When firms contribute to open source projects, they in fact invest into a public good which may be used by everyone, even by their competitors. This seemingly paradoxical behavior is explained by the model of private-collective innovation where private investors participate in collective action. Previous literature explains that companies benefit through the production process providing them with unique incentives such as learning and reputation effects. By contributing to such open source projects firms are able to build a network of external individuals and organizations, who may participate in the creation and development of the software. As will be shown in this doctoral dissertation firm-sponsored communities involve the formation of interorganizational relationships which eventually may lead to a source of sustained competitive advantage. However, managing a largely independent open source community is a balancing act between exertion of control to appropriate value creation, and openness in order to gain and preserve credibility and motivate external contributions. Therefore, this dissertation consisting of an introductory chapter and six separate research papers analyzes characteristics of firm-driven open source communities, finds reasons why and mechanisms by which companies facilitate the creation of such networks, and shows how firms can benefit most from their communities.

1. How Firms Make Friends:
Communities in Private-Collective Innovation
Doctoral Thesis by Matthias Stuermer, ETH Zürich, mstuermer@ethz.ch
LIIP Tech Talk, July 16th 2009, Zürich

2. Apple iPhone Nokia N810 Openmoko
low Degree of openness high
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3. Overview
1. Research on motivation, governance,
and competitive dynamics
2. Characteristics of firm-sponsored
open source projects
3. Why firms invest into open source software
4. Community building as source of
competitive advantage
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4. 1. Research on motivation, governance, and competitive dynamics
Motivation within open source communities
 Greatest puzzle since the beginning of research in
open source communities: Why do top-notch
programmers contribute to open source projects?
 No single motivational factor
 Motivation is diverse: Review of 20 studies shows
10 different types of motivation
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5. 1. Research on motivation, governance, and competitive dynamics
Motivations of individuals
von Krogh, Spaeth, Haefliger, and Wallin; working paper 2008
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6. 1. Research on motivation, governance, and competitive dynamics
Evolution of motivation
 Before 2000: contributions mostly driven by intrinsic
and internalized extrinsic motivations
 After 2000: commercialization of OSS increased, today
many (if not most) relevant OSS projects driven by firms
 Example: Linux kernel development
 Started by unpaid programmers
 Today >73% of code from Red Hat, Novell, IBM, Intel, etc.*
* Linux Kernel Development: How Fast it is Going, Who is Doing It, What
They are Doing, and Who is Sponsoring It', The Linux Foundation. 2008
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7. 1. Research on motivation, governance, and competitive dynamics
How firms gain influence on OSS projects
 Influence of corporations increases when...
 firms reveal previously proprietary code
 firms employ core developers who previously
contributed as unpaid volunteers
 firms contract intermediary OSS entrepreneurs
 New challenges in firm-driven OSS projects
 Possible crowding-out effects of intrinsic motivation
 Create incentives to attract external contributions
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8. 1. Research on motivation, governance, and competitive dynamics
Governance within open source communities
 Definition of governance in OSS projects
 The means of achieving the direction, control, and
coordination of wholly or partially autonomous
individuals and organizations on behalf of an OSS
development project to which they jointly contribute.*
 Governance mechanisms solve collective action problem
 Viral effect of GNU GPL
 Non-profit foundations
* Markus (2007)
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9. 1. Research on motivation, governance, and competitive dynamics
Differences in how to gain control
 Community-driven OSS projects
 Meritocracy: exercise of control on the basis of knowledge *
 Technical contributions and organizational-building
behavior lead to authority and control **
 Firm-driven OSS projects
 Business model: value creation and value appropriation
 Firms need control to appropriate returns of investment
 Balancing act between openness and control
* Weber (1978)
** O'Mahony and Ferraro (2007)
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10. 1. Research on motivation, governance, and competitive dynamics
Balancing act between openness and control
 Control decreases contributions *
 Transparency increases contributions strongly
 Accessibility increases contributions slightly **
 Balancing is difficult
 Too much control: communities may not contribute with
all of their energy, interest, and creativity
 Too little control: results may not serve the firm's goals.
* Shah (2006), Dahlander and Magnusson (2005)
** von Krogh et al. (2009)
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11. 1. Research on motivation, governance, and competitive dynamics
Competitive dynamics in OSS
 Why do firms give away for free valuable
investments in the form of source code?
 Because they have to (GNU GPL)
 Unique benefits through the innovation process
 Is imitation by competitors a threat?
 Selective knowledge revealing strategies
 Public explicit knowledge, proprietary tacit knowledge
 The firm's community is core competitive advantage
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12. 1. Research on motivation, governance, and competitive dynamics
Hybrid software stack of Maemo
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13. Overview
1. Research on motivation, governance,
and competitive dynamics
2. Characteristics of firm-sponsored
open source projects
3. Why firms invest into open source software
4. Community building as source of
competitive advantage
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14. 2. Characteristics of firm-sponsored open source projects
Community-managed governance model
1. Independence: not dependent on any sponsor etc.
2. Pluralism: diversity of contributors etc.
3. Permeable representation: contributors can decide etc.
4. Decentralized decision-making: commit access etc.
5. Autonomous participation: new people may join etc.
O'Mahony (2007)
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15. 2. Characteristics of firm-sponsored open source projects
Are Firm-driven OSS projects the opposite?
1. Dependence on a single sponsor
2. Dominance of one company
3. Undisputed control by one sponsor
4. Centralized decision-making by the company's management
5. Restricted participation
→ Hybrid models are most common
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16. 2. Characteristics of firm-sponsored open source projects
Adoption level of the open source model
Building of a firm-sponsored community by
Level 3 renouncing some of the project's governance
Revealing of proprietary source code under an
Level 2 open source license → full control by the firm
Integration of externally available
Level 1 open source software → open innovation
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17. 2. Characteristics of firm-sponsored open source projects
Own research on firm-managed OSS projects
 Eclipse
 Started off strongly controlled by IBM
 Today pluralistic non-profit foundation as legal authority
 Maemo
 Mostly controlled by Nokia
 Now community council for more influence
 Openmoko
 Firm-initiated
 Strongly dependent on community
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18. 2. Characteristics of firm-sponsored open source projects
Own research on firm-managed OSS projects
 Data sets
 quantitative archival data: CVS (63m LOC) and messages (>350'000)
 expert interviews: ~ 25 interviews >1h, ~ 300 pages of transcripts
 online survey: 1233 responses, 28% response rate *
 Methods
 longitudinal data: contributions of IBM vs. non-IBM employees
 grounded theory building: incentives and costs of OSS contributions
 structured equation modeling:
impact of control and reputation on motivation and contributions
* http://public.smi.ethz.ch/files/MaemoOpenmoko/PublicDescriptiveStatistics.html
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19. 2. Characteristics of firm-sponsored open source projects
Source code analysis
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20. Overview
1. Research on motivation, governance,
and competitive dynamics
2. Characteristics of firm-sponsored
open source projects
3. Why firms invest into open source software
4. Community building as source of
competitive advantage
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21. 3. Why firms invest into open source software
Three Innovation Models
1. Private investment model
 Appropriation of financial returns from innovations through
IPRs → patents, copyright, licenses, trade secrets
 Knowledge spillover reduces innovator's benefits
2. Collective innovation model
 Investments in public goods → non-rival, non-excludable
 Free riding problem → public funding, governments
3. Private-collective model of innovation
 Combination of both previous models
 Innovators privately fund creation of public goods
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22. 3. Why firms invest into open source software
The private-collective model of innovation
 Model explains conditions when innovators receive
rewards from private investments in public goods
 Rewards from process of innovation surpasses rewards
of free-riders → involvement in innovation process
 Explicit knowledge is revealed, tacit knowledge
remains protected in the brains of people
 Example: OSS is a public good → when firms invest in
OSS, they conduct private-collective innovation
von Hippel and von Krogh (2003)
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23. 3. Why firms invest into open source software
Incentives for private-collective innovation
1. No cost of controlling knowledge
2. Learning benefits
3. Reputation gain
4. Fast and widespread diffusion of innovations
5. Lower costs of innovation
6. Lower costs of manufacturing
von Hippel and von Krogh (2006)
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24. 3. Why firms invest into open source software
Current concept of Push model of
open innovation open innovation
Exploitation of
existing ideas
Inducing new
external innovations
useful for the firm
Licensing
Free revealing of
innovations
knowledge
to other firms
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25. 3. Why firms invest into open source software
Active Eclipse committers per month
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26. 3. Why firms invest into open source software
Community contributions
Hundreds of applications on maemo.org for Nokia Internet Tablets, e.g.
Maemo-Mapper Maemo-Stars
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27. Overview
1. Research on motivation, governance,
and competitive dynamics
2. Characteristics of firm-sponsored
open source projects
3. Why firms invest into open source software
4. Community building as source of
competitive advantage
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28. 4. Community building as source of competitive advantage
Sources of competitive advantage
 Traditional views
 Industry structure view *
 Resource-based view **
 New view: Relational view ***
 Network of relationships with other organizations
 Embedded interfirm resources are difficult to imitate
 Results in interorganizational competitive advantage
* Porter (1980)
** Wernerfelt (1984), Barney (1991)
*** Dyer and Singh (1998)
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29. 4. Community building as source of competitive advantage
Characteristics and sub-determinants
Determinants of relational rents Subprocesses facilitating relational rents
Duration of safeguards
Relation-specific assets
Volume of interfirm transactions
Partner-specific absorptive capacity
Knowledge-sharing routines
Incentives to encourage transparency and discourage free riding
Ability to identify and evaluate potential complementarities
Complementary resources
And capabilities Role of organizational complementarities to access benefits of
strategic resource complementarity
Ability to employ self-enforcement rather than third-party
Effective governance governance enforcement
Mechanisms Ability to employ informal versus formal self-enforcement
governance mechanisms
Dyer and Singh (1998)
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30. 4. Community building as source of competitive advantage
Ari Jaaksi, head of OSS operations at Nokia
But we believe the world is changing and
the competitive advantage comes from how
many others can you get from participating
in this network. This network becomes more
important than trade secrets.
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31. References
 Barney, J. (1991), 'Firm Resources And  von Hippel, E. & von Krogh, G. (2003), 'Open
Sustained Competitive Advantage', Journal of Source Software and the "Private-Collective"
Management 17(1), 99-120. Innovation Model: Issues for Organization
Science', Organization Science 14(2), 209-223.
 Dahlander, L. & Magnusson, M. G. (2005),
'Relationships between open source software  Kroah-Hartman, G.; Corbet, J. & McPherson, A.
companies and communities: Observations (2008), 'Linux Kernel Development: How Fast
from Nordic firms', Research Policy 34(4), 481- it is Going, Who is Doing It, What They are
493. Doing, and Who is Sponsoring It', Technical
report, The Linux Foundation.
 Dyer, J. H. & Singh, H. (1998), 'The Relational
View: Cooperative Strategy and Sources of  von Krogh, G.; Spaeth, S.; Haefliger, S. &
Interorganizational Competitive Advantage', Wallin, M. (2008), 'Open Source Software:
Academy of Management Review 23(4), 660- What we know (and do not know) about
679. motives to contribute', ETH Zurich.
 von Hippel, E. & von Krogh, G. (2006), 'Free  von Krogh, G.; Spaeth, S.; Stuermer, M. &
revealing and the private-collective model for Hertel, G. (2009a), 'The credible sponsor:
innovation incentives', R&D Management Participants’ motivation and firm attributes in
36(3), 295-306. collaborative digital innovation', ETH Zurich.
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32. References
 Markus, M. L. (2007), 'The governance of  Shah, S. (2006), 'Motivation, Governance, And
free/open source software projects: The Viability Of Hybrid Forms In Open Source
monolithic, multidimensional, or Software Development', Management Science
configurational?', Journal of Management and 52(7), 1000-1014.
Governance 11(2), 151-163.
 Spaeth, S.; Stuermer, M. & von Krogh, G.
 Porter, M. E. (1980), 'Competitive Strategy', (2009a), 'Enabling Knowledge Creation
New York: Free Press. Through Outsiders: Towards a Push Model of
Open Innovation', International Journal of
 O’Mahony, S. (2007), 'The governance of open
Technology Management(Forthcoming
source initiatives: what does it mean to be
Special Issue on Open Innovation).
community managed?', Journal of
Management and Governance 11(2), 139-150.  Weber, M. (1978) Economy and society.
Berkeley: University of California Press.
 O'Mahony, S. & Ferraro, F. (2007), 'The
Emergence Of Governance In An Open Source  Wernerfelt, B. (1984), 'A Resource-Based View
Community', Academy of Management of the Firm', Strategic Management Journal 5,
Journal 50(5). 171-180.
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