deﬁnitions crowdsourcing, innovation, and...

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College of Management of Technology

Christopher Tucci Copyright © EPFL, Lausanne, Switzerland

Crowdsourcing, Innovation, and Appropriability

Christopher L. TucciChair in Corporate Strategy & Innovation

Ecole Polytechnique Fédérale de Lausanne (EPFL)

March, 2015



Agenda

1. Definitions

2. Motivation3. Crowdsourcing and innovation4. Crowdsourcing and appropriability

5. Conclusions



What is innovation?

● Innovation is the use of new knowledge to offer new products, processes or services

● It involves invention and commercialization (and appropriation)

R&D

Invention

Product development and marketing

Commercialization

Strategic positioning,

making money

Appropriation

Innovation

Competitive advantage

Source: Afuah, Strategic Innovation, 2009



Open Innovation

§ Bring “inside out” and “outside in” in addition to traditional R&D

§ Making traditional R&D more “innovative”– Corporate venturing / CNVG

§ Inside out– Spinoffs & spinouts– Systematic licensing

§ Outside in– Corporate-university technology research centers– Corporate venture capital– Distributed innovation / crowdsourcing

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Open Innovation

§ Bring “inside out” and “outside in” in addition to traditional R&D

§ Making traditional R&D more “innovative”– Corporate venturing / CNVG

§ Inside out– Spinoffs & spinouts– Systematic licensing

§ Outside in– Corporate-university technology research centers– Corporate venture capital– Distributed innovation / crowdsourcing



Crowdsourcing

§ Collecting and aggregating input from a “crowd”

§ The act of outsourcing a task to a “crowd,” rather than to a designated “agent” (an organization, informal or formal team, or individual), such as a contractor, in the form of an open call



INNOVATION and crowdsourcing

1. Crowdsourcing content (Web 2.0)

2. Crowdsourcing to improve products and services directly3. Crowdsourcing to seek input on innovation activities4. Passive crowdsourcing (Web 3.0)






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CASE: CNN iREPORT



CASE: LEGO UNIVERSE



LEGO: A slight tangent



Product innovation pre-Web2.0

§ What was the last innovation you can think of in a travel (bookings) web site?– Ability to store and retrieve records?

– Faster search for fares?– Nicer interface?

– Ability to book both flights and cars?

§ These are all relatively incremental innovations

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CASE: TripIt



Combining travel and social networking



Ideas for retailers

§ Sharing purchases with your “friends”

§ Sending the customer information on related purchases§ Friends who bought what you bought also bought…§ Informing your friends that you are going to / are in the

store§ One of your friends is actually in the store right now§ Real-time ads based on things your friends bought / like

§ (I realize that these are kind of invasions of privacy, but so is Facebook!)






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Case: Netflix Prize (background)



Case: Netflix Ratings Database

§ The permanent contest was meant to last at least 5 years

§ Within 15 months, 30’397 contestants had registered, grouped in 24’836 teams from 167 different countries

§ 21´345 submissions were received from 2’925 different teams

§ The leading team (two AT&T researchers) achieved an improvement of 8.57% after one year, winning them $50K

§ Within three years the same team, combined with another leading team, had won the Netflix Prize!



CASE: Facebook Translation Project

§ Launched on December 27, 2007



Case: Google Image Labeler

§ What is this picture?

§ When you and your randomly assigned partner pick the same words, you get “points”

§ What for?– HINT: users vs consumers��

vs customers

§ Guess how much time

the winners spend?

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Ideas for retailers

§ Algorithms for store layouts given customer purchasing and demographic data

§ Algorithms for purchase recommendations (online or in-store)








Examples of getting input from the crowd

• In 2006, IBM conducted two public worldwide brainstorm sessions on-line, to get feedback on promising technologies, backed with $100 million

• In 2001, GoldCorp put their company’s geological data online, offering $575’000 in awards to those who could pinpoint the location of gold mines. The winners found real mines from the data alone.

• swissnoise.ch wisdom of the crowds



Ideas for retailers

§ Designing promotions

§ Evaluating new clothing styles§ Voting on features / models of electronics

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Waze

§ An iPhone and Android app that constantly tracks your movements via GPS

§ All users’ movements are aggregated and reported as real-time traffic flow, road reports, gas station prices, and speed traps (!)


Christopher Tucci Copyright © EPFL, Lausanne, Switzerland College of Management of Technology


Crowdsourcing and appropriability

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Why participate?

1. Doesn’t this just create competitors?



APPROPRIABILITY and crowdsourcing

1. Definitions




Imitability

● Imitability refers to how easy it is to copy a firm’s products or services ● It heavily influences appropriability, because the easier it is to copy something,

the lower the chances that the inventor can appropriate benefits from it ● Imitability ranges from high (easy to copy) to low ● Most of our thinking about imitability is based on IP protection, although this is

not the only mechanism for reducing imitability

Imitability

low

high College of Management of Technology


Issue: diffusion of solution

§ Open source software is about two types of openness:§ Openness to the public so that anyone anywhere could

participate in solving a problem and

§ Openness in that nothing was proprietary

§ Crowdsourcing can incorporate proprietary elements§ Some innovation intermediaries arrange for “solvers” agree

to give up IP rights to receive the “prize”

§ Some companies that sponsor crowdsourcing similarly require giving up IP rights or incorporate an exclusive license in the prize or payment

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Issue: holdup

§ Highly unlikely I haven’t heard of it so far)

§ But the winner of a crowdsourcing tournament could refuse to license the idea with the idea of renegotiating the prize / payment

§ In many cases, the exercise can be designed to get participants to agree before participating– In the case of passive games etc. this is not an issue



Issue: competitive leakage

§ When you sponsor an open competition, everyone knows what you are working on

§ In some cases, e.g., IBM Global Innovation Jam, you may find the results worth it

§ In other case, companies can work with innovation intermediaries to disguise the “seekers” and reformulate the problem so that third parties do not recognize the business goal



Side note on leakage / spillovers

§ Solving a problem internally does not guarantee inimitability since there are other ways through which knowledge can leak, such as– employee mobility– product reverse engineering



Complementary Assets

● Everything required to commercialize a technological innovation besides the technology itself

● What are some examples of complementary assets? ● Sales force, manufacturing, marketing/merchandizing,…

● Are complementary assets the same as complementary goods? ● No, sales of complementary goods stimulate sales of the original product (or service) and vice

versa

● When do we care about complementary assets? ● How do we decide whether we should care about a particular

complementary asset?

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Importance vs. Control

Important? No Yes

Control

Tightly held

Freely available



Importance vs. Control

Important? No Yes

Control

Tightly held

Freely available

Important and tightly held

Unimportant or freely available



Complementary asset framework

Complementary assets

Unimportant or Freely available


Imitability

Low

High



Complementary asset framework

Complementary assets

Unimportant or Freely available


Imitability

Low

High

Inventor “wins”

Customers “win”

CA-holder “wins”

Bargaining Game (usually CA- Holder)

Adapted from Teece (1986); Henderson (1993)

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Role of complementary assets

§ Goldcorp owned the land with the gold whose location crowdsourcing helped the firm pinpoint, and

§ Netflix controlled– the physical distribution of DVDs and– the data on the network of users from

whose behavior the movie-recommendation algorithm was derived.



CONCLUSIONS

1. Crowdsourcing content (Web 2.0):1. focus on network, interactivity2. try and avoid translators

2. Crowdsourcing to improve products and services directly1. Focus on complementtary assets2. Or “run strategy”

3. Crowdsourcing to seek input on innovation activities:1. Risk of diffusion2. Focus on complementary assets3. Consider innovation intermediary

4. Passive crowdsourcing (Web 3.0):1. protect data



Thank you!

Christopher L Tucci

[email protected]://csi.epfl.chTwitter @cltucci

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