Open Innovation: The Paradox of Firm Investment in Open Source Software

Joel West, Associate Professor, College of Business, San José State University, and Scott Gallagher, Assistant Professor, College of Business, James Madison University

3/13/2008
(Original Publish Date: 10/5/2004)

We identify three fundamental challenges in applying the concept of “open innovation”: finding creative ways to exploit internal innovation, incorporating external innovation into internal development, and motivating outsiders to supply an ongoing stream of external innovations. To illustrate these points, we show how firms use open source software to support innovation strategies. From this, we identify four approaches — pooled R&D, spinouts, selling complements and attracting donated complements — and discuss how they address the three key challenges of open innovation. From this, we offer suggestions as to how these principles can be applied to other industries, and directions for future research.