selasturkiye open source research report by sari viskari

8/8/2019 SELASTURKIYE Open Source Research Report by Sari Viskari

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Jarno Huurinainen, Marko Torkkeli,

Sari Viskari & Pekka Salmi

TEKNISTALOUDELLINEN TIEDEKUNTA

TUOTANTOTALOUDEN OSASTO

FACULTY OF TECHNOLOGY MANAGEMENTDEPARTMENT OF INDUSTRIAL MANAGEMENT

TUTKIMUSRAPORTTI 174

RESEARCH REPORT

LAPPEENRANNAN

TEKNILLINEN YLIOPISTO

LAPPEENRANTA

UNIVERSITY OF TECHNOLOGY

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)


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TUTKIMUSRAPORTTI RESEARCH REPOR

Jarno Huurinainen, Marko Torkkeli, Sari Viskari & Pe

Motives, Circumstances and

Driving Forces for Open Innovation:Using Open Source to run profitable busine

CASE: Nokia 770 (analysis at product level

CASE: IBM (analysis at company level)

Tuotantotalouden osastoDepartment of Industrial Engineering and Management

Lappeenrannan teknillinen yliopistoLappeenranta University of Technology


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Abstract

The open innovation model highlights the importance of using a wid

knowledge for a companys innovation activities, including customers, co

and academics. Research stresses the significance of balancing the use

knowledge in R&D-processes, because critical knowledge can come f

Commercial companies have to invest in basic research (exploration)

information better, and exploit this knowledge better in their business (expl

called the companys absorptive capacity. Todays companies need this cap

several tied factors which erode the viability of the old closed innovation mo

For many years now, the dominant business approach employed by th

industry has been proprietary software. Now this traditional approach is cha

develop software is appearing. Open source development is the most prom

external sources in R&D. Companies are encouraging this new way of devel

when simultaneously building profitable business models around it. Th

companies (Nokia, IBM), which use the open source in their business.

cycles, low costs of new releases, and a great number of ideas are com

commercial companies near to open source communities. There are als

including technological convergence, growing product complexity, and

software, which push companies to consider the open innovation model an

part of this new approach.

Open source development is also an interesting territory from the business p

competitive advantage around open source business is very challenging, bu

venture capitalist, the most famous model is the open architecture (stand


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Tiivistelm

Avoimen innovaation malli korostaa erilaisten ulkoisten tiedonlhteid

kilpailijoiden, yliopistojen ja yhteistyyritysten kytt yrityksen innovaati

korostaa sisisten ja ulkoisten tiedonlhteiden kytn tasapain

innovaatiotoiminnassa, koska kriittinen tietopoma voidaan saavuttaa eri

tulee investoida edelleen perustutkimukseen ymmrtkseen paremmin yr

tietopoman merkityksen. Hydyntkseen ulkopuolista tietoa omassa lii

yrityksen kehitt omaa absorptiokykyn. Yritykset tarvitsevat tt

innovaatiomallin elinkelpoisuutta heikentvt tekijt korostuvat entisestn.

Suljettuun lhdekoodiin perustuvat ohjelmistot ovat hallinneet kaupallist

useiden vuosien ajan. Nyt perinteinen lhestymistapa on muuttumassa. A

perustuva kehittminen on tunnetuin esimerkki ulkoisten tietolht

ohjelmistojen kehitystyss. Yritykset ovat edistmss tt lhestym

rakentaen samalla tuottavia liiketoimintamalleja avoimen lhdekoodin ymp

kaksi yrityst (Nokia, IBM), jotka kyttvt avointa lhdekoodia oma

Lyhyemmt tuotekehityssyklit, alhaisemmat kustannukset ja monipuolise

yleisi syit siirty kohti avoimen lhdekoodin yhteisj. Niden hytyj

markkinatekijit, kuten teknologinen konvergenssi, kasvavat tuotevaatimuk

lisntyminen) ja ohjelmistojen yhteensopivuusvaatimukset, jotka

harkitsemaan avoimen innovaation mallia ja avoimen lhdekoodin k

lhestymistapaa. Avoimen lhdekoodin kytt on kiinnostava tutkimusa

nkkulmasta. Kilpailuedun rakentaminen avoimeen lhdekoodiin per

ymprille on haastavaa, muttei mahdotonta. Riskipomasijoittajien mukaan

kehittmismalli on avoimeen arkkitehtuuriin ja standardeihin perustuva


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TABLE OF CONTENTS

1 INTRODUCTION..............................................................................

1.1 Motives and background...............................................................1.2 Research strategy..........................................................................1.3 Key concepts of the study.............................................................

1.3.1 Closed and open innovation paradigms .................................1.3.2 Open source and open architecture........................................

2 MOTIVES FOR OPEN INNOVATION STRATEGY .....................

2.1 Balance between internal and external knowledge ........................2.2 Viability of the closed innovation paradigm..................................2.3 Benefits and risks of open innovation ...........................................2.4 Motives for open source development...........................................

3 MARKET FACTORS IN THE ICT-INDUSTRY.............................3.1 The evolution of the ICT-industry.................................................3.2 Driving forces...............................................................................

4 GUIDING MODEL OF OS DEVELOPMENT ................................4.1 Guiding model for creating an effective OS environment..............4.2 Significance of the OS platform group..........................................

5 THE INFLUENCE OF OS DEVELOPMENT ON BUSINESS MO5.1 Definitions of the business model .................................................5.2 Components of the business model ...............................................5.3 How openness affects the business model.....................................5.4 Types of OS initiatives .................................................................

6 CASE: NOKIA 770 INTERNET TABLET.......................................6.1 The influence of OI-paradigm in Nokia ........................................6.2 Technology review: Maemo.org & 770s software architecture.....6.3 Nokias motives for OS development............................................6.4 Nokias OS strategy in the 770 project..........................................6.5 Business review: maximal customer value with low R&D costs....

7 CASE: IBM.........................................................................................

7.1 The influence of the OI paradigm in IBM .....................................7.2 Motives, principles & market factors pushing IBM to OS-business7.3 New schizophrenic strategy.......................................................7.4 Benefits and drawbacks for IBM...................................................7.5 How IBM profits from the open source?.......................................

8 CONCLUSIONS ................................................................................


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List of abbreviations

770 Nokia 770 Internet Tablet (www.nokia.com)

ICT Information and Communicat ion Technologies

IP Intellectual Property

IPR Intellectual Property Right

OI Open Innovation

OS Open Source

OSS Open Source Software

R&D Research and Development

VC Venture Capital

Acknowledgements

Funding for this research project was provided by the Finnish Funding Age

Innovation and Nokia Corporation. The authors would like to thank the fol

contribution in the research: Ari Jaaksi from Nokia and Olli-Pekka Hilmola

the Kouvola Research Unit of Lappeenranta University of Technology. Al

responsibility.


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1 INTRODUCTION

1.1 Motives and background

Due to the increased competition in the market and the complex technolog

of uncertainty, the development process for innovations has been challeng

outside the firms boundaries. Several studies have touched this issue fromthe 90s, e.g. Hagedoorn and Shekenraad (1994) from the strategic alliance

and Morris (1999) by presenting the transition to new ways of doing busine

economy that offers new learning opportunities for individuals and new way

resource deployment throughout society, i.e. the fourth generation R&

authors call it. Christensen (1997) found out that established, innovative, companies may ignore or attend belatedly to technological innovation

importance. Established companies are aggressive in their activities to sust

problem lies in their ability to confront downward vision and mobility, in

trajectory. Companies that were once good at finding new applications

become unable to cope with new emerging technologies. March's learningparticular his concepts of exploration and exploitation give a perspec

challenge. Organizations are constantly engaged in conflicting processes tha

efficiency. Exploration (dynamic) is about searching for new option

conducting research. Exploitation (static) is about refining existing proce

things, only better, and reaping value from what is already known. Both

parts of learning are needed for knowledge, but they must be handled

knowledge is transferred within organizational boundaries, the organization

own experience. If, however, knowledge is transferred across organiz


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customers, rivals, academics, and collaborative firms in unrelated industrie

using creative methods to exploit a companys resulting intellectual property

For many years the dominant business approach employed by commercia

been proprietary software. Now the traditional approach is changing and

software is appearing. The industrial giants Nokia and IBM have change

proprietary rights and launched major projects to develop and use open sour

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

studies. We take a detailed look at the open innovation model, where we e

as way to create value from new innovations. Our goal is to clarify the imp

on the corporation in the light of the open source and the business mod

research answers these questions by using literature analysis and the case s

our data is from public sources, such as academic and other literature, busine

websites, and other web-sources.

Technology

BusinessSosiology

Open Source Software Management

Open

Innovation


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these two giants use the open source to create new business opportuniti

innovation policy fits into the proposed theoretical framework. We exam

different levels in the case studies. First, we study Nokias new Internet Tab

and second, IBM at the corporate level, focusing on its software busi

corporations on the general level, we can state that IBM is a progressive

whereas Nokia is just an upward newbie.

Chapter two outlines the motives for open innovation and open source

consider the balance between a companys in-house R&D functions and

firms boundaries. In chapter three we take a detailed look at market factors

identify critical driving forces which press companies towards (more)

activities. Chapter four describes underlying factors for creating an

developing environment. Chapter five shows, with case studies and literatu

affects companies business models.

The research questions are:

1. What are the motives to use the open innovation model in innovation

a. Why do companies consider the open source as an option for

model?

2. Which market factors force companies to the OI model and the direc

3. How to create an open source development environment that operate

of the open source code?

4. How does the open source model affect the corporate business mode

a. What are the main components of the business model and how

change?


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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

model assumes that ideas (invented inside) flow into the firms innovation

flow out to the market on the right. Projects are filtered during research and

and survived ideas are transferred into development and then taken to th

2003a, xxi). Firms that use the closed innovation model do not rely

innovations. Everything is developed inside the corporate boundaries and in

by intellectual property (IP) rights. The approach is illustrated in figure 3.

Boundary of the Firm

Research

Closed

Innovation

Open

InnovationOpen Source

Research

Questions

Empiric Stu

Nokiaatproduct lev

IBMat

corporate le

Innovation

F

R

AM

E

W

O

R

K


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Open innovation encourages the use of and explores systematically a wid

external sources of knowledge for innovation opportunities, consciously int

with the companys capabilities and resources, and exploiting broadly thes

multiple channels (Chesbrough, 2003b). Open innovation brings in ext

internal ones and uses external business models. It opens new possibilities t

basic idea is described in figure 4.

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

Figure 4 shows that ideas can still come from the companys research pr

come from outside the firms boundaries. In addition, projects can seep out

research stage or later in the development stage. (Chesbrough, 2003a, xxiv)

Boundary of the Firm

Research Develo ment

Research

Projects


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source code, alter and re-distribute it. In some cases commercial compan

proprietary products based on open source ones.

There are many important terms in the field of the open source. First we wi

source development, which means developing an environment where ev

source development eliminates the ability of vendors to compete with the

the details of implementation are visible to all (West, 2003). The basic ide

(code) in order to ensure maximum effectiveness and innovativeness by the

Open source development is based on communities, which are used to gener

for new software creation, and to improve mature versions. The best known

development is Linux, which has been a contender to proprietary softwa

period of time.

Figure 5. The idea of open architecture

Corp.Patent

Portfolio

Corp.Patent

Portfolio

Corp.Patent

Portfolio

Corp.Patent

Portfolio

Corp.Patent

Portfolio

Openarchitecture- Standards- Platforms


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

Open source code (X%)- standards, platform

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

Open architecture:

Open source:

Open source code (100%)- full access to source code, no proprietary rights

Open source rate (appropriate ratio)


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2 MOTIVES FOR OPEN INNOVATION STRATEG

Chapter two focuses on the meaning of internal and external knowledge to

processes, and the significance of exploration and exploitation. Then so

viability of closed innovation paradigm are discussed. Finally the main mot

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 th

firm. Critical knowledge can come from very different sources and kLevinthal (1990) argue that the ability of a company to recognize the

knowledge, assimilate it, and apply it to commercial ends is critical to its

They label capability as a firms absorptive capacity, and suggest that it is

firms level of prior related knowledge and diversity of background.

According to March (1991), it is important to achieve a balance be

exploitation. Exploration includes things captured by terms such as search

experimentation, play, flexibility, discovery and innovation. Exploitation

refinement, choice, production, efficiency, selection, implementation and

that lean to exploration instead of exploitation are likely to suffer the c

without gaining many of its benefits. March (1991) also argues that firm

processes, by refining exploitation more rapidly than exploration, are likely

the short run but self-destructive in the long term. According to these arg


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this information is a critical component of innovative capabilities. Comp

own R&D are typically better in using the available external information. In

capacity may be a by-product of the manufacturing operations. The sources

are described in figure 7. The figure illustrates the linkages between abso

major sources of technological knowledge: own R&D, spillovers from c

industry.

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

In the model, the absorptive capacity determines the extent to which the ex

be utilized, and the absorptive capability itself depends on the companys owexploitation of competitors research findings is realized through the in

absorptive capacity with rivals spillovers. Interaction signifies that a firm

external information passively. Rather, to utilize the accessible R&D outpu

company invests its absorptive capacity by conducting R&D. The learn

learning, quantity of available knowledge) influence the effects of appropria

opportunity conditions on R&D.

It has been argued by many scholars that external and internal sources of k

Own R&D Technic

knowled

Spillovers of competitors knowledgeExtraindustry knowledge

Absorptive Capacity


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(not invented here). Today the problem is that you are not re-inventing t

2003a, 30, 49, 177)

Internal efforts will be multiplied many times through embracing of othe

This can be called a powerful value creation engine. But the engine doe

company is capable of capturing value. Internal R&D activities are needed

information together and to exploit the companys core capabilities w

interdependencies in nascent technologies to create architectures and to

From a commercial point of view, the companys business model will defi

value chain the firm will need to provide internally, and it will link

surrounding value network that creates and delivers that value to the c

2003a, 177-178)

The above way of thinking can also be transferred to software industry. To

for the customers, the company will need mature platforms on which

commercial products. Companies use external sources of knowledg

development and a strong platform, and their own R&D to create valuabl

around these standards. Internal R&D is still very important, only its role h

external sources of knowledge on software development ensures that yo

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 b

implementing the latter interact with external entities in terms of the efficie


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Cusumano, 2004; Greenemeier, 2005). Several closely tied factors that er

closed innovation paradigm are described in table 1.

Table 1. Four main factors eroding the viability of the closed innovation par

2003a, xii-xxiv, 34-41)

Universities p

professionals

Learning by hAvailability of talent Increasing availability and mobility ofskilled workers

Cannot count

around

Venture CapitalVenture capital -funded start-ups are a

significant source of innovation

Start-ups offe

schemes for to

Faster produc

options for co

driving innovaGetting ideas

off the shelf

Talented professionals find VC funding

to commercialize ideas on the shelf

Ideas put on t

faster

On one hand,

investmentCapability of

external suppliers

External suppliers can increasingly offer

solutions of equal or superior quality to

in-house developmentOn the other h

leveling the pl

We can say that open innovation is a phenomenon which has become mor


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2.3 Benefits and risks of open innovation

The open innovation model offers wider sources of innovation to a com

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 innovatio

- 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

markets for a companys own technologies and manages IP proactively. Th

considerable risks and issues in open innovation that will have to be m

2003a). Open innovation requires strategic changes in R&D and business

reward system and recruiting. Usually, the change towards openness is

shock to the system, when the fact that the business as usual is no l

function is noticed (Chesbrough, 2006, 188).

As an example, while alliances are important source of external knowle

complex to manage (Harrigan, 1985; Kogut et al., 1992; Uzzi, 1997; Gom

complexity of relationships, ideas and projects increases significantly

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

jeopardized. Due to strict and short cycle times of products R&D projects a

managers try to minimize risks External sources of innovation are much ri


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technologies is increased, even if it is not the case. On the other hand,

technologies are commercialized externally, the fear is that someone e

technology and it means automatically that we have lost.

When companies cooperate with each other in R&D, it usually requires

property and business secrets. Collaboration always containsIPR risks. In

licensing technologies and IP, there is the risk of contamination. The custom

the technology/IP before buying it, but if the seller tells about the tech

technology/IP to customer without any compensation. The emergence

markets of IP (intermediaries) will help to reduce these risks. (Chesbrough,

Even if the Open Innovation has gained a lot of attention lately and man

about it, it is still very new phenomena and implementations of the Open

Many researches have been made about the subject, but the proofs of b

anecdotal.

2.4 Motives for open source development

Open source development is the most prominent example of the revolutioni

innovation process. The open source approach is a rapidly growing phen

software development by independent software programmers. Programmers

where they develop lines of code to add to the initial source code in order tapplicability of a program, or completely new applications. The basic ide

develop software outside company boundaries. The code is available to out

fix bugs or bring new features, as well as create new code to the open softw


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accepted system architecture and language, the communication of which is

and technological solutions, as well as the strong incentive to beat pr

Microsofts products.

In other words, open source development means that a company has to

opening gateways to the external resources, to let valuable knowledge and

the outside in order to create opportunities for co-operative innovation

2003b; Gassman and Enkel, 2004). The whole approach is based on exploita

bring new innovations to the markets faster than the competitors.

Open source communities have been studied with survey instruments in pri

technical problems that developers seek to address, Ghosh et al. (2002)

functions (of their sample) are: trying to improve the products of other dev

a good product idea (27%) and solving problem that could not be solved

(30%).


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3 MARKET FACTORS IN THE ICT-INDUSTRY

After we have defined the key concepts and main motives of open innovati

the factors which push companies to an open innovation strategy. In this s

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 develop

dependent industries. It is an emerging approach towards collaboration and

times seems to work around the traditional intellectual property system,

fostered by it.

Some key players in the IT-industry fear that patent rights have swung so far

they risk undermining innovation. In the whole industry, there can be se

indicate that many of the key players in the industry want to move to a

ensure innovativeness and restore the balance between openness and pr

balance goes too far in one direction, the whole industry begins to wither, w

of many companies.

However some factors can be identified that affect the open source -paradFirst it is essential to clarify the term interoperability. Interoperability

systems and software in the market (Forelle, 2006; Mamudi, 2005). Accor

companies are forced to develop wide standards to ensure maximum valu


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interchangeable. Scattering is increasing all the time because of VC-fundin

create open platforms (Cusumano, 2004). Universal platform is needed tha

companies, with small resources, can collaborate and develop universal

which create greater value to customers.

3.2 Driving forces

There are also other factors, which push companies to open development

effect also outside the industry boundaries. These driving forces shape comp

change their innovation strategy.

First, it is essential to step into technological convergence, which a

Customers want services and products as a package deal with maxim

companies to develop products and services with multiple technologies (

These package deals contain also convergence between hardware an

examples are iPod and iTunes). Technological convergence demands c

standards, and the key for many firms is open development and col

academics, suppliers and customers. What will this demand? One possible a

in different sectors have to change their innovation strategies and develop o

products in potential markets.

Another significance force is the growing complexity (The Economist, 20

features in their products and services to maintain their competitive advant

use of innovations developed by other companies. And when different c

together to make their systems work together, open source and open a


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of software is intense, big companies have received a lot ofnegative public

portfolios. To combat this, many companies have released software patents t


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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

interest groups which have a significant meaning in the open source produc

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

Capobianco, 2005). When we look at open source development historically,

source initiatives have mainly focused on the developing community,

sponsored the open source initiatives and the open source products deve

Nowadays there can be seen also other interest groups. When we combi

significant groups together, we end up with an integrated framework, describ

Customer

Group

(Products &Solutions)

Open Source

Community

Commercial

O i i


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The framework described in figure 8 is meant as a basic guiding model for i

practice within a commercial organization, based on open source. The main

is that it describes the various interactions which take place between

customers, community, domain experts and technology gurus, and ensu

account when formulating a successful open source strategy with the h

communities. Domain experts are industry experts with a remarkable exper

the perspective of the end user and customer. Their target is to maximiz

developing a high level design of the software. Gurus are technology sta

considerable amount of time working with technology, and have remarkab

significance of technology gurus is emphasized when fixing a critical bug i

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

commercial company and the open source community. The interface is s

figure 9.

Part of theOpen SourceCommunityworking onthe platformcomponent

Group working on OS platform component

Group within theOrganizationworking on

Open Sourceplatform

component


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Figure 9 describes the boundaries of the platform component working

divided inside and outside the commercial company. The most important

groups (OS platform group/proprietary end-user group) use the same

environment. When the community and the commercial company use the

environment it is possible to develop coding standards and then more eff

bugs). Complex models and common development tools raise naturally an

is it possible to manage open source platform group effectively? The answer

developing environments. The project management systems provide disc

lists, file download systems, bug tracking systems and news posting systems

When creating an open source strategy and business model, it is fundam

significance of communities. In open source development, the companys s

thing that matters more is the community size and the popularity of th

(Onetti & Capobianco, 2005). A significant part of the activities are actual

inside the community, lowering the cost of producing the software and inc

larger community ensures more ideas and resources, which means more bus

still the community has to be managed effectively, so the benefits do not ris

of the community increases. However, wide open source communities wil

build lean companies, which are quicker to improve and adapt with market s


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5 THE INFLUENCE OF OS DEVELOPMENT ON

MODEL RENEWAL

The open source is an evolving model of development in many commercial

model requires a viewpoint that is different from the proprietary one. The ne

affects also the companys business model. First we have to clarify what about the modern business model and then we can examine the effects of OS

5.1 Definitions of the business model

In the literature the concept of a business the model is often vaguely defined

example the terms strategy and business model interchangeably to r

believe gives them a competitive advantage. One can also often see descript

focusing on cash flows, but forgetting the simple fact of how cash enter

place - from paying customers. One possible explanation for the lack of

business models is that the business model is very much an intrinsic featur

organization, and hence hard to perceive as separate from the business ope

(Gaarder 2003).

There have been many attempts to define the business model. According to

basically two kinds of definitions: 1) definitions that explain what the p

model is in simple but quite comprehensive words, and 2) definitions t

elements of the model, and possibly their interrelationships. Table 2 below

frequently quoted definitions In general all business models seek to addre

22


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Table 2. Some definitions of the business model.

Timmers (1998) An architecture for the product, service and information

description of the various business actors and their roles

potential benefits for the various business actors, and de

revenues.

Magretta (1998, 2002) The business model tells a logical story, explaining who

they value, and how to make money by providing them

model also has to pass the number test: a business mode

assumptions about customers are tied to sound economi

Rappa (2001) The business model is the method of doing business by

sustain itself that is, generate revenue. The business m

company makes money by specifying where it is positio

Amit and Zott (2001) The business model depicts the content, structure, and g

designed to create value through the exploitation of busi

business model includes the design of:

Transaction content: goods/ services; resources

Transaction structure: parties involved; linka

mechanisms

Transaction governance; flow control.

The business model describes the steps that are performe

transactions.

5.2 Components of the business model

Researchers have recently started to decompose business models into th

components have also been referred to as elements, functions, att

23


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Figure 10. Hamel's business model framework

According to Hamel (2001), new business concepts are used to generate n

existing business models. Business concept innovation is the capacity

business models in ways that create new value for customers, rude surpris

new wealth for investors. Firm's boundaries function as a bridge betwee

resources and its value network. This intermediating component refers to

been made about what the firm does and what it contracts out to the value ne

Some authors decompose the business model in a quite a similar way. F

Tucci (2000) define four vertical dimensions of the business model (missi

and revenues) and two horizontal dimensions (technology and legal issues

(2001) in turn specify the following components of the business model: 1) c

3) pricing, 4) revenue source, 5) connected activities, 6) implementation

sustainability. Chesbrough and Rosenbloom (2002), on the other hand, spec

through their operational definition of a business models functions. The fu

model are to (Chesbrough and Rosenbloom 2002, pp. 533-534):

articulate the value preposition, i.e. the value created for users by th

CUSTOMER

INTERFACE

Fulfillment & SupportInformation & InsightRelationship DynamicsPricing Structure

CORE STRATEGY

Business MissionProduct / Market ScopeBasis for Differentiation

STRATEGIC

RESOURCES

Core CompetenciesStrategic AssetsCore Processes

CUSTOMER BENEFITS CONFIGURATION COMPANY BOU

24


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describe the position of the firm within the value network lin

customers, including identification of potential complementors and c

formulate the competitive strategy by which the innovating fir

advantage over rivals

The above decompositions show that even though each researcher uses hi

bundling the components (differentiating levels, using sub-models, defining

dimensions etc.), they still have many similarities. In particular, these

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

regulation

technology

5.3 How openness affects the business model

Companies need to change their business models to create value from open

the actual product (code) is free and does not create direct value to a com

several ways to build a business model around open source software. Che

these alternatives to profit from open source:

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25

Companies competitive advantage in the software business is often based o

the end-product. From the business point of view, open architecture is the m

model if we use venture capitalists as an indicator (Cusumano, 2004; Gre

may call it mixed-source developing, where the free part of the code i

standards/platforms and the proprietary code is generated to make the en

customer, and thus, profitable to the company.

The open architecture model is not only a way to profit from the open sour

at commercial software based on the open source code (100%) with n

business is often built around complementary goods and supporting servi

source software is based on a shared source code and does not offer com

company has to invest in complementary goods and supporting services. quite simple: the company has to support the existing developing commun

and develop in-house goods and services around this popular software produ

It is difficult to build a profitable business model in long run, if the shared

add-ons) itself is a profit centre. This is because imitation is very easy and entries in the market. Instead, the open source activity has to be complement

remains proprietary. West & Gallagher (2006) see that the economical suc

underlies in the pooled R&D, which can be understood as open architectu

code to test the software, fix bugs, and to get improvements, feedback, an

Bonaccorsi, 2005). In this case, firms can together develop strong and maturbuild proprietary parts, services and features around this OS-platform, g

them.

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26

Although building the business model around open source is challeng

development and gaining revenues is still increasing its favor. When n

business based on open source, they have to notice some recommendations (

Table 3. Four important recommendations for building a new OS busine

(adapted from Pal & Madanmohan, 2001)

External Sources

Multiple alliances &

communities are the key

It is important that the firm

alliances. Each of the partne

complementary and offer ne

your resources by supportin

Flexibility Adapt flexible strategies

OS firms should be able to m

product areas, be flexible en

conflicting with a superior f

competition

Simple Business

for OS

OS is not a solution for troubled

business

OS projects that are owned a

commercial organizations ar

economic downturns (the pa

kill an OS project). If the ba

company is flawed, having a

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 compe

in open source business. The

differentiation. Do not build

close to open ones (value to

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the past few years the phenomenon of moving to use open source has conce

firms. Now these start-up software companies relying on open source busin

into the largest business computing segments, and the movement forces l

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 comm

constitute its open source practice. These four different ways are illustrated i

Figure 11. Different ways to constitute OS practice (Pal & Madanmohan 20

In box no 1, the company focuses on one market space only, and uses only

the platform for building new solutions. These kinds of companies a

companies, or companies having portfolio-related products for a single ve

typical model for start-up companies because it is simplest to operate and i

Single OSSInitiative

1Single Market

operation


2Multiple Market

operation

Multiple OSSInitiative

3Multiple Market

operation

Multiple OSSInitiative

4Single Market

operation

Multiplemarkets

Singlemarket

Single OSS Multiple OSS

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large resources (manpower) and intensive collaboration with the O

organizations that have a portfolio of products for multiple markets, with a

are likely to adopt this model.

In the third box the companies are typically large companies that can sustain

and leverage them across multiple markets. These can also be firms that h

other OS initiatives for historical reasons, and now want to constitute addit

can provide technology and platforms for building products to service multip

In the last box (4), the company spends considerable bandwidth and re

manage multiple OS initiatives, and leverages them for its products for o

market. Companies that are likely to adopt this model are world l

product/technology, and dominate the markets.

Choosing the appropriate quadrant is a strategic decision, since it determ

strategy of the firm. It also changes the evolution of the company and

Hence there will be shift from one quadrant to another in a long term. A t

the first quadrant to the second and then to the third one, when the size and b

is growing. The fourth quadrant will remain as a special case, and wi

particular type of companies, as described in the previous sections. (Pal & M

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6 CASE: NOKIA 770 INTERNET TABLET

Nokia Corporation is a public limited liability company incorporated under

of Finland. It is the world largest cell-phone maker, measured by total s

divided its business into four major business groups, which are mobi

networks and enterprise solutions. There is some general information a

(Nokia, 2006)

Table 5. Key parameters of Nokia. (Nokia, 2006)

Net Sales 34 191 EURm

Mobile Phones 20 811 EURm

Networks 6 557 EURm

Multimedia 5 981 EURm

Enterprise Solutions 861 EURm

Net profit 3 616 EURm

R&D 3 825 EURm

R&D Personnel 28 882 person

Personnel 58 874 person

This case discusses a large company's experience in creating a consumer eon Linux and open source software. Nokia encourages external developm

Nokia 770 Internet Tablet. It is the first open source and Linux-based co

Nokia. The company has published open development environment for 7

open source developers can share the code around 770 by the give-and-take

places itself on the market between cellular phones and notebooks. The basiInternet tablet is described in figure 13.

Browsing

Email

File Sharing

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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 interestin

Nokias major strategy shift that began in 2004, when Nokia rejiggered i

into four business groups to gain new markets. Ari Jaaksi (2006b), No

software platforms, has said that company believes that open source is cha

is created, with the new model a community based peer production, wh

shared.

Historically Nokia has relied on Symbian as the operating system for smar

used a Linux-based operating system for a browser type device, such as

(McCourtney, 2005). Normally Nokia has developed the companys main

through in-house-development and Symbian, because the market place in

with strict operator and server requirements (Correia, 2005). In the wide ra

first move to use the open source, but it has historically limited its open sou

based networking products and internal development tools. In the market

first major action to open source development. In the end of the 2005, No

minor open source projects around smartphones (portal: opensource.noki

OS-browser for the S60-platform. But these projects are not at the same l

770 Internet Tablet.

The new tablet is placed on new markets. Using Linux as an operating syst

flexible and mature technology, which will give access to PC technol

protocols. To speed up the development of the open source product, Nokia

development platform, which is a Linux software toolset available to

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movement and the Linux operating system for future non-phone produc

argued that the device itself is not very interesting, but the way of developm

a broader internal interest in the utility of Linux and open source developm

6.2 Technology review: Maemo.org & 770s software archite

Maemo.org is a platform where application user interface, application engin

developed. The platform is composed of mainstream Linux and open

deployed in the most popular Linux distributions. At its core is the Hildon

which is based on GNOME technology. GNOME provides an intuitive an

for end-users based on Linux, and a powerful framework for building ap

into the rest of the PC desktop. Maemo adapts this desktop technology to

extensions and modifications. It provides an easy-to-use development, bui

on Linux workstations. The host development environment runs the sam

available on the target device, Nokia 770, eliminating the need of target har

host and providing a more accurate test environment (Maemo.org, 2006).

development environment around Nokia 770 Internet Tablet.

CustomerGroup

(Products &S l ti )

Development

platform:MAEMO.ORG

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GNOME technologies are the base for the device user interface. The u

enhanced and combined to include Nokias long-term experience with end u

and mobile user interface design. The core non-UI middleware is compose

mainstream open source components (expat XML parser, D-BUS, X

networking, glibc etc.) Some of these components have been modified from

meet better the resource constraints of 770. Above all this, there is a Linux k

which is the core of all activity. (Maemo.org, 2006)

Except for the hardware adaptation layer, certain user interface elements, a

the 770 Internet Tablet is based entirely on open source software (figure

software component of Nokia 770 can be downloaded from maemo.org

filesystem, or managed as a collection of Debian source and binary

enterprise developers and consumers to easily create and test software for th

Application user interfaces

Application and userinterface framework

Application engines

Core software

Hardware adaptation

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Nokia works directly with OS communities to develop parts of the softwa

attempt to connect a commercial company and non-commercial communi

This consolidation is very challenging, but possible. The main problems are

and how to settle the publications of new versions. If the company can me

Nokia in the case of 770, the result will be positive. In the best cases this col

diversified products of good quality without need to go short of orderliness.

6.3 Nokias motives for OS development

It is clear that Nokia wants to follow the path of IBM. The company has ta

model seriously and wants to use external sources also in its software dev

markets. All of Nokias activities in the open software development are foissues (Jaaksi, 2006a):

Not re-inventing the wheel

Working constructively with the open source community with a give

Solving critical issues in the areas of:

o

User interface & usabilityo Power management

o Performance

o Memory management

o Application functionality

o

Cross-development toolso Integration

o Testing

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From the technology view, 770 is a good project to learn more from open s

Linux. Using Linux as a pilot experiment, Nokia can understand its poss

better for further development. It is also building a successful developm

general software platform. If we look at the motives from the business p

opening a path to new markets. Their product is new and it makes possible

family based on open source in the future.

This new way of development offers some concrete benefits for Nokia. O

availability of a good quality code and well-thought architecture and inte

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

o The quality of the people and the components can be analyze

o Their willingness to help is easy to verify just ask

o The activity and direction of the component or product can

project discussions

When everything goes wrong it is possible to take the code and run

o Even branch to meet the deadlines

o Worry about the consequences later

Open source enables also the interoperability of devices and software fa

proprietary one (McCourtney, 2005). Interoperability improves the usability

speeds up the diffusion of the new commercial handset. Open source d

t fl ibilit d h ld k it i t t d d i

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6.4 Nokias OS strategy in the 770 project

When we examine the models introduced by Pal & Madanmohan (2001),

look at Nokias OS strategy. Nokias basic strategy can be understood by stu

Figure 16. Nokia is using multiple OSS sources to single market operat

(Quadrant 4).

Nokia uses model 4 in its open source business around 770. It uses multiple

to add value to a product, such as 770 for the Telecom market. Why does thi

Nokia? Nokias Internet Tablet has some requirements for multiple modular

is a best solution to support modular environment.

A module means a self-contained component of a system. Modularity

important for the development of efficient software. Linux is a highly mo

which means that it is composed of a relatively small kernel (the core o


1.Single Market

operation


2.Multiple Markets

operation

Multiple OSSInitiatives

3.Multiple Markets

operation

Multiple OSSInitiatives

4.Single Market

operation

Multiplemarkets

Singlemarket

Single OSS Multiple OSS

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directly with open source communities. We can examine these different pos

source with the help of Nokias director of open source software operati

considers this open source business from two different angles (two dimensio

options, but first a decision-maker has to answer some questions:

1. Companys own involvement proxies vs. own involvement

a. Do you as a device manufacturer use commercial L

integrators, or do you rather work directly with open sour

b. Do you get your components from proxies such as M

Trolltechs, and such, or do you grab them yourself fr

GNOME etc.?

c. Do you rather make a business deal with a commercial c

care of the details of open source on your behalf, or do yo

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

development, or do you want to keep it closed and s

sandboxes, such as Java, on top of your software?

After studying questions, there can be seen four different options to a com

the use of the open source. These options can be described with the assistanc

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

Open & native

development

Development

environment

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The differences can be examined by two examples: Nokia 770 and Mo

Motorola uses the MontaVista kernel and Trolltechs Qt embedded in its p

developer platform. Nokia does not use any commercial Linux distributions

packages, but it has gone directly to GNOME and Kernel.org. They also

development. The reason behind these actions is that Nokia wants to us

components as soon they can. This goal is much more difficult to achieve

(Jaaksi 2006b)

Proxy solutions are chosen when companies do not want to worry too m

stuff. The proxy companies hide the open source aspect of the work and t

simple old component vendors. If you consider the openness of your deve

choice depends on your goals and targets. Supporting a sandbox as an a

environment may be a good idea in cases where you need more control, po

things. There are no right and wrong options, but it is essential to know w

the map. (Jaaksi 2006b)

Why is it important to present the different options? The catch is that by

(Linux logo) on the commercial software does not always mean pure open s

product can be based on open source stuff, but the development process can

open source development. Nokia is moving now to the direction the origi

and pioneers like Richard Stallman have pointed out.

6.5 Business review: maximal customer value with low R&D

The study has shown how Nokia uses communities and gatekeepers to creat

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new OS 2006 upgrade for 770, which includes new firmware but also

VoIP and Google Talk. The value of the new product increases after buyin

increasing value often means increasing speed of diffusion as well.

Nokia has also found a new market segment. The 770 Internet Tablet i

purposes than the companys cellular phones. The markets are quite new a

develop a new product family based on the mature platform. The strong sof

on flexibility in software sourcing, architecture and features as well as

processes. The open source affects also the value chain, because of the

sourcing. Nokia has a wider access to available technology providers and su

The last essential aspect is the cost structure. The OS offers larger res

products and features. Nokia can get free components, which it can

product development. The maintenance costs are shared with the industry.

For a commercial product, such as Nokias 770, it is vital that open sou

mixing of open source and commercial components. It is important that the

use the open source for any purpose with no restrictions. Flexibility

introduction of new technologies and features, as well as architectural

companys future needs.

There is no reason to believe, however that the open development model is

will eventually replace many closed ones, but these closed solutions are

cases. Reduced costs and new business opportunities will make the open s

adaptive for change and new business challenges.

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7 CASE: IBM

International Business Machine Corporation is the worlds largest IT-comp

industry since its birth (IBM 2006a). It has 329 000 employees in 75 coun

2005 was $91 billion and the total assets were $105.7 billion (IBM, 2006

2005 (IBM, 2006c, 14, 17) IBM announces that it has two ultimate goals: to

to the shareholders and help customers to become more efficient thro

operates in three segments: systems and financing (28 % from pre-tax incom

services (35 %) (IBM, 2006c, 5).

Table 6. Key parameters of IBM (EUR). (IBM, 2006c, used exchange rate 1

Net Sales 73 193 EURm

Systems & Financing 22 416 EURm

Software 12 694 EURm

Services 38 083 EURm

Net profit 6 347 EURm

R&D 4 660 EURm

R&D Personnel person

Personnel 329 000 person

IBM tries to maintain its business leader position by focusing on high-valu

solutions and services. As the implementation of this strategy, IBM sold

Business to Levano Group Limited, the largest manufacturer of personal

2005, and acquired 16 software and service companies in the same year (IB

is moving strongly from hardware to software, towards more sophisticated p

To support this innovation strategy IBM has the worlds largest IT research

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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 wi

Before 1993, IBM functioned with a very different business model.

manufactured, sold, serviced and financed everything through its own orga

this strategy brought enormous success and nearly monopoly position to t

this business model caused a financial crisis to IBM in 1992. The new rise

on hunting new revenues from semiconductor business, IP licensing and m

IBMs open source software initiative. ( Chesbrough, 2006, 189-190)

IBM is a good example of exploiting open innovation in practice, when s

from its intellectual property rights. IBM is now one of the leading corporat

open innovation paradigm. IBM is famous also from receiving revenue f

2001 it received $1.9 billion in royalty payments for its licensing actions (I

of licensing is even bigger considered also the cross-licensing the company

does not show in the income statement. One reason for this good result

leader. It has more patents than any other company in the world. So i

technologies widely. Besides patents IBM licenses its know-how, trade sec

technology. (IBM, 2006c, 20)

IBM supports the patenting culture widely. Strong patenting protects IBM

gives the company freedom of action and drives innovativeness. IBM

licensing strategy on purpose. It includes aggressive patent licensing w

manufacturing joint ventures, strategic joint development alliances and

technology (Ehrlickman, 2006). To speed up its licensing strategy, IBM

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The company is changing the way it handles its IP, opening up a large par

At the same time the company warns that its rivals have to adapt to this cha

of recent interviews and research, IBMs new IP strategy is changing the in

a wide sector. IBM has received attention by releasing 500 patents for free

that this was only the first step in the new IP-strategy. Never before has

much on its patents willingly released so many patents at one time. They

the portfolio are best served as open technology. The idea behind th

technological foundations that will bring ultimate benefits to consumers. (

2005)

Simultaneously, IBM tries to accelerate the diffusion of its software. The

deeply to the software business by using open source. IBM devotes more

supporting Linux than any other organization in the world. By linking Lin

system, which code is available to anybody) to own business model, IBM

leading position in software operating systems, which it had lost to Unix an

the whole new business model, though. Since Linux is based on freely avail

generate direct profits to IBM. (Chesbrough, 2006, 45, 192-195)

7.2 Motives, principles & market factors pushing IBM to OS

IBM thinks that this patent pledge will repeat itself in the future. The rea

cause a commotion in the market. The company announces that it was very

and that it all centred on this open, flexible architecture that the customers

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The crux of IBMs new strategy is the idea that when the basic technologies

and shared, there will be an increased innovation rate. The argument is th

technology (source code) companies will have more time to devote to inno

of technology. David Kappos from IBM (Vice President & Assistant Gener

has said that What will happen is that by having a base that provides less ne

basic rudiments of getting systems connected, more opportunities will be c

top of that, therefore more licensing opportunities and of course more

(Mamudi, 2005)

If we gather these comments in the form of a figure, the result would b

technological capability rises in the whole industry, it also develops the ba

the border between common technologies and unique innovation higher.

exploit the knowledge of the basic platform and focus on developing new

companys competitive advantage is based on the upper levels (skill to explo

create new).

Basic Technology Common Platform (architecture)-

New & Unique

innovations

Corporation 2

New & Unique

innovations

IBM

New & Uni

innovation

Corporatio

Technological cabability

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7.3 New schizophrenic strategy

Although basic technology with open standards will be non-proprietary i

mean an end to IBMs patenting efforts. The company argues that the new I

any deceleration in the companys innovativeness. In fact, this new strateg

effort rates (Forelle, 2006; Merrit, 2005; Mamudi 2005). According to Jim

President for IP and standards), the company is opening itself up to participa

but it is also accelerating the companies activities on the proprietary side. IB

coexist. Were going to be really good at managing both communities tog

the thing that comes from both will allow us to innovate in the market (d

interesting things for customers. Thats really what we are describing. (Mam

The above comment raises a question: Where is the line between the te

decides to give away and the innovations that it hopes will make it mon

picture 18. The boundary is moving all the time, so there is no com

Innovations that years ago were maybe at the level of getting basic compo

and getting basic infrastructure stabilized in computers, is now mundane

same kind of function in their products, so that function is no more differ

moved up the technology stack to a higher level (technological capability h

Mamudi, 2005). What can be seen, and what we expect to happen, is that th

boundary will continue to move up the stack.

The bottom line in the new policy is to try to raise the line between IP-prop

to accelerate the innovation rate and then develop the industry. The de

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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 aalso developing the open platform and researching high rispossibilities, which IBM can later adopt (absorptive capacit

Industry development

More mature platform (based on own products) where to bcommercial products

Resource allocation

More resources can be focused on the new opportunities: need to spend time on the basic rudiments (there is no neespend time to re-invent the wheel)

More valuable solutions

More valuable products for customers: the more people uthe more valuable the product is (meaning of diffusion)

Customers can participate in the development process modeeply, because there is a more open environment (custom

needs)

The biggest problem in OS development is creating a sustainable competiti

maximal contribution margin the company should create a product based

open platform has to offer a great value compared to full in-house develo

value of the platform, companies have to give up their in-house innovatio

their competitive advantage) to develop the open platform and then ensu

based on these publications. This cycle has to be continuous for OS-platfo

proprietary software. The crux of the new competitive advantage has t

45

i l d Th i i d h b b d l l


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rivals products. The competitive advantage has to be based also on levera

other key players.

There is also a small risk that IBM will create respectable rivals by

companies and sharing code with them. New VC companies gather talen

tempting risk/reward-rate to develop software solutions in new areas

companies are capable to create potential business models, but when they s

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 sourmeasures less expensive than proprietary software, so using it lowers the

pays for IBMs solutions (although smaller contribution margin, wider use/s

a common and universal platform, on top of which IBM can build and sell

services.

Because the open source is non-proprietary, the customers are much les

supplying the IT systems. Its interfaces are open. Opening up the interface m

can easily be written to plug into it, increasing its value to customers. B

lock-in, companies can reap the advantages of open source that accrue not

to all firms in the industry. They can sell software that works for example count on a far wider ecosystem of developers and service companies to im

benefits both IBM and their customers. Opening some parts of the paten

attract independent developers to the platform which opens it up to inn

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8 CONCLUSIONS

The open innovation model has increased its role in the world of innovat

are eroding factors to a closed innovation approach, like the availability o

funding, too many ideas sitting on the shelf, and increasing capability of e

force companies to the open approach. In our study we have considered op

one way to exploit open innovation principle. According to the literature, op

offers shorter development cycles, more resources and lower costs. It also e

that entails an accepted system architecture and language, the comm

combination of ideas and technological solutions. In our case studies we

source development is a flexible option in software development. In the N

more effective R&D processes, as well as strong software architecture on

projects. In the IBM case, the basic idea of using the open source has b

software platform to increase the diffusion and value of the companys ow

interoperability, because of wide and common standards. The motives from

table 8.

Table 8. The motives of OS at Nokia and IBMNokia, at product level Variable/motive/outcome IBM, at

Strategic flexibility Agility

Effective R&D Effiency Effective

Strong software architecture

Not re-inventing wheels(the significance of basic

technology) Mature

Increasing customer value after

47

and services with multiple technologies Convergence demands common p


53/58

and services with multiple technologies. Convergence demands common p

and the key for many firms is open development and collaboration with riva

and customers. Convergence affects especially the handset side where

remarkable force is the increasing complexity. Firms add more and more fe

and services to maintain their competitive advantage. The increasing amo

strong architecture and platforms as well as wide resources.

Increasing VC money in the software industry also encourages companie

niche markets, because of good risk/reward -rate. When this phenomenon m

components will become more modular and interchangeable, which speeds

software (Linux). The other factor is the interoperability of software. Be

significance of interoperability, companies are forced to develop comm

maximum value to customers and thus to companies as well. It can be see

same industry will have to cooperate more closely to establish universal

players can build. A strong architecture and platform as well as wide usabi

that speed the interest to open source business. It has pushed IBM to releas

ensure the use of its software products in the future.

Open source development needs a mature development environment, wh

develop the code by the give-and-take approach. A good example of a com

maemo.org development site launched by Nokia. Our study has illus

maemo.org environment works. The most important factor is the interfac

organizations and the communitys platform groups. If this group work isthe same development tools, in the best case this collaboration will generate

good quality without a need to go short of orderliness. It is also important th

environment runs the same software as the one available on the target devi

48

By using open source oriented business models companies can create


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By using open source -oriented business models, companies can create

standards and platforms, which can be developed in co-operation with op

This increases the interoperability of software and speeds up innovatio

boundaries. When an innovative platform is reached, the value proposition

platform will provide open standards, which increase the value of basic tec

value of the end-product (IBMs principle). And when the value is highe

profit will be earned through the end-products. The revenue generation

both: the common platform and the companys ability to develop end-produ

standards. The platform also helps commercial companies to allocate their

and focus more deeply on new technology (not re-inventing wheels).

There are some differences also in the cost structure between the open

products. According to West & Gallagher (2006), open source development

than the proprietary one because of wide range of resources (communities

cycles are shorter, the developing costs will decrease and the products c

which is one of the Nokias main targets in the 770 OS project.

Open source development demands different kinds of capabilities and c

development environment is based partly on using external sources of inn

knowledge on the companys own business. These actions demand absorpti

this capacity, engineers and R&D personnel have to be encouraged to

boundaries. In the field of open source, R&D processes have to focus on

architectural solutions in the software products, not re-invent wheels atechnology rudiments (platform). It is also important to abandon the

syndrome. There are also other successful players building your platform,

from technology point of view (this can be seen in both cases) However

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Chesbrough, H & Rosenbloom, R. (2002) The role of the business model in innovation: Evidence from Xerox Corporations technology spin-off companCorporate Change. 11 (3): 529-555.

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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

selasturkiye open source research report by sari viskari

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