Open Business Models

date Jul 30, 2010
authors Henry Chesbrough
reading time 2 mins

  • Title: Open Business Models - How to thrive in the New Innovation Landscape
  • Author: Henry Chesbrough
  • Year written/published: 2006
  • Book Source: Amazon
  • Some extracts:

technology never practised…

If, however, the investor never practices the technology he or she patended, or never licences others to practice the technology then the product covered by the temporary monopoly is never taken to market. Not only does the society lose the use of the new investion; the society has empowered the investor to prevent anyone else from using it until the patent expires.

IP Protection…

Firms developing new technologies and new products pursue IP protection primarily for defensive reasons, to ensure their ability to practise their technology in their business without the fear of interruption. The resence of patent becomes an insurance policy against unwelcome litigation and acts as a powerful barganing chip in situations where litigation arises.

Rationale for open innovation

Open innovation provides a clear rationale for participating in intermediate markets. In a world of widely distributed useful knowledge, one can only sustain innovation by actively licensing external ideas and technologies alongside developing and deploying one’s own ideas… A new kind of open business model and an open approach to managing I{ are required to sustain and advance the company’s business in a world of abundant knowledge

Why bother with these unutilised ideas?

There are a number of reasons. First, unused ideas are a waste of corporate resources. Second, unused ideas are demoralising for the staff that created them. Third, unused ideas clutter and congest your innovation system, slowing it down. Fourth, releasing unused ideas outside will generate new knowledge about market or technical opportunities - which would never emerge if these ideas were kept bottled up inside the firm. And last, if ideas get bottled up too long, they may find another, unplanned exit of their own. They might leak out to another firm, or an integral group of people might choose to take them out of their own.

How can a company create a business model to profit form open source software?…

  1. selling, installation, service, support with the software
  2. versioning the software, with the free version as an entry-level offering and other more advanced verisons as value-added offerings
  3. integrating the software with other parts of the customer’s IT infrastructure
  4. providing propriety complements to open source software
  5. e.g. Red Hat company

Risk of contamination…

This raises an old, but very important, problem first noted by economist Ken Arroe, which is known as the Arrow Information paradox: “I an a customer need to know what your technology can do before I am willing to buy it. But once you as a seller have told me what the technology is, and what it can do, you have effectively transferred the technology to me without any compensation!”