Findings presented in this chapter show clearly that household sector innovation is significant in scale and scope. They also show that about 90 percent of household sector innovators fit the two criteria I have set for free innovation. That is, the innovators were motivated almost entirely by self-reward as compensation for their innovation-related investments, and they also did not protect their innovations from free-riding adopters.
In this section, I explain more richly why free innovators are willing to freely reveal their innovations. Although useful to us here, this topic has been explored in detail in previous work (e.g., Allen 1983; Harhoff 1996; Lerner and Tirole 2002; Harhoff, Henkel, and von Hippel 2003; von Hippel 2005, chapter 6). For this reason, I will provide only a brief summary of the main arguments.
The first fundamental point to note is that household sector innovators who are not rivals, and who do not plan to gain from having a monopoly on their innovations, generally do not lose anything by freely revealing their designs. For example, if I develop an innovation to help my diabetic child and have no interest in selling it, my own interests are in no way damaged if you adopt my design to help your diabetic child without paying me. This is true even if you did not contribute to the development work—that is, if you are a free rider. The same is true even if you are a producer who will make a great deal of money commercializing my free innovation, and who will not share any of the profits with me. After all, my self-reward—sufficient to induce me to develop the innovation—was to help my child. (Of course, there can be special reasons to restrict free revealing even in the case of non-rivalry. For example, free innovators who create medical devices that are complex or dangerous to use may freely reveal their designs only very selectively, wishing to avoid any health risk to adopters with lesser skills. See Lewis and Liebrand 2014.)
Second, given that one does not lose anything by free revealing, a passive absence of efforts to protect innovation-related information is the lowest-cost option for innovators. This is so because active exclusion requires investment to prevent revealing of design-related information that would otherwise leak out in the natural course of events (Benkler 2004; von Hippel 2005). For example, if you use an invention in public—say, if you ride an innovative bicycle in public—its design is to some extent "naturally self-revealing.” That is, unless you invest in shrouding your bicycle's working parts, observers can to some extent understand its functioning via simple observation as you pass by (Strandburg 2008). Investments in protection can take the form of measures to maintain secrecy, as just described, and/or investments to prevent use of information that has been revealed via contracts or intellectual property rights.
Third, freely revealing rather than hiding an innovation can provide valuable, transaction-free rewards to free innovators well beyond the four types of self-rewards listed in earlier tables. For example, innovators who freely reveal their new designs may find that others then elect to improve their innovation, to mutual benefit (Allen 1983; Raymond 1999). Commercialization by producers also can create a source of supply for innovators that is cheaper than do-it-yourself production. For example, I might be pleased if a producer adopts my innovative medical device. Commercialization of my development would give me the convenience of buying copies I might need in future rather than having to make them for myself (Allen 1983). And, of course, revealing innovations for free can enhance innovators' reputations, sometimes leading to valuable personal outcomes like job offers (Lerner and Tirole 2002).
Despite the benefits of free revealing listed above, the option to protect one's innovation is open to all. Indeed, recall that many household sector innovators in the "producer” cluster in figure 2.1 do exactly that in pursuit of profit. Why do not more innovators, since the opportunity is open to all, opt for protection and commercialization instead of free revealing? A major reason, I surmise, is that even if an effort to commercialize might yield some profit in the end, investing time and money to realize that profit has opportunity costs associated with it. (An opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen.) All household sector innovators—and all of us—have many things that compete for our time and attention. Household innovators in the producer cluster appear to have decided that commercialization is worth pursuing under their particular circumstances (Shah and Tripsas 2007; Halbinger 2016). In contrast, household sector innovators who choose the path of free innovation may simply prefer devote their time and money to following other opportunities.
In this chapter I explore the conditions under which innovation pays for both free innovators and producers. Drawing heavily upon research carried out with Carliss Baldwin (Baldwin and von Hippel 2011), I first define and describe three basic innovation modes: free innovation by single individuals, collaborative free innovation by multiple individuals, and producer innovation. I then explore the conditions under which each of these modes is "viable”—that is, will provide a net benefit to innovators engaging in it.
Building upon innovation mode viability calculations, we will see that continuing improvements to free innovators' design tools and communication capabilities are making free innovation viable for an increasing range of innovation opportunities. As a result, it is reasonable to conclude that free innovation will steadily grow in importance relative to producer innovation.