edistämässä tätä lähestymistapaa yhä enemmän, rakentaen samalla tuottavia liiketoimintamalleja avoimen lähdekoodin ympärille. Tutkimus esittelee kaksi yritystä (Nokia, IBM), jotka käyttävät avointa lähdekoodia omassa liiketoiminnassaan. Lyhyemmät tuotekehityssyklit, alhaisemmat kustannukset ja monipuolisemmat idealähteet ovat yleisiä syitä siirtyä kohti avoimen lähdekoodin yhteisöjä. Näiden hyötyjen lisäksi on olemassa markkinatekijöitä, kuten teknologinen konvergenssi, kasvavat tuotevaatimukset (monimutkaisuuden lisääntyminen) ja ohjelmistojen yhteensopivuusvaatimukset, jotka kannustavat yrityksiä

harkitsemaan avoimen innovaation mallia ja avoimen lähdekoodin käyttöä osana tätä uutta lähestymistapaa. Avoimen lähdekoodin käyttö on kiinnostava tutkimusalue myös kaupallisesta näkökulmasta. Kilpailuedun rakentaminen avoimeen lähdekoodiin perustuvan liiketoiminnan ympärille on haastavaa, muttei mahdotonta. Riskipääomasijoittajien mukaan tällä hetkellä suosituin kehittämismalli on avoimeen arkkitehtuuriin ja standardeihin perustuva malli, missä avointa lähdekoodia käytetään rakennettaessa kypsä ja avoin ohjelmistoalusta ja sisäistä tuotekehitystä kehitettäessä uuteen tuotteeseen ns. kilpailuetua kasvattava suljettu osa (IBM). Tämän toimintamallin lisäksi mm. Nokia on kehittänyt kokonaan uudenlaisen tuotteen uusille markkinoille, joka pohjautuu Linux-käyttöjärjestelmään (770 Internet Tablet). 770 perustuu pääosin avoimeen lähdekoodiin ja edustaa alkuperäistä avoimen lähdekoodin kehittämisideaa.

Avainsanat: Avoin innovaatio, innovaatiojohtaminen, avoin lähdekoodi

TABLE OF CONTENTS
1 INTRODUCTION ................................................................................................................. 1 1.1 Motives and background.................................................................................................. 1 1.2 Research strategy............................................................................................................. 2 1.3 Key concepts of the study ................................................................................................ 4 1.3.1 Closed and open innovation paradigms .................................................................... 4 1.3.2 Open source and open architecture........................................................................... 5 MOTIVES FOR OPEN INNOVATION STRATEGY ........................................................ 8 2.1 Balance between internal and external knowledge ........................................................... 8 2.2 Viability of the closed innovation paradigm................................................................... 10 2.3 Benefits and risks of open innovation ............................................................................ 12 2.4 Motives for open source development............................................................................ 13 MARKET FACTORS IN THE ICT-INDUSTRY.............................................................. 15 3.1 The evolution of the ICT-industry.................................................................................. 15 3.2 Driving forces................................................................................................................ 16 GUIDING MODEL OF OS DEVELOPMENT ................................................................. 18 4.1 Guiding model for creating an effective OS environment............................................... 18 4.2 Significance of the OS platform group........................................................................... 19 THE INFLUENCE OF OS DEVELOPMENT ON BUSINESS MODEL RENEWAL.... 21 5.1 Definitions of the business model .................................................................................. 21 5.2 Components of the business model ................................................................................ 22 5.3 How openness affects the business model ...................................................................... 24 5.4 Types of OS initiatives .................................................................................................. 27 CASE: NOKIA 770 INTERNET TABLET........................................................................ 29 6.1 The influence of OI-paradigm in Nokia ......................................................................... 30 6.2 Technology review: Maemo.org & 770’ software architecture...................................... 31 s 6.3 Nokia’ motives for OS development............................................................................. 33 s 6.4 Nokia’ OS strategy in the 770 project ........................................................................... 35 s 6.5 Business review: maximal customer value with low R&D costs..................................... 37 CASE: IBM.......................................................................................................................... 39 7.1 The influence of the OI paradigm in IBM ...................................................................... 40 7.2 Motives, principles & market factors pushing IBM to OS-business................................ 41 7.3 New “ schizophrenic”strategy........................................................................................ 43 7.4 Benefits and drawbacks for IBM.................................................................................... 43 7.5 How IBM profits from the open source? ........................................................................ 45 CONCLUSIONS ................................................................................................................. 46

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REFERENCES

List of abbreviations 770 ICT IP IPR OI OS OSS R&D VC Nokia 770 Internet Tablet (www.nokia.com) Information and Communication Technologies Intellectual Property Intellectual Property Right Open Innovation Open Source Open Source Software Research and Development Venture Capital

Acknowledgements Funding for this research project was provided by the Finnish Funding Agency for Technology and Innovation and Nokia Corporation. The authors would like to thank the following persons for their contribution in the research: Ari Jaaksi from Nokia and Olli-Pekka Hilmola and Pekka Salmi from the Kouvola Research Unit of Lappeenranta University of Technology. All errors are the authors’ responsibility.

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1 INTRODUCTION
1.1 Motives and background

Due to the increased competition in the market and the complex technologies with a great amount of uncertainty, the development process for innovations has been challenged to utilize knowledge outside the firm’ boundaries. Several studies have touched this issue from different angles since s the 90’ e.g. Hagedoorn and Shekenraad (1994) from the strategic alliance perspectives, and Miller s, and Morris (1999) by presenting the transition to new ways of doing business in a knowledge-based economy that offers new learning opportunities for individuals and new ways to achieve more agile resource deployment throughout society, i.e. the fourth generation R&D management, as the authors call it. Christensen (1997) found out that established, innovative, and customer sensitive companies may ignore or attend belatedly to technological innovations with great strategic importance. Established companies are aggressive in their activities to sustain innovations, but the problem lies in their ability to confront downward vision and mobility, in terms of technological trajectory. Companies that were once good at finding new applications and markets, have later become unable to cope with new emerging technologies. March's learning theory (1991), and in particular his concepts of exploration and exploitation give a perspective to understand the challenge. Organizations are constantly engaged in conflicting processes that balance flexibility and efficiency. Exploration (dynamic) is about searching for new options, experimenting, and conducting research. Exploitation (static) is about refining existing procedures, doing the same things, only better, and reaping value from what is already known. Both the dynamic and static parts of learning are needed for knowledge, but they must be handled in an efficient way. If knowledge is transferred within organizational boundaries, the organization learns directly from its own experience. If, however, knowledge is transferred across organizational boundaries, the organization learns also indirectly from the experience of other organizations (Levitt and March, 1988).

This research field became popular among scholars after Chesbrough (2003) launched his seminal book on Open Innovation (OI). Today, different models of OI exist. These models offer the promise that companies can achieve a greater return on their innovative activities and their resulting intellectual property (West & Gallagher, 2006). The new approach highlights the importance of using a wide range of sources of knowledge for a company’ innovation activities, including s

2 customers, rivals, academics, and collaborative firms in unrelated industries, while simultaneously using creative methods to exploit a company’ resulting intellectual property (Chesbrough, 2003a). s

For many years the dominant business approach employed by commercial software industry has been proprietary software. Now the traditional approach is changing and a new way to develop software is appearing. The industrial giants Nokia and IBM have changed their way to manage proprietary rights and launched major projects to develop and use open source software. The growth of the open source communities has raised many essential questions.

1.2 Research strategy
This study concerns the motives, circumstances, and driving forces for OI in the light of two case studies. We take a detailed look at the open innovation model, where we examine the open source as way to create value from new innovations. Our goal is to clarify the impacts of open innovation on the corporation in the light of the open source and the business models embedded in. This research answers these questions by using literature analysis and the case study approach. Most of our data is from public sources, such as academic and other literature, business journals, companies’ websites, and other web-sources.

Sosiology

Business

Open Innovation

Open Source Software Management

SCOPE

Technology

Figure 1: Scope of the research At first we take a theoretical approach to the theme of openness. Our purpose is to eye the open source (and open architecture) as a possibility to use external elements of innovations to create new solutions in a dynamic environment. The scope of the study is presented in figure 1. Second, we contemplate two corporations, Nokia and IBM by case studies. The purpose is to describe how

3 these two giants use the open source to create new business opportunities, and how their open innovation policy fits into the proposed theoretical framework. We examine the open theme on different levels in the case studies. First, we study Nokia’ new Internet Tablet on the product level, s and second, IBM at the corporate level, focusing on its software business. Looking at these corporations on the general level, we can state that IBM is a progressive user of open innovation whereas Nokia is just an upward newbie.

Chapter two outlines the motives for open innovation and open source development. We also consider the balance between a company’ in-house R&D functions and knowledge outside the s firm’ boundaries. In chapter three we take a detailed look at market factors in the ICT industry and s identify critical driving forces which press companies towards (more) open borders in R&D activities. Chapter four describes underlying factors for creating an effective open source developing environment. Chapter five shows, with case studies and literature how the open source affects companies’business models.

The research questions are: 1. What are the motives to use the open innovation model in innovation strategy? a. Why do companies consider the open source as an option for a new innovation model? 2. Which market factors force companies to the OI model and the direction of OS? 3. How to create an open source development environment that operates as the main resource of the open source code? 4. How does the open source model affect the corporate business model? a. What are the main components of the business model and how do these components change?

The empirical part of the paper deals with two giant companies, which have taken steps into a more open direction. Nokia has published its 770 Internet Tablet based on the Linux operating system. The company made a public development environment for 770, where everyone can share the code by the give-and-take approach. IBM has released 500 software patents to markets to ensure that the industry can maintain its innovativeness and the company can benefit from open source developers in its own business areas. “ Blue”has changed its IP-strategy radically and tries to operate as a Big pioneer of the new way of development. The research strategy is illustrated in figure 2.

4 F R A M E W O R K
Empiric Studies

Closed Innovation Innovation Open Innovation
Open Source

Nokia
at product level

Research Questions

IBM
at corporate level

Conclusions

Figure 2. Research strategy

1.3 Key concepts of the study
1.3.1 Closed and open innovation paradigms

The closed innovation paradigm is a traditional, fundamentally inwardly focused approach. The model assumes that ideas (invented inside) flow into the firm’ innovation funnel on the left and s flow out to the market on the right. Projects are filtered during research and development processes, and survived ideas are transferred into development and then taken to the market (Chesbrough, 2003a, xxi). Firms that use the closed innovation model do not rely on external sources of innovations. Everything is developed inside the corporate boundaries and innovations are protected by intellectual property (IP) rights. The approach is illustrated in figure 3.
Boundary of the Firm

Research Projects

Current Market

Research

Development

Figure 3. Closed Innovation model. (Chesbrough, 2003a, xxii)

5 Open innovation encourages the use of and explores systematically a wide range of internal and external sources of knowledge for innovation opportunities, consciously integrating this exploration with the company’ capabilities and resources, and exploiting broadly these opportunities through s multiple channels (Chesbrough, 2003b). Open innovation brings in external ideas, hands out internal ones and uses external business models. It opens new possibilities to the new markets. The basic idea is described in figure 4.
Boundary of the Firm New Market

Research Projects

Current Market

Research

Development

Figure 4. Open innovation model (Chesbrough, 2003a, xxv)

Figure 4 shows that ideas can still come from the company’ research process but they can also s come from outside the firm’ boundaries. In addition, projects can seep out of the firm, either in the s research stage or later in the development stage. (Chesbrough, 2003a, xxiv)

1.3.2 Open source and open architecture

When discussing open innovation, it is also essential to define what the open source is and why it is not the same as the free code. The open source is about sharing your software code with others under fair terms. When you take the code you will benefit from the work of others and when you share the code, they benefit from your work. The rules are the same for all: individuals, corporations and academics. The users of open source software are (generally) able to view the

6 source code, alter and re-distribute it. In some cases commercial companies are able to develop proprietary products based on open source ones.

There are many important terms in the field of the open source. First we will clarify the term “ open source development” which means developing an environment where everything is open. Open , source development eliminates the ability of vendors to compete with the implementation because the details of implementation are visible to all (West, 2003). The basic idea is to share everything (code) in order to ensure maximum effectiveness and innovativeness by the give-and-take approach. Open source development is based on communities, which are used to generate maximum resources for new software creation, and to improve mature versions. The best known example of open source development is Linux, which has been a contender to proprietary software products for a long period of time.

Corp. Patent Portfolio Corp. Patent Portfolio Corp. Patent Portfolio

Open architecture - Standards - Platforms

Corp. Patent Portfolio

Corp. Patent Portfolio

Figure 5. The idea of open architecture

Next we will take a look at the term “ open architecture” which is very close to the open source. It , means a way of development, where part of the code is open to create platforms, and the other part of the code is closed and developed inside the company. The open part is important because the industry needs open and mature standards to maintain innovativeness to create universal platforms. The idea is shown in figure 5. The difference between open architecture (open standards) and open source is described in figure 6.

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Open architecture: Open source code (X%) - standards, platform Open source: Open source code (100%) - full access to source code, no proprietary rights
Open source – (appropriate ratio) rate

Proprietary code (100-X%) - base of competitive advantage

Figure 6. The difference between open architecture and open source.

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2 MOTIVES FOR OPEN INNOVATION STRATEGY
Chapter two focuses on the meaning of internal and external knowledge to companies’innovation processes, and the significance of exploration and exploitation. Then some factors eroding the viability of closed innovation paradigm are discussed. Finally the main motives to use open source development for new business opportunity creation are examined.

2.1 Balance between internal and external knowledge
The R&D process needs input from a wide range of sources to ensure the innovativeness of the firm. Critical knowledge can come from very different sources and key players. Cohen and Levinthal (1990) argue that the ability of a company to recognize the value of new, external knowledge, assimilate it, and apply it to commercial ends is critical to its innovative capabilities. They label capability as a firm’ absorptive capacity, and suggest that it is largely a function of the s firm’ level of prior related knowledge and diversity of background. s

According to March (1991), it is important to achieve a balance between exploration and exploitation. Exploration includes things captured by terms such as search, variation, risk taking, experimentation, play, flexibility, discovery and innovation. Exploitation includes such things as refinement, choice, production, efficiency, selection, implementation and execution. Companies that lean to exploration instead of exploitation are likely to suffer the costs of experimentation without gaining many of its benefits. March (1991) also argues that firms which have adaptive processes, by refining exploitation more rapidly than exploration, are likely to become effective in the short run but self-destructive in the long term. According to these arguments, maintaining an appropriate balance between exploration and exploitation as well as developing in-house R&Dprocesses and the company’ absorptive capacity are critical functions for survival in a changing, s uncertain environment.

The open innovation paradigm emphasizes balancing the use of external and internal knowledge in R&D. Outside sources of knowledge are often critical for the innovation processes. The sources may be external (competitors, universities, etc.) or internal units outside of the formal innovative unit (marketing, manufacturing, etc.). Cohen and Levinthal (1990) stress that the ability to exploit

9 this information is a critical component of innovative capabilities. Companies that conduct their own R&D are typically better in using the available external information. In addition, the absorptive capacity may be a by-product of the manufacturing operations. The sources of technical knowledge are described in figure 7. The figure illustrates the linkages between absorptive capacity and the major sources of technological knowledge: own R&D, spillovers from competitors, and outside industry. Absorptive Capacity
Own R&D Technical knowledge

Spillovers of competitors’ knowledge Extraindustry knowledge

Figure 7. Sources of technical knowledge (Cohen & Levinthal, 1990)

In the model, the absorptive capacity determines the extent to which the extramural knowledge can be utilized, and the absorptive capability itself depends on the company’ own R&D capability. The s exploitation of competitors’ research findings is realized through the interaction of the firm’ s absorptive capacity with rivals’spillovers. Interaction signifies that a firm is unable to assimilate external information passively. Rather, to utilize the accessible R&D output of its competitors, the company invests its absorptive capacity by conducting R&D. The learning incentives (ease of learning, quantity of available knowledge) influence the effects of appropriability and technological opportunity conditions on R&D.

It has been argued by many scholars that external and internal sources of knowledge have to be in balance (Cohen & Levinthal, 1990; Chesbrough, 2003a; March, 1991). If the smart workers inside the firm are connected to, and informed by the efforts of smart people outside the corporate boundaries, then the company’ innovation process will reinvent fewer wheels, which can be s understood as a transformation of “ invented here” syndrome. In the period of ascendancy of not the closed innovation paradigm, the not invented here -syndrome meant a mindset that everything had to be developed inside the company. If a technology was not produced by own R&D, the company could not be sure of the quality, performance and availability of the particular technology

10 (not invented here). Today the problem is that you are not re-inventing the wheel. (Chesbrough, 2003a, 30, 49, 177)

Internal efforts will be multiplied many times through embracing of other ideas and inspiration. This can be called a powerful value creation engine. But the engine does not guarantee that the company is capable of capturing value. Internal R&D activities are needed to connect this valuable information together and to exploit the company’ core capabilities when resolving complex s interdependencies in nascent technologies to create architectures and to advance them later on. From a commercial point of view, the company’ business model will define what portions of the s value chain the firm will need to provide internally, and it will link those portions to the surrounding value network that creates and delivers that value to the customers. (Chesbrough, 2003a, 177-178)

The above way of thinking can also be transferred to software industry. To create a maximal value for the customers, the company will need mature platforms on which it can build its own commercial products. Companies use external sources of knowledge to ensure effective development and a strong platform, and their own R&D to create valuable software architectures around these standards. Internal R&D is still very important, only its role has been changed. Using external sources of knowledge on software development ensures that you use mature building blocks and you are not re-inventing any wheels.

2.2 Viability of the closed innovation paradigm
What differentiates the closed innovation paradigm from the open one is basically that companies implementing the latter interact with external entities in terms of the efficiency and effectiveness of their innovation process. But because the environment is becoming more complex, the need to use external sources of innovation is increasing.

Chesbrough (2003a, xii-xxiv, 34-41) mentions four erosion factors that compel companies to change their innovation strategy into a more flexible open innovation approach. Skilled workers’ increasing availability and mobility as well as external suppliers’increasing capability have caused a shift in innovation paradigms. In addition, the external options available for unused ideas and the venture capital market have created new opportunities for companies (Chesbrough, 2003b,

11 Cusumano, 2004; Greenemeier, 2005). Several closely tied factors that erode the viability of the closed innovation paradigm are described in table 1.

Table 1. Four main factors eroding the viability of the closed innovation paradigm. (Chesbrough, 2003a, xii-xxiv, 34-41)
Universities produce talented professionals around the world

Availability of talent

Increasing availability and mobility of skilled workers Learning by hiring Cannot count on the best talents to be around

Venture Capital

Venture capital -funded start-ups are a significant source of innovation

Start-ups offer attractive risk/reward schemes for top talents

Faster product cycles and external

Getting ideas off the shelf

Talented professionals find VC funding to commercialize ideas on the shelf

options for commercialization are driving innovations to the market faster Ideas put on the shelf lose their value faster

On one hand, drives focusing on R&D

Capability of external suppliers

External suppliers can increasingly offer solutions of equal or superior quality to in-house development

investment On the other hand, drives competition by leveling the playing field

We can say that open innovation is a phenomenon which has become more important in the past few years. Shorter innovation cycles, industrial research and escalating costs of development, as well as the dearth of resources are motives that change companies’innovation strategy towards a more open direction (Gassman & Enkel, 2004). Only firms which wish to commercialize their own ideas as well as others’innovations, and find ways to bring their results of in-house innovation to the market by deploying outside processes, can start a new era of innovation management in their current businesses. (West & Gallagher, 2006).

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2.3 Benefits and risks of open innovation
The open innovation model offers wider sources of innovation to a company’ R&D processes. s Chesbrough (2003a, 2003b) presents the key benefits of open innovation: Greater effectiveness of R&D Cost and time savings in R&D by using external sources of innovation Capitalizing on technologies sitting on the shelf, extra revenues Wider source of innovations for new products Decreased risk of missing market opportunities

The new method exploits the diffusion of knowledge by external research, uses multiple paths to markets for a company’ own technologies and manages IP proactively. There are, however, some s considerable risks and issues in open innovation that will have to be mitigated. (Chesbrough, 2003a). Open innovation requires strategic changes in R&D and business models; new incentives, reward system and recruiting. Usually, the change towards openness is not possible without a “ shock to the system” when the fact that the business as usual is no longer effective way to , function is noticed (Chesbrough, 2006, 188).

As an example, while alliances are important source of external knowledge, they could also be complex to manage (Harrigan, 1985; Kogut et al., 1992; Uzzi, 1997; Gomes-Casseres, 1996). The complexity of relationships, ideas and projects increases significantly when turning to open innovation. That requires new capabilities and competences in R&D.

As the role of R&D is changed, it may become short-sighted and the long-term view may be jeopardized. Due to strict and short cycle times of products R&D projects are short and the project managers try to minimize risks. External sources of innovation are much riskier than internal ones. The other thing is what happens when external project turns out to be successful. The executives might decide that so many internal employees are not needed in the next R&D projects and short term success may damage the long-term internal staffing and research funding. (Chesbrough, 2006, 23-24)

The new logic of OI business model and R&D could cause a huge resistance among personnel. Chesbrough (2006, 24, 32) discusses about “ Invented Here” – Not syndrome and “ Sold Here” – Not virus. Employees might understand that their jobs are in danger, if the utilization of external

13 technologies is increased, even if it is not the case. On the other hand, if the company’ own s technologies are commercialized externally, the fear is that someone else will win with our technology and it means automatically that we have lost.

When companies cooperate with each other in R&D, it usually requires sharing the intellectual property and business secrets. Collaboration always contains IPR risks. In the cases of selling and licensing technologies and IP, there is the risk of contamination. The customer needs to know about the technology/IP before buying it, but if the seller tells about the technology, it transfers the technology/IP to customer without any compensation. The emergence of effective secondary markets of IP (intermediaries) will help to reduce these risks. (Chesbrough, 2006, 68)

Even if the Open Innovation has gained a lot of attention lately and many scholars have written about it, it is still very new phenomena and implementations of the Open Innovation are recent. Many researches have been made about the subject, but the proofs of benefits are still largely anecdotal.

2.4 Motives for open source development
Open source development is the most prominent example of the revolutionizing of the conventional innovation process. The open source approach is a rapidly growing phenomenon of co-operative software development by independent software programmers. Programmers belong to communities where they develop lines of code to add to the initial source code in order to increase the value and applicability of a program, or completely new applications. The basic idea of the approach is to develop software outside company boundaries. The code is available to outsiders and everyone can fix bugs or bring new features, as well as create new code to the open software (Gassman & Enkel, 2004; West & Gallagher, 2006; West 2003). The open source approach has been broadly discussed and it has helped companies open up their internal innovation processes.

What are the main motives behind a new approach? The literature gives many explanations, but there are also common motives to use open source development. According to Gassman & Enkel (2004) the enabling factors of the open source are short design-build-test cycles (rapid change of generations), new releases with low transaction costs, and a great number of ideas that are enabled by the number of programmers involved. Other success factors are a stable structure that entails an

14 accepted system architecture and language, the communication of which is a combination of ideas and technological solutions, as well as the strong incentive to beat proprietary software like Microsoft’ products. s

In other words, open source development means that a company has to open its boundaries by opening gateways to the external resources, to let valuable knowledge and expertise flow in from the outside in order to create opportunities for co-operative innovation processes (Chesbrough, 2003b; Gassman and Enkel, 2004). The whole approach is based on exploitation of ideas in order to bring new innovations to the markets faster than the competitors.

Open source communities have been studied with survey instruments in prior literature. In terms of technical problems that developers seek to address, Ghosh et al. (2002) argue that three major functions (of their sample) are: trying to improve the products of other developers (40%), realizing a good product idea (27%) and solving problem that could not be solved by proprietary software (30%).

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3 MARKET FACTORS IN THE ICT-INDUSTRY
After we have defined the key concepts and main motives of open innovation it is essential to find the factors which push companies to an open innovation strategy. In this section we analyze these forces in the ICT industry and also outside the industry boundaries.

3.1 The evolution of the ICT-industry
The trend towards open source software is an example of a bigger development in the technology dependent industries. It is an emerging approach towards collaboration and open innovation that at times seems to work around the traditional intellectual property system, and at times is directly fostered by it.

Some key players in the IT-industry fear that patent rights have swung so far towards protection that they risk undermining innovation. In the whole industry, there can be seen some actions which indicate that many of the key players in the industry want to move to a more open direction to ensure innovativeness and restore the balance between openness and proprietary rights. If the balance goes too far in one direction, the whole industry begins to wither, which will mean the end of many companies.

However some factors can be identified that affect the open source -paradigm in the ICT-sector. First it is essential to clarify the term interoperability. Interoperability means compatibility of systems and software in the market (Forelle, 2006; Mamudi, 2005). According to Mamudi (2005) companies are forced to develop wide standards to ensure maximum value to customers and thus the companies as well. He sees that companies in the same industry will have to cooperate more closely to establish universal platforms on which all players can build. The best way to ensure this unfettered interoperability is simply to release parts of the company’ (software) patents freely to s markets and competitors, with the promise that no proprietary rights will be asserted.

The second factor is scattering into niche firms in the leading edge of the ICT-sector, and specialization that is economically efficient (Greenemeier, 2005; Cusumano, 2004). Because this phenomenon is multiplied, software and components are becoming more modular and

16 interchangeable. Scattering is increasing all the time because of VC-funding, and it forces firms to create open platforms (Cusumano, 2004). Universal platform is needed that key players and niche companies, with small resources, can collaborate and develop universal products and services, which create greater value to customers.

3.2 Driving forces
There are also other factors, which push companies to open development. These factors have an effect also outside the industry boundaries. These driving forces shape companies and press them to change their innovation strategy.

First, it is essential to step into technological convergence, which affects many industries. Customers want services and products as a package deal with maximum features, pressing companies to develop products and services with multiple technologies (The Economist, 2006). These package deals contain also convergence between hardware and software (prominent examples are iPod and iTunes). Technological convergence demands common platforms and standards, and the key for many firms is open development and collaboration with rivals, academics, suppliers and customers. What will this demand? One possible answer is that companies in different sectors have to change their innovation strategies and develop open architecture to new products in potential markets.

Another significance force is the growing complexity (The Economist, 2006). As firms add more features in their products and services to maintain their competitive advantage, they need to make use of innovations developed by other companies. And when different companies have to work together to make their systems work together, open source and open architecture are needed, because the different kinds of software have to interact seamlessly.

The importance of intellectual property has increased extensively. According to Thumm (2003) companies patent now inventions that they would not even thought to patent ten years ago. Different standards and rules guide patenting in different counties. Software patents are a good example of that. While software is patentable in US and Japan, the line of the European Union is that software “ such”is not patentable. (Mamudi, 2002) Since the debate about the patentability as

17 of software is intense, big companies have received a lot of negative publicity for their large patent portfolios. To combat this, many companies have released software patents to be freely available.

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4 GUIDING MODEL OF OS DEVELOPMENT
In this part, we take a look at the critical parts of open source development. We introduce different interest groups which have a significant meaning in the open source product development. We also examine the significance of the platform group around OS development.

4.1 Guiding model for creating an effective OS environment
Communities are the core of new innovations, when discussing open source development (Onetti & Capobianco, 2005). When we look at open source development historically, it can be seen that open source initiatives have mainly focused on the developing community, while companies have sponsored the open source initiatives and the open source products developed by communities. Nowadays there can be seen also other interest groups. When we combine and define all these significant groups together, we end up with an integrated framework, described in figure 8.

Open Source Community Customer Group

Technology Gurus

(Products & Solutions) Commercial Organization
Test & Validation Intellectual Property

Domain Experts

Figure 8. Interest groups driving the open source initiative (Pal & Madanmohan, 2001)

19 The framework described in figure 8 is meant as a basic guiding model for implementing a business practice within a commercial organization, based on open source. The main idea of the framework is that it describes the various interactions which take place between commercial company, customers, community, domain experts and technology gurus, and ensure they are taken into account when formulating a successful open source – strategy with the help of the open source communities. Domain experts are industry experts with a remarkable experience, and help bring in the perspective of the end user and customer. Their target is to maximize the value in terms of developing a high level design of the software. Gurus are technology stalwarts, who have spent considerable amount of time working with technology, and have remarkable experience in it. The significance of technology gurus is emphasized when fixing a critical bug in software or designing new features over an existing code base. (Pal & Madanmohan, 2001)

4.2 Significance of the OS platform group

The most interesting part of the basic guiding model (figure 8) is the interaction between the commercial company and the open source community. The interface is shown more detailed in figure 9.

Group working on OS platform component

Part of the Open Source Community working on the platform component

Group within the Organization working on Open Source platform component

Commercial Products Group

Commercial Solutions Group

Commercial Services Group

Open Source Community

Commercial Organization with Open Source Business Model

Figure 9. Interface between commercial company and OS community

20 Figure 9 describes the boundaries of the platform component working group, which is partly divided inside and outside the commercial company. The most important thing is that these two groups (OS platform group/proprietary end-user group) use the same tools and development environment. When the community and the commercial company use the same tools in the same environment it is possible to develop coding standards and then more effective processes (fixing bugs). Complex models and common development tools raise naturally an essential question: how is it possible to manage open source platform group effectively? The answer lies in these web-based developing environments. The project management systems provide discussion boards, mailing lists, file download systems, bug tracking systems and news posting systems.

When creating an open source strategy and business model, it is fundamental to put eye on the significance of communities. In open source development, the company’ size is not essential. The s thing that matters more is the community size and the popularity of the open source software (Onetti & Capobianco, 2005). A significant part of the activities are actually managed and created inside the community, lowering the cost of producing the software and increasing its quality. The larger community ensures more ideas and resources, which means more business opportunities. But still the community has to be managed effectively, so the benefits do not rise linearly, when the size of the community increases. However, wide open source communities will give an opportunity to build lean companies, which are quicker to improve and adapt with market share increases.

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5 THE INFLUENCE OF OS DEVELOPMENT ON BUSINESS MODEL RENEWAL
The open source is an evolving model of development in many commercial organizations. The new model requires a viewpoint that is different from the proprietary one. The new point of development affects also the company’ business model. First we have to clarify what we mean when we talk s about the modern business model and then we can examine the effects of OS development.

5.1 Definitions of the business model
In the literature the concept of a business the model is often vaguely defined. Some scholars use for example the terms ‘ strategy’and ‘ business model’ interchangeably to refer to everything they believe gives them a competitive advantage. One can also often see descriptions of business models focusing on cash flows, but forgetting the simple fact of how cash enters the system in the first place - from paying customers. One possible explanation for the lack of ‘ good’descriptions of business models is that the business model is very much an intrinsic feature of a firm or business organization, and hence hard to perceive as separate from the business operations and organization (Gaarder 2003).

There have been many attempts to define the business model. According to Pateli (2002), there are basically two kinds of definitions: 1) definitions that explain what the purpose of the business model is in simple but quite comprehensive words, and 2) definitions that specify the primary elements of the model, and possibly their interrelationships. Table 2 below gives a few examples of frequently quoted definitions. In general, all business models seek to address the simple equation: profits = revenues –costs.

22 Table 2. Some definitions of the business model.
Timmers (1998) An architecture for the product, service and information flows, including a description of the various business actors and their roles, a description of the potential benefits for the various business actors, and descriptions of sources of revenues. Magretta (1998, 2002) The business model tells a logical story, explaining who the customers are, what they value, and how to make money by providing them that value. A good business model also has to pass the number test: a business model's story holds up only if assumptions about customers are tied to sound economics. Rappa (2001) The business model is the method of doing business by which a company can sustain itself –that is, generate revenue. The business model spells out how a company makes money by specifying where it is positioned in the value chain. Amit and Zott (2001) The business model depicts the content, structure, and governance of transactions designed to create value through the exploitation of business opportunities. A business model includes the design of: • • • Transaction content: goods/ services; resources/ capabilities Transaction structure: parties involved; linkages; sequencing; exchange mechanisms Transaction governance; flow control.

The business model describes the steps that are performed in order to complete transactions.

5.2 Components of the business model
Researchers have recently started to decompose business models into their components. These components have also been referred to as ‘ elements’ ‘ , functions’ ‘ , attributes’ or ‘ , pillars’ of business models. Perhaps the best known framework for discussing the components of a business concept (or a model) is that of Hamel (2001). Hamel's framework comprises four main components, each of which is decomposed into several subcomponents. The four major components are further linked together by three ‘ bridge’components. The framework is illustrated by the following figure:

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CUSTOMER BENEFITS

CONFIGURATION

COMPANY BOUNDARIES

CUSTOMER INTERFACE Fulfillment & Support Information & Insight Relationship Dynamics Pricing Structure

CORE STRATEGY

STRATEGIC RESOURCES Core Competencies Strategic Assets Core Processes

VALUE NETWORK

Business Mission Product / Market Scope Basis for Differentiation

Suppliers Partners Coalitions

Figure 10. Hamel's business model framework

According to Hamel (2001), new business concepts are used to generate new wealth compared to existing business models. “ Business concept innovation is the capacity to reconceive existing business models in ways that create new value for customers, rude surprises for competitors, and new wealth for investors” Firm's boundaries function as a bridge between a company's strategic . resources and its value network. This intermediating component refers to the decisions that have been made about what the firm does and what it contracts out to the value network.

Some authors decompose the business model in a quite a similar way. For example, Afuah and Tucci (2000) define four vertical dimensions of the business model (mission, structure, processes and revenues) and two horizontal dimensions (technology and legal issues). Alt and Zimmermann (2001) in turn specify the following components of the business model: 1) customer value, 2) scope, 3) pricing, 4) revenue source, 5) connected activities, 6) implementation, 7) capabilities and 8) sustainability. Chesbrough and Rosenbloom (2002), on the other hand, specify a set of components through their operational definition of a business model’ functions. The functions of the business s model are to (Chesbrough and Rosenbloom 2002, pp. 533-534): • • • articulate the value preposition, i.e. the value created for users by the offering based on the technology identify a market segment, i.e. for users to whom the technology is useful and for what purpose, and specify the revenue generation mechanism(s) for the firm define the structure of the value chain within the firm required to create and distribute the offering, and determine the complementary assets needed to support the firm's position in this chain • estimate the cost structure and profit potential of producing the offering, given the value proposition and value chain structure chosen

24 • • describe the position of the firm within the value network linking the suppliers and customers, including identification of potential complementors and competitors formulate the competitive strategy by which the innovating firm will gain and hold advantage over rivals

The above decompositions show that even though each researcher uses his/her own approach for bundling the components (differentiating levels, using sub-models, defining horizontal and vertical dimensions etc.), they still have many similarities. In particular, these (usually fixed) sets of components usually include some the following elements: • • • • • • • • • market structure (actors, roles, objectives, capabilities, assets) value proposition (for customers and partners) scope (market segment) activities and processes core competences (capabilities, assets) pricing policy and revenue streams, strategy (alliances, competitive advantage, position in the value chain/net) regulation technology

5.3 How openness affects the business model
Companies need to change their business models to create value from open source software, since the actual product (code) is free and does not create direct value to a company. Companies have several ways to build a business model around open source software. Chesbrough (2006, 45) lists these alternatives to profit from open source: • Selling installations, services, and support with the software • Creation of many version of the software. There is a free version available to anybody and more advanced version for sale. • Integrating the software with other parts of the customer’ IT infrastructure s • Providing proprietary products or services to open source software, that complement the software

25

Companies’competitive advantage in the software business is often based on the proprietary part of the end-product. From the business point of view, open architecture is the most famous developing model if we use venture capitalists as an indicator (Cusumano, 2004; Greenemeier, 2005). Some may call it mixed-source developing, where the “ free” part of the code is shared to create open standards/platforms and the proprietary code is generated to make the end-product unique to the customer, and thus, profitable to the company.

The open architecture model is not only a way to profit from the open source code. When we look at commercial software based on the open source code (100%) with no proprietary parts, the business is often built around complementary goods and supporting services. Because pure open source software is based on a shared source code and does not offer competitive advantage, the company has to invest in complementary goods and supporting services. The business model is quite simple: the company has to support the existing developing communities as much as it can and develop in-house goods and services around this popular software product to make profit.

It is difficult to build a profitable business model in long run, if the shared software (no proprietary add-ons) itself is a profit centre. This is because imitation is very easy and there are not significant entries in the market. Instead, the open source activity has to be complementary with something that remains proprietary. West & Gallagher (2006) see that the economical success of the open source underlies in the “ pooled R&D” which can be understood as open architecture. Companies share the , code to test the software, fix bugs, and to get improvements, feedback, and extensions (Rossi and Bonaccorsi, 2005). In this case, firms can together develop strong and mature software platform and build proprietary parts, services and features around this OS-platform, gathering revenues from them.

There can be seen a clear trend in business models from the view of external funding. In these days, venture capitalists do not like the “ services only” model, because the margins on service are invariably lower than those for proprietary software. According to Koch (2006), financiers are much more interested in companies having more sustainable competitive advantage (open architecture/mixed source -firms).

26 Although building the business model around open source is challenging, this new way of development and gaining revenues is still increasing its favor. When novice companies build business based on open source, they have to notice some recommendations (table 3).

Table 3. Four important recommendations for building a new OS business model and strategy. (adapted from Pal & Madanmohan, 2001)
Multiple alliances & It is important that the firm devise multi-usage alliances. Each of the partners should find the OS complementary and offer network externalities. Extend your resources by supporting developing communities.

External Sources

communities are the key

OS firms should be able to move rapidly into new

Flexibility

Adapt flexible strategies

product areas, be flexible enough to give way when conflicting with a superior firm and avoid wrestling competition

OS projects that are owned and supported by commercial organizations are equally susceptible to

Simple Business for OS

OS is not a solution for troubled business

economic downturns (the parent company can easily kill an OS project). If the basic business model of a company is flawed, having an OS-project will not help improve the cash flow

Building a business model is complex

It is very difficult to build a strong revenue model based on OS.

Building sustainable competitive advantage is difficult in open source business. The key to success is differentiation. Do not build commercial products too close to open ones (value to customers)

Koch (2006) argues that successful OS-products have certain things in common: they are broadly applicable across many types of companies and industries, and they tend to be in areas that companies do not believe provide competitive advantage, because everyone, including rivals, will have access to the source code. Although building a profitable business model around OSdevelopment is challenging, it is estimated by Research Company Gartner that by 2010 global 2000 IT organizations (an annual ranking of the top 2000 corporations in the world by Forbes magazine) will see open source as a viable option for 80 percent of their infrastructure software investments. In

27 the past few years the phenomenon of moving to use open source has concerned mainly small niche firms. Now these start-up software companies relying on open source business models are moving into the largest business computing segments, and the movement forces large companies also to more open direction (Greenemeier, 2005; Koch, 2006; Cusumano 2004).

5.4 Types of OS initiatives
According to Pal & Madanmohan (2001), there are four ways a commercial organization can constitute its open source practice. These four different ways are illustrated in figure 11.

Multiple markets

Single OSS Initiative

Multiple OSS Initiative

2
Multiple Market operation Single OSS Initiative

3
Multiple Market operation Multiple OSS Initiative

Single market

1
Single Market operation Single OSS

4
Single Market operation Multiple OSS

Figure 11. Different ways to constitute OS practice (Pal & Madanmohan 2001)

In box no 1, the company focuses on one market space only, and uses only one OS technology as the platform for building new solutions. These kinds of companies are often single-product companies, or companies having portfolio-related products for a single vertical market. This is a typical model for start-up companies because it is simplest to operate and it does not demand large resources. Once the OS software matures, the community starts looking at the other market/domains where the software can be used.

Box no 2 is more complex. Companies using this model leverage a single OS technology across multiple vertical markets. The model effectively leverages the investment made in the OS initiative across multiple products for different vertical market segments or domains. In this model, the output of the OS initiative will provide a platform, which can be used to build various commercial products for different market needs, based on common standards. To succeed the model requires

28 large resources (manpower) and intensive collaboration with the OS community. Large organizations that have a portfolio of products for multiple markets, with a single technology focus, are likely to adopt this model.

In the third box the companies are typically large companies that can sustain multiple OS initiatives, and leverage them across multiple markets. These can also be firms that have been involved with other OS initiatives for historical reasons, and now want to constitute additional OS initiatives that can provide technology and platforms for building products to service multiple markets.

In the last box (4), the company spends considerable bandwidth and resources to initiate and manage multiple OS initiatives, and leverages them for its products for only one domain/vertical market. Companies that are likely to adopt this model are world leaders in a particular product/technology, and dominate the markets.

Choosing the appropriate quadrant is a strategic decision, since it determines the rest of the OS strategy of the firm. It also changes the evolution of the company and affects its environment. Hence there will be shift from one quadrant to another in a long term. A typical transition is from the first quadrant to the second and then to the third one, when the size and business of the company is growing. The fourth quadrant will remain as a special case, and will be appropriate for a particular type of companies, as described in the previous sections. (Pal & Madanmohan, 2001)

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6 CASE: NOKIA 770 INTERNET TABLET
Nokia Corporation is a public limited liability company incorporated under the laws of the Republic of Finland. It is the world largest cell-phone maker, measured by total sales. The company has divided its business into four major business groups, which are mobile phones, multimedia, networks and enterprise solutions. There is some general information about Nokia in table 5. (Nokia, 2006) Table 5. Key parameters of Nokia. (Nokia, 2006)
Net Sales Mobile Phones Networks Multimedia Enterprise Solutions Net profit R&D R&D Personnel Personnel 34 191 20 811 6 557 5 981 861 3 616 3 825 28 882 58 874 EURm EURm EURm EURm EURm EURm EURm person person

This case discusses a large company's experience in creating a consumer electronics device based on Linux and open source software. Nokia encourages external development for a device called Nokia 770 Internet Tablet. It is the first open source and Linux-based consumer handheld from Nokia. The company has published open development environment for 770 (maemo.org), where open source developers can share the code around 770 by the give-and-take approach. The product places itself on the market between cellular phones and notebooks. The basic idea of the use of 770 Internet tablet is described in figure 13.
Browsing Email File Sharing

770
Browsing Email File Sharing

Wi-Fi

Internet

Bluetooth Modem (phone)

Cellular

Figure 13. The new 770 Internet Tablet is used for web-browsing, emailing and file sharing through Wi-Fi or Bluetooth. It does not contain straight cellular connectivity. (Jaaksi, 2006a)

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6.1 The influence of OI-paradigm in Nokia

This new way of developing a device in the new market is an interesting territory. It is part of Nokia’ major strategy shift that began in 2004, when Nokia rejiggered its product organizations s into four business groups to gain new markets. Ari Jaaksi (2006b), Nokia’ director for open s software platforms, has said that “ company believes that open source is changing the way software is created, with the new model a community – based peer production, where cost and results are shared” .

Historically Nokia has relied on Symbian as the operating system for smartphones, and now it has used a Linux-based operating system for a browser type device, such as the 770 Internet Tablet (McCourtney, 2005). Normally Nokia has developed the company’ main products (smartphones) s through in-house-development and Symbian, because the market place in smartphones is mature, with strict operator and server requirements (Correia, 2005). In the wide range, 770 is not Nokia’ s first move to use the open source, but it has historically limited its open source efforts to its serverbased networking products and internal development tools. In the market of handsets, this is the first major action to open source development. In the end of the 2005, Nokia also launched some minor open source projects around smartphones (portal: opensource.nokia.com), for example an OS-browser for the S60-platform. But these projects are not at the same level of openness as the 770 Internet Tablet.

The new tablet is placed on new markets. Using Linux as an operating system, Nokia has chosen a flexible and mature technology, which will give access to PC technologies, such as internet protocols. To speed up the development of the open source product, Nokia has published an open development platform, which is a Linux software toolset available to developers. The new development platform is targeted to open source developers and innovation houses to ensure the most effective way to develop a product and applications around it. The main idea is that developers have a good opportunity to develop and share their own applications for Nokia 770 (enable application and technology development for OSS & the commercial community).

Nokia has also got many Debian developers on their payroll, sharing code with these technology stalwarts. The company’ target is to work as close as it can with these technology gurus and OS s communities. These actions signal strongly that Nokia is actively embracing the open source

31 movement and the Linux operating system for future non-phone products. Many analysts have argued that the device itself is not very interesting, but the way of development is a tacit indicator of a broader internal interest in the utility of Linux and open source – development (Smith, 2005).

6.2 Technology review: Maemo.org & 770’ software architecture s

Maemo.org is a platform where application user interface, application engines and core software are developed. The platform is composed of mainstream Linux and open source software widely deployed in the most popular Linux distributions. At its core is the Hildon Application framework, which is based on GNOME technology. GNOME provides an intuitive and attractive PC desktop for end-users based on Linux, and a powerful framework for building applications that integrate into the rest of the PC desktop. Maemo adapts this desktop technology to handheld devices with extensions and modifications. It provides an easy-to-use development, build and test environment on Linux workstations. The host development environment runs the same software as the one available on the target device, Nokia 770, eliminating the need of target hardware emulation on the host and providing a more accurate test environment (Maemo.org, 2006). Figure 14 describes the development environment around Nokia 770 Internet Tablet.

Development platform: Customer Group
MAEMO.ORG

Technology Gurus: Debian developers

(Products & Solutions) NOKIA

Domain Experts

Intellectual Property

Figure 14. The development environment around Nokia 770 Internet Tablet

32 GNOME technologies are the base for the device user interface. The user interface is further enhanced and combined to include Nokia’ long-term experience with end user interface interaction s and mobile user interface design. The core non-UI middleware is composed almost entirely of the mainstream open source components (expat XML parser, D-BUS, Xserver, standard Linux networking, glibc etc.) Some of these components have been modified from mainstream versions to meet better the resource constraints of 770. Above all this, there is a Linux kernel (from kernel.org), which is the core of all activity. (Maemo.org, 2006)

Except for the hardware adaptation layer, certain user interface elements, and third party software, the 770 Internet Tablet is based entirely on open source software (figure 15). The open source software component of Nokia 770 can be downloaded from maemo.org website as a complete filesystem, or managed as a collection of Debian source and binary packages. This enables enterprise developers and consumers to easily create and test software for the device.

Application user interfaces

Application and user interface framework Maemo development platform

Application engines

Core software

Nokia software 3rd party software Open source software

Hardware adaptation

Figure 15. Nokia 770 is based largely on open source software. (Jaaksi, 2005)

The major parts of the software are developed outside the corporate boundaries. This does not mean that development around 770 would be free. It is more like getting the first floor free when building a house. In the case of Nokia 770, the use of the open source has decreased the costs and the cycle of development (Jaaksi, 2006a).

33 Nokia works directly with OS communities to develop parts of the software. 770 is its first major attempt to connect a commercial company and non-commercial communities in the handset-side. This consolidation is very challenging, but possible. The main problems are how to control updates and how to settle the publications of new versions. If the company can meet these challenges like Nokia in the case of 770, the result will be positive. In the best cases this collaboration will generate diversified products of good quality without need to go short of orderliness.

6.3 Nokia’ motives for OS development s
It is clear that Nokia wants to follow the path of IBM. The company has taken the open innovation model seriously and wants to use external sources also in its software development in the handset markets. All of Nokia’ activities in the open software development are focused on the following s issues (Jaaksi, 2006a): • • • Not re-inventing the wheel Working constructively with the open source community with a give-and-take approach Solving critical issues in the areas of: o User interface & usability o Power management o Performance o Memory management o Application functionality o Cross-development tools o Integration o Testing

Using the open source, Nokia tries to exploit mature technologies and external resources to avoid overlapping in the software development. The company has supported developing communities by sharing their own intellectual property and hiring key developers of Linux to ensure maximal effectiveness of group work outside the company’ boundaries. 770-project signals a wider interest s in Nokia to move to the OS-business. New 770 Internet Tablet is only a first step to a different level of development.

34 From the technology view, 770 is a good project to learn more from open source development and Linux. Using Linux as a pilot experiment, Nokia can understand its possibilities and limitations better for further development. It is also building a successful development environment for a general software platform. If we look at the motives from the business point of view, Nokia is opening a path to new markets. Their product is new and it makes possible to build a new product family based on open source in the future.

This new way of development offers some concrete benefits for Nokia. Obvious benefits are the availability of a good quality code and well-thought architecture and integrated subsystems. But there are also more positive results: (Jaaksi, 2006a) • Licensing rules have been decided by the licensee o No need to execute complex licensing negotiations o Saving can be up to 6 - 12 months in projects • The work and credentials of a developer or a subcontractor are open for analysis o The quality of the people and the components can be analyzed from the source code o Their willingness to help is easy to verify –just ask o The activity and direction of the component or product can be analyzed through the project discussions • When everything goes wrong –it is possible to take the code and run with it o Even branch to meet the deadlines o Worry about the consequences later

Open source enables also the interoperability of devices and software far more readily than the proprietary one (McCourtney, 2005). Interoperability improves the usability of the devices and then speeds up the diffusion of the new commercial handset. Open source development offers also greater flexibility and should make it easier to move towards producing converged rather than multiple devices (McCourtney, 2005). Convergence has been one of the buzzwords of the telecommunications (Smith, 2005). These converged products need mature operating systems with wide and mature platforms. The open source is one solution for this problem.

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6.4 Nokia’ OS strategy in the 770 project s
When we examine the models introduced by Pal & Madanmohan (2001), we can take a detailed look at Nokia’ OS strategy. Nokia’ basic strategy can be understood by studying figure 16. s s

Multiple markets

Single OSS Initiative 2. Multiple Markets operation

Multiple OSS Initiatives 3. Multiple Markets operation

Single market

Single OSS Initiative 1. Single Market operation Single OSS

Multiple OSS Initiatives 4. Single Market operation Multiple OSS

Figure 16. Nokia is using multiple OSS sources to single market operations in the case of 770 (Quadrant 4).

Nokia uses model 4 in its open source business around 770. It uses multiple open source initiatives to add value to a product, such as 770 for the Telecom market. Why does this fourth quadrant suit to Nokia? Nokia’ Internet Tablet has some requirements for multiple modular components and Linux s is a best solution to support modular environment.

A module means a self-contained component of a system. Modularity has likewise been very important for the development of efficient software. Linux is a highly modular operating system, which means that it is composed of a relatively small kernel (the core of an operating system) together with a number of separate but connected programs, rather than a large, highly inclusive kernel. Open source development supports this modularity. Nokia has to collaborate with many OS communities to ensure its part in developing new modular components which affect its commercial product. When the company is part of the solution, it will have a better chance to guide the wider development.

If we look deeper, we have to ask how this differs from rivals and what makes these actions unique? Nokia does not use any commercial Linux distributions (“ distros” or integrators; they rather work )

36 directly with open source communities. We can examine these different possibilities to use the open source with the help of Nokia’ director of open source software operations. Ari Jaaksi (2006b) s considers this open source business from two different angles (two dimensions). There are different options, but first a decision-maker has to answer some questions: 1. Company’ own involvement –“ s proxies”vs. own involvement a. Do you as a device manufacturer use commercial Linux distributions and integrators, or do you rather work directly with open source communities? b. Do you get your components from “ proxies” such as MontaVistas, Red Hats, Trolltechs, and such, or do you grab them yourself from Debian, Kernel.org, GNOME etc.? c. Do you rather make a business deal with a commercial company that would take care of the details of open source on your behalf, or do you prefer participating in open source work yourself to get what you want? 2. Development environment –closed vs. open native development a. Do you want to open your software for hacking and native application development, or do you want to keep it closed and support only application sandboxes, such as Java, on top of your software?

After studying questions, there can be seen four different options to a company that is considering the use of the open source. These options can be described with the assistance of figure 17.
Development environment Openness

Open & native development

Use commercial Linux distros & integrators, enable native application development and system hacking

Operate directly in open source communities, enable native application development and system hacking Nokia 770

X-ratio increases (OS-rate) Closed & sandbox development Use commercial Linux distros & integrators, no native application development Motorola Linux phones Operate directly in open source communities, no native application development

Utilizing distros and companies as proxies

Go to the source

Company’ s own involvement

Figure 17. Strategy options for companies using OS. (adapted from Jaaksi 2006b)

37 The differences can be examined by two examples: Nokia 770 and Motorola’ Linux phones. s Motorola uses the MontaVista kernel and Trolltech’ Qt embedded in its products and Java as the s developer platform. Nokia does not use any commercial Linux distributions (distros) or middleware packages, but it has gone directly to GNOME and Kernel.org. They also allow native application development. The reason behind these actions is that Nokia wants to use the latest versions of components as soon they can. This goal is much more difficult to achieve by “ proxy companies” . (Jaaksi 2006b)

Proxy solutions are chosen when companies do not want to worry too much about open source stuff. The proxy companies hide the open source aspect of the work and the customers deal with simple old component vendors. If you consider the openness of your developing environment, the choice depends on your goals and targets. Supporting a sandbox as an application development environment may be a good idea in cases where you need more control, portability, and other such things. There are no right and wrong options, but it is essential to know where the company is on the map. (Jaaksi 2006b)

Why is it important to present the different options? The catch is that by putting a penguin logo (Linux logo) on the commercial software does not always mean pure open source product. The final product can be based on open source stuff, but the development process can be far away from “ real” open source development. Nokia is moving now to the direction the original open source visions and pioneers like Richard Stallman have pointed out.

6.5 Business review: maximal customer value with low R&D costs
The study has shown how Nokia uses communities and gatekeepers to create new products and give back contributions and improvement to feed the cycle of development. The last essential question is how Nokia runs a profitable business around 770 Internet Tablet.

There can be found some differences when 770 is compared to Nokia’ normal handset business. s Nokia highlights the value of OS products for customers (value proposition). In the handset side Nokia’ products are mainly based on closed software. The OS code enables wider development s and more possibilities to update the systems. It means that the OS-system is developing better and better all the time, thanks to the communities. A good example of this kind of development is the

38 new OS 2006 – upgrade for 770, which includes new firmware but also new features, including VoIP and Google Talk. The value of the new product increases after buying the new product. And increasing value often means increasing speed of diffusion as well.

Nokia has also found a new market segment. The 770 Internet Tablet is designed for different purposes than the company’ cellular phones. The markets are quite new and offer possibilities to s develop a new product family based on the mature platform. The strong software platform is based on flexibility in software sourcing, architecture and features as well as improved development processes. The open source affects also the value chain, because of the more flexible software sourcing. Nokia has a wider access to available technology providers and subcontractors.

The last essential aspect is the cost structure. The OS offers larger resources to develop new products and features. Nokia can get “ free” components, which it can use in its software and product development. The maintenance costs are shared with the industry.

For a commercial product, such as Nokia’ 770, it is vital that open source licences allow also s mixing of open source and commercial components. It is important that the company is allowed to use the open source for any purpose with no restrictions. Flexibility in R&D means faster introduction of new technologies and features, as well as architectural clarity to support the company’ future needs. s

There is no reason to believe, however that the open development model is superior. Open solutions will eventually replace many closed ones, but these closed solutions are still needed in special cases. Reduced costs and new business opportunities will make the open software more agile and adaptive for change and new business challenges.

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7 CASE: IBM
International Business Machine Corporation is the world’ largest IT-company and has been in the s industry since its birth (IBM 2006a). It has 329 000 employees in 75 countries. IBM’ revenue in s 2005 was $91 billion and the total assets were $105.7 billion (IBM, 2006b). In its annual report 2005 (IBM, 2006c, 14, 17) IBM announces that it has two ultimate goals: to create long-term value to the shareholders and help customers to become more efficient through IT solutions. IBM operates in three segments: systems and financing (28 % from pre-tax income), software (37 %) and services (35 %) (IBM, 2006c, 5).

Table 6. Key parameters of IBM (EUR). (IBM, 2006c, used exchange rate 1.245)
Net Sales Systems & Financing Software Services Net profit R&D R&D Personnel Personnel EURm EURm EURm EURm EURm EURm person 329 000 person 73 193 22 416 12 694 38 083 6 347 4 660

IBM tries to maintain its business leader position by focusing on high-value and innovation-based solutions and services. As the implementation of this strategy, IBM sold its Personal Computing Business to Levano Group Limited, the largest manufacturer of personal computers in China in 2005, and acquired 16 software and service companies in the same year (IBM, 2006c, 22, 63). IBM is moving strongly from hardware to software, towards more sophisticated products and services.

To support this innovation strategy IBM has the world’ largest IT research organization. More than s 3000 scientists and engineers work in eight laboratories in the USA, Japan, China, Israel, Switzerland and India (IBM Research, 2006, 12). IBM invests $5-$6 billion in research and development every year. In 2005 the expenditure of R&D was $5.8 billion. With this massive input in R&D they have received more patents than any other company in the world. Over the past four years IBM has received about 13 000 patents, which is 5 400 more than the second highest result and 8000 more than the second in the IT sector (IBM Research, 2006, 24).

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7.1 The influence of the OI paradigm in IBM

IBM has made a huge change from the closed company to the company with open business model. Before 1993, IBM functioned with a very different business model. It invented, developed, manufactured, sold, serviced and financed everything through its own organization. In 60s and 70s this strategy brought enormous success and nearly monopoly position to the Big Blue. However, this business model caused a financial crisis to IBM in 1992. The new rise of IBM has been based on hunting new revenues from semiconductor business, IP licensing and management business and IBM’ open source software initiative. ( Chesbrough, 2006, 189-190) s

IBM is a good example of exploiting open innovation in practice, when simultaneously profiting from its intellectual property rights. IBM is now one of the leading corporations benefiting from the open innovation paradigm. IBM is famous also from receiving revenue from its IP licensing. In 2001 it received $1.9 billion in royalty payments for its licensing actions (IBM, 2006c). The value of licensing is even bigger considered also the cross-licensing the company practises, because this does not show in the income statement. One reason for this good result is that IBM is a patent leader. It has more patents than any other company in the world. So it is able to license its technologies widely. Besides patents IBM licenses its know-how, trade secrets and other forms of technology. (IBM, 2006c, 20)

IBM supports the patenting culture widely. Strong patenting protects IBM’ leadership technology, s gives the company freedom of action and drives innovativeness. IBM practices the strong IP licensing strategy on purpose. It includes aggressive patent licensing with increased royalties, manufacturing joint ventures, strategic joint development alliances and leverage and return on technology (Ehrlickman, 2006). To speed up its licensing strategy, IBM started a “ Ventures in Collaboration” – licensing program in the end of 2005. The company offers 40 000 patents for licensing and promises to help entrepreneurs to adopt the technology behind the patents. Start-ups with less than $10 million in sales will pay $25,000 for a standard cross-licensing agreement. Laterstage venture-backed companies with more than $10 million in sales will pay 1% of their royalties in five-year contracts (York, 2006). The biggest reason for IBM to do this is that by opening up its IP vault the company hopes that its hardware and software brands will be used in the new commercial products developed by its partners. In the IT and computing industry it is extremely important to get as many users of one’ own technology as possible. (York, 2006) s

41

The company is changing the way it handles its IP, opening up a large part of its patent portfolio. At the same time the company warns that its rivals have to adapt to this change or die. On the basis of recent interviews and research, IBM’ new IP strategy is changing the innovation policy quite in s a wide sector. IBM has received attention by releasing 500 patents for free and the company says that this was only the first step in the new IP-strategy. Never before has a company that puts so much on its patents willingly released so many patents at one time. They think that some parts of the portfolio are best served as open technology. The idea behind this is to achieve better technological foundations that will bring ultimate benefits to consumers. (Merrit, 2005; Mamudi, 2005)

Simultaneously, IBM tries to accelerate the diffusion of its software. The company moves more deeply to the software business by using open source. IBM devotes more internal employees to supporting Linux than any other organization in the world. By linking Linux (the open operating system, which code is available to anybody) to own business model, IBM could take again the leading position in software operating systems, which it had lost to Unix and Windows. It required the whole new business model, though. Since Linux is based on freely available code, it is unable to generate direct profits to IBM. (Chesbrough, 2006, 45, 192-195)

7.2 Motives, principles & market factors pushing IBM to OS-business
IBM thinks that this “ patent pledge”will repeat itself in the future. The reason behind this is not to cause a commotion in the market. The company announces that it was very thought-out movement and that it all centred on this open, flexible architecture that the customers are asking for, and the open standards that make that happen. The logic behind this is that as the technology progresses, companies in the same industry will need to cooperate more closely to establish universal platforms on which all players can build. IBM calls this interoperability. They say that the best way to ensure this interoperability is for companies simply to release parts of their patent portfolios freely to their competitors, with the promise that no proprietary right will be asserted. (Forelle, 2006; Merrit, 2005; Mamudi, 2005)

42 The crux of IBM’ new strategy is the idea that when the basic technologies of an industry are open s and shared, there will be an increased innovation rate. The argument is that by sharing the basic technology (source code) companies will have more time to devote to innovating at the far reaches of technology. David Kappos from IBM (Vice President & Assistant General Counsel for IP Law) has said that “ What will happen is that by having a base that provides less need to spend time on the basic rudiments of getting systems connected, more opportunities will be created for innovation on top of that, therefore more licensing opportunities and of course more business opportunities.” (Mamudi, 2005)

If we gather these comments in the form of a figure, the result would be like figure 18. When technological capability rises in the whole industry, it also develops the basic platform and brings the border between common technologies and unique innovation higher. Then all companies can exploit the knowledge of the basic platform and focus on developing new, better technology. The company’ competitive advantage is based on the upper levels (skill to exploit basic technology and s create new).

Technological cabability

New & Unique innovations IBM New & Unique innovations Corporation 2 New & Unique innovations Corporation 3 Basic Technology –Common Platform (architecture) Treshold Competencies, Treshold Recources

Figure 18. Crux of the new strategy

Although IBM underlines the significance of interoperability there can be found some other forces, which push the Big Blue to the open world. Venture Capitalists are funding more and more small niche firms in the software industry (Greenemeier, 2005; Cusumano, 2004). One of the main purposes of IBM is to create open standards in the software industry, which would be used also by niche firms. When VC-companies build on the same platform as IBM, synergy exists.

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7.3 New “ schizophrenic”strategy
Although basic technology with open standards will be non-proprietary innovation that does not mean an end to IBM’ patenting efforts. The company argues that the new IP-strategy doesn’ mean s t any deceleration in the company’ innovativeness. In fact, this new strategy aims at raising these s effort rates (Forelle, 2006; Merrit, 2005; Mamudi 2005). According to Jim Stallings in IBM (Vice President for IP and standards), the company is opening itself up to participating in the open market, but it is also accelerating the companies’activities on the proprietary side. IBM thinks that both will coexist. “ re going to be really good at managing both communities together because we think We’ the thing that comes from both will allow us to innovate in the market (developing) really, really interesting things for customers. That’ really what we are describing.”(Mamudi, 2005) s

The above comment raises a question: Where is the line between the technology that company decides to give away and the innovations that it hopes will make it money? The answer lies in picture 18. The boundary is moving all the time, so there is no common line to be drawn. Innovations that years ago were maybe at the level of getting basic components to work together, and getting basic infrastructure stabilized in computers, is now mundane, and everyone has the same kind of function in their products, so that function is no more differentiated. Innovation has moved up the technology stack to a higher level (technological capability has risen) (Merrit, 2005; Mamudi, 2005). What can be seen, and what we expect to happen, is that this will continue, and the boundary will continue to move up the stack.

The bottom line in the new policy is to try to raise the line between IP-property and base platforms to accelerate the innovation rate and then develop the industry. The development is based on focusing resources. Companies can direct their research to higher levels on the stack (picture 18). IBM is the company setting the path for others to follow.

7.4 Benefits and drawbacks for IBM

It is essential to gather together the benefits and drawbacks the OS movement has given and caused to IBM. The benefits are listed in table 7.

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Table 7. Common benefits of OS for IBM.
Interoperability Increasing interoperability of IBM's software products Small niche firms (VC) are capable to join the game: they are also developing the open platform and researching high risk possibilities, which IBM can later adopt (absorptive capacity) Industry development More mature platform (based on own products) where to build commercial products Resource allocation More resources can be focused on the new opportunities: less need to spend time on the basic rudiments (there is no need to spend time to re-invent the wheel) More valuable solutions More valuable products for customers: “ more people use it, the the more valuable the product is”(meaning of diffusion) Customers can participate in the development process more deeply, because there is a more open environment (customer needs)

The biggest problem in OS development is creating a sustainable competitive advantage. To ensure maximal contribution margin the company should create a product based on differentiation. The open platform has to offer a great value compared to full in-house development. To maintain the value of the platform, companies have to give up their in-house innovations (which means losing their competitive advantage) to develop the open platform and then ensure further development based on these publications. This cycle has to be continuous for OS-platform to compete with the proprietary software. The crux of the new competitive advantage has to be based on mature platforms, where IBM can build agile solutions.

Another problem is defining the appropriate rate to OS products. OS players have to give up their patents to ensure the development of OS platforms. If commercial products are based mainly on the open platform, the contribution margin is quite small because of imitation. OS development demands absorptive capacity from IBM’ researchers to be capable to integrate the competencies of s the organisation and the possibilities of the platforms to commercial products, which differ from

45 rivals’products. The competitive advantage has to be based also on leveraging the discoveries of other key players.

There is also a small risk that IBM will create respectable rivals by supporting VC-funded companies and sharing code with them. New VC companies gather talented professionals with a tempting risk/reward-rate to develop software solutions in new areas. Only some of these companies are capable to create potential business models, but when they succeed in this, they are potential entries in the industry.

7.5 How IBM profits from the open source?
IBM profits from the open source business in two ways. First, open source software is by some measures less expensive than proprietary software, so using it lowers the overall cost a customer pays for IBM’ solutions (although smaller contribution margin, wider use/sell). Second, it provides s a common and universal platform, on top of which IBM can build and sell special applications and services.

Because the open source is non-proprietary, the customers are much less locked into the firm supplying the IT systems. Its interfaces are open. Opening up the interface means that new software can easily be written to plug into it, increasing its value to customers. By giving up proprietary lock-in, companies can reap the advantages of open source that accrue not to just one company but to all firms in the industry. They can sell software that works for example on Linux, and they can count on a far wider ecosystem of developers and service companies to improve the software that benefits both IBM and their customers. Opening some parts of the patent portfolio is a way to attract independent developers to the platform, which opens it up to innovation from a broader community. Without this kind of movement IBM would be itself responsible for all enhancements to new products. This might mean slower and more costly actions and fewer innovations.

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8 CONCLUSIONS

The open innovation – model has increased its role in the world of innovation management. There are eroding factors to a closed innovation approach, like the availability of talents, increasing VC funding, too many ideas sitting on the shelf, and increasing capability of external suppliers, which force companies to the open approach. In our study we have considered open source business as a one way to exploit open innovation principle. According to the literature, open source development offers shorter development cycles, more resources and lower costs. It also enables a stable structure that entails an accepted system architecture and language, the communication which is a combination of ideas and technological solutions. In our case studies we have shown that open source development is a flexible option in software development. In the Nokia case, it has offered more effective R&D processes, as well as strong software architecture on which to build further projects. In the IBM case, the basic idea of using the open source has been to create a mature software platform to increase the diffusion and value of the company’ own software products and s interoperability, because of wide and common standards. The motives from case studies are listed in table 8. Table 8. The motives of OS at Nokia and IBM
Nokia, at product level Strategic flexibility Effective R&D Variable/motive/outcome Agility Effiency Not re-inventing wheels (the significance of basic technology) Effective R&D IBM, at firm level

Strong software architecture Increasing customer value after buying OS product Interoperability More resources (communities)

Mature platform

Value Resources

Interoperability More effective use of resources More players on the game of the development (VC companies)

Besides the noted benefits and motives there are some driving forces which favor open source development. The first significant driving factor is convergence. Customers want services and products as a package deal, with maximum features, which presses companies to develop products

47 and services with multiple technologies. Convergence demands common platforms and standards, and the key for many firms is open development and collaboration with rivals, academics, suppliers and customers. Convergence affects especially the handset side where Nokia plays. Another remarkable force is the increasing complexity. Firms add more and more features in their products and services to maintain their competitive advantage. The increasing amount of attributes needs strong architecture and platforms as well as wide resources.

Increasing VC money in the software industry also encourages companies to specialize and play niche markets, because of good risk/reward -rate. When this phenomenon multiplies, software and components will become more modular and interchangeable, which speeds the use of open source software (Linux). The other factor is the interoperability of software. Because of the increasing significance of interoperability, companies are forced to develop common standards to ensure maximum value to customers and thus to companies as well. It can be seen that companies in the same industry will have to cooperate more closely to establish universal platforms on which all players can build. A strong architecture and platform as well as wide usability are common factors that speed the interest to open source business. It has pushed IBM to release its software patents to ensure the use of its software products in the future.

Open source development needs a mature development environment, where OS developers can develop the code by the give-and-take approach. A good example of a commercial initiative is the maemo.org development site launched by Nokia. Our study has illustrated mainly how the maemo.org environment works. The most important factor is the interface between commercial organization’ and the community’ platform groups. If this group work is seamless and both use s s the same development tools, in the best case this collaboration will generate diversified products of good quality without a need to go short of orderliness. It is also important that the host development environment runs the same software as the one available on the target device, eliminating the need of target hardware emulation on the host and providing a more accurate test environment (Nokia 770).

Building a business model around open source development is very challenging but possible. In this study, we have gathered the main components of a business model from different sources and studied them. While examining these critical components of a business model, we have found some differences in the open source -business models, compared to proprietary ones.

48 By using open source -oriented business models, companies can create more usable universal standards and platforms, which can be developed in co-operation with open source communities. This increases the interoperability of software and speeds up innovations inside the industry boundaries. When an innovative platform is reached, the value proposition will change. The open platform will provide open standards, which increase the value of basic technology and finally the value of the end-product (IBM’ principle). And when the value is higher to the customer, more s profit will be earned through the end-products. The revenue generation mechanism is based on both: the common platform and the company’ ability to develop end-products using these valuable s standards. The platform also helps commercial companies to allocate their R&D resources better, and focus more deeply on new technology (not re-inventing wheels).

There are some differences also in the cost structure between the open source and proprietary products. According to West & Gallagher (2006), open source development is much more effective than the proprietary one because of wide range of resources (communities). When the innovation cycles are shorter, the developing costs will decrease and the products can be launched earlier, which is one of the Nokia’ main targets in the 770 OS project. s

Open source development demands different kinds of capabilities and competencies. The open development environment is based partly on using external sources of innovations and using this knowledge on the company’ own business. These actions demand absorptive capacity. To develop s this capacity, engineers and R&D personnel have to be encouraged to look outside the firm’ s boundaries. In the field of open source, R&D processes have to focus on new technological and architectural solutions in the software products, not re-invent wheels and wrestle with basic technology rudiments (platform). It is also important to abandon the old not-invented – here syndrome. There are also other successful players building your platform, which you can count on from technology point of view (this can be seen in both cases). However you have to share your own foundations and solutions to ensure that the platform will serve your targets in the future. Freeriding is not a smart option in a long run, because the open platform will serve only the technologies, which are shared inside it.

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Lappeenrannan teknillinen yliopisto Digipaino 2007
ISBN 978-952-214- 280-8 (paperback) ISBN 978-952-214-281-6 (PDF) ISSN 1459-3173

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