The sedentary art of software development and the extreme sports of kitesurfing, sailplaning and canyoning would appear to have little in common.

However, both are examples of a new force that could eventually affect a far broader range of companies and industries: the power of users to shape how products are developed.

In the internet age, it seems, the next big idea to change your industry may come from an unexpected direction.

As related* by Eric von Hippell, professor of management and innovation at the Sloan School of Management at MIT, followers of extreme sports have become expert at adapting and refining the equipment they use. Sometimes, the way these informal communities work can look very similar to the way open source software developers create their elaborate products.

Kitesurfers, for instance – who stand on surf boards holding kites which whisk them over breaking waves, producing acrobatic leaps and twists – have taken to using sophisticated computer modelling software to design the most efficient kites. They then share their ideas over the internet, refining their concepts before sending them to a manufacturer.

Sophisticated tools that let individuals take part in the process of creation, the internet as a means to draw together communities of like-minded people, a willingness to share ideas for the common good – these are the basic ingredients of a new approach to innovation.

The information technology industry has not merely created the means for these practices to take root. In the form of the open source software movement, it has also provided one of the most powerful examples yet of distributed innovation. And, thanks to the experiments in software licensing behind Linux and other open source programs, it has created a new framework for defining intellectual property rights when the brain power comes from a broader community.

Even corporate giants are starting to learn from this. Microsoft, for instance, may take issue with many of the claims made for open source products but it does not dispute the power of some of the new working practices that are bringing them about.

“The real magic is the community process – it has nothing to do with the software,” says Bill Hilf, an open source veteran who now works at Microsoft.

Jonathan Schwartz, chief operating officer of Sun Microsystems, goes further: “The participation age is about [people at] the edges of the network telling the centre what is going on.”

Donald Becker, one of the early contributors to the Linux kernel while an engineer at Nasa, says the internet has made it possible to find and work with other technical specialists in ways that weren’t possible. “There are not that many people who are interested” in any given technical subject, he says. “But the internet makes it possible to find them in all corners of the world.”

The repercussions are already spreading much wider than software. In media, a number of new forms – blogging, wikis and podcasts – have already attracted big audiences online. All are user generated content, with blogs and wikis generally made available in a way that lets other users add to their content or borrow from them liberally.

In science and academia, the concept of openness already has a strong foundation – but the internet is making it work better. Many companies in other industries, while not adopting all the ideas of open source, are experimenting with more “open” approaches to innovation – often by letting customers adapt their products, then learning from the results.

Through its “connect and develop” programme launched two years ago, for instance, Procter & Gamble set out to draw a lot more of its ideas from outside the company.

To outsiders, the prospect of loose communities of innovators sharing their ideas can seem counter-intuitive. Why would creators of valuable intellectual property freely hand it over to others to exploit?

A growing body of literature, along with the experience of industries such software, provides some explanation. By building on work already done by others, companies can use their scarce R&D resources more efficiently.

IBM, for instance, first dabbled in open source software when it realised that Apache, a community-developed product, had come to dominate the market for web server software, says Rod Smith, head of emerging technologies in the company’s software division. “We decided it was better to collaborate than compete against this,” he says.

Many companies wrongly over-value their in house intellectual property, Mr Smith adds: often, similar ideas are being developed elsewhere, and ideas can quickly be copied once they become publicly known.

According to this view, it is sometimes better to act pre-emptively, opening up intellectual property in order to seed a market. It has now become standard operating procedure for new software companies to give away their products in the hopes of securing an instant user base.

And even when there isn’t a business end, the approach can still bring personal advancement. “The best way to create a career will be start a software project and become the best in the world at it,” says Winston Damarillo, whose sold his first open source company, Gluecode, to IBM this year.

Customers, meanwhile, contribute ideas because they can lead to products that more closely meet their needs. Or, suggests Mr von Hippel, they do it for the recognition they get from their peers – something noted** by Eric Raymond, one of the first chroniclers of the open source community – or just for the fun of it.

What does this mean for businesses that rely on more traditional “closed” approaches to innovation? The software industry provides some of the first lessons. One is that open innovation, when used successfully, forces established companies to think much harder about where they channel their research and development investments: there’s no point spending heavily in areas where a community approach has produced an acceptable alternative.

Deciding where to draw the line between “open” and “closed” development, however, is not easy.

The software industry is still sharply divided over the extent to which open source projects can produce true innovation. Even advocates such as Mr Becker concede that most of the myriad open source software projects – SourceForge, the website which tracks them, lists more than 100,000 – lack originality. That has much to do with the nature of the community process.

“It is much easier to get people to agree around imitating a system that already exists,” he says, whereas true innovation often relies on the strong vision of an individual.

Microsoft goes further. While representing an appealing way for a community of like-minded people to share ideas, says Mr Hilf, the open source process cannot handle much of the hard work needed to produce a sophisticated product from scratch: the initial market research and design work, the time consuming product testing and the assurance of long-term support.

Yet the open source world is plugging many of these gaps. “There’s an ecosystem that has now emerged of open source service providers,” says Kim Polese, whose start-up, SpikeSource, provides the testing and certification needed to “productise” open source software. Many start-ups have been created to help companies install and maintain open source software.

Faced with such competition, many established companies – whether in software or other areas of intellectual property susceptible to attack from open development models – will have to change the way they charge for their products, says Mr Schwartz at Sun.

“Companies won’t be able to monetise intellectual property before it is delivered,” he says. They will only be able to sell additional services to customers who already have it. “IP isn’t losing its value: what is losing its value is the toll booths that people have set up to charge for access to it,” he says.

Many established software companies, meanwhile, have adopted some of the methods of open source in their own development processes, releasing open-source versions of some of their more commodity-like products in an attempt to harness wider community interest.

Sun’s Solaris operating system, which had lost ground to Linux, has been licensed on 2.5m machines since being released in open source form this year, about 10 times as many as Sun would have reached under a commercial licensing arrangement, says Mr Schwartz.

Companies that attempt to play by the new rules of open innovation, however, face one overriding challenge: to change the deeply ingrained working habits of their own staff.

“We had smart folks, and smart folks who live in one company are hermetically sealed,” says Mr Smith at IBM.

“When they see a project outside, it’s threatening to them,” he says. “We experienced that. It’s a humbling experience to realise there are a lot of smart people out there with good ideas.”

*Democratizing Innovation. Eric von Hippell, The MIT Press.
**The Cathedral and the Bazaar. Eric Raymond.

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