Tightening the Loop

In earlier days, before the potential value to producers of free innovation activities was appreciated, any transfer of innovation support from producers to free innovators—one side of the "loop” of interaction between them—was typically accidental. For example, automobile producers might create a car design that was especially easy for customers to modify, and which for that reason attracted a great deal of interest from free innovators. The utility of that design as a platform for free innovator "hacking” probably was not even in the thoughts of engineers working for the producer—at least, in earlier days. They were focused on developing the best designs for large market segments of non-modifying customers.

The second part of the loop—transfer of any designs that were created from free innovators to producers for assessment of commercial potential—was similarly neglected in earlier days, or even actively suppressed. The increased legal risks to auto producers of liability for accidents involving customer-modified products make an effort to suppress understandable (Barnes and Ulin 1984). As a result, even if some innovations generated by free innovators had commercial potential, they were not likely to come quickly or efficiently to the attention of automobile producers' engineering departments.

Similarly, in the earlier days of video games, the possibility of modification of the games by free innovators was not contemplated by video game producers, and the potential commercial value of these was not appreciated. As a result, the games were not designed to be easily modified by gamers, and gamers' innovative activity, if noticed, was discouraged. This reaction was again understandable. Early hacks made by gamers were sometimes designed to parody the commercial game rather than enhance it. For example, Castle Wolfenstein, a popular game introduced in 1981, involved fierce combat among dangerous-looking World War II soldiers. Hackers redid it as "Castle Smurfenstein" in 1983, replacing the soldiers with amusingly nonthreatening blue Smurfs (Castle Smurfenstein 2016).

Today, the value of designs generated by free innovators are much clearer to at least some, and producers are responding by "tightening the loop" between the paradigms to increase profits. Indeed, some producers are finding that they can provide design tools and innovation environments to free innovators that do more than promote innovation. They can also shape and channel free innovators' activities toward designs with higher profit potential to specific producers, and also insure that these cannot easily spill over to benefit rivals. As an example, consider a platform set up to support customer innovation by the video game producer Valve (Steam Workshop 2016).

Steam Workshop contains software tools to assist gamers in creating modification to video games. Modifications can involve small changes to games or can be large collaborative efforts that may change a game fundamentally. Certain types of mods, such as creating new game "maps," are specifically supported, thus pulling more free innovator effort into innovation types especially profitable from the perspective of the producer. The total amount of activity by gamers utilizing Steam is quite large. The site claims that more than a million "maps, items, and mods" have been posted on it, and that these have been used by more than 12 million gamers to date (Steam Workshop 2016). Because the postings are on Valve's site, Steam Workshop personnel can monitor the popularity of the various mods posted to gain market insight. Valve can elect to commercialize innovations posted on Steam Workshop and also can elect to financially reward contributors, in that way drawing household sector innovators with producer motives into the mix along with free innovators.

To understand how spillovers to rival producers are avoided on Steam Workshop, consider that video games today consist of application software that "runs on top of” underlying game engine software and is a specific complement to it. The underlying proprietary game engine supplied for the use of free innovators provides such basic video game functions as rendering and animating the objects and characters used in a game. The application software, designed to run on that specific game engine, contains a game's story and setting. Games designed to run on one engine therefore will not run on another—and in this way spillovers are avoided: the free innovations are complements specific to one producer's proprietary game engine (Jeppesen 2004; Henkel, Baldwin, and Shih 2013; Boudreau and Jeppesen 2015).

Other producers profit in similar ways from designs developed by free innovators that do not easily spill over to rival producers. For example, Ikea sells standard modular furniture, each item of which has a specific intended use. Free innovators have learned to modify Ikea furniture in order to use it in ways that the producer did not intend. For example, they might purchase several Ikea picture frames and cut them up to make wall sculptures, or purchase an Ikea bookshelf and modify it to create a fold-out desk. The free innovators then openly share their designs on sites such as Ikeahackers.net. As in the Valve case, the free designs are value-enhancing complements that are specific to Ikea products, and so do not easily spill over to benefit rivals (Kharpal 2014). Again similarly, Lego supports users' creation and sharing of innovative designs made from bricks purchased from Lego. These designs are specific to Lego products, and so do not spill over to benefit rival firms (Antorini, Muniz, and Askildsen 2012; Hienerth, Lettl, and Keinz 2014).

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