Challenges of open innovation: the paradox of firm investment in open-source software

TLDR

Open innovation is a framework for generating, capturing, and employing intellectual property, yet firms face a paradox of investing in R&D when outcomes may benefit rivals. The study seeks to identify and analyze three core challenges of applying open innovation—internal exploitation, external integration, and motivating external contributions—by examining firms’ open‑source software activities and proposing strategies for other industries. The authors analyze firms’ open‑source software engagement, identifying four strategies—pooled R&D/product development, spinouts, selling complements, and attracting donated complements—to address the three open‑innovation challenges. They find that firms’ open‑source investments are frequently shared with rivals, and that the four identified strategies can mitigate the challenges of internal exploitation, external integration, and motivating external contributions.

Abstract

Open innovation is a powerful framework encompassing the generation, capture, and employment of intellectual property at the firm level. We identify three fundamental challenges for firms 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. This latter challenge involves a paradox, why would firms spend money on R&D efforts if the results of these efforts are available to rival firms? To explore these challenges, we examine the activity of firms in open-source software to support their innovation strategies. Firms involved in open-source software often make investments that will be shared with real and potential rivals. We identify four strategies firms employ – pooled R&D/product development, spinouts, selling complements and attracting donated complements – and discuss how they address the three key challenges of open innovation. We conclude with suggestions for how similar strategies may apply in other industries and offer some possible avenues for future research on open innovation.