The Emergence of Openness: How and Why Firms Adopt Selective Revealing in Open Innovation

Abstract

Open innovation is often facilitated by strong intellectual property rights (IPRs), but it may also function, and even be boosted, when firms deliberately waive some of their IPRs. Extant literature has pointed out the potential benefits of such behavior, but falls short of explaining what triggers firms to practice it in the first place and to maintain or extend it. Since the waiving of IPRs runs counter to common views on strategy and competition and to engrained practices, this is a non-trivial question. To address it, we conduct an empirical study in a segment of the computer component industry which traditionally has taken a rather proprietary stance. With the advent of the open source operating system Linux, firms increasingly waived their IPRs on software drivers. We trace and analyze this process using both qualitative and quantitative methods. Our results indicate that component makers went through a learning process to realize that and how selectively waiving IPRs may be beneficial for their business. We uncover customer demand pull as the initial trigger and observe how a positive feedback loop sets in subsequently, leading to a further increase in the use of selective revealing. Overall, we find that openness develops into a novel dimension of competition. We discuss the implication of our findings for research on open innovation and highlight how they impact managers in practice.

Keywords: open innovation, selective revealing, open source software, learning process, customer demand

JEL Classification: L24, O32, O34