In his 2016 book of the same title, MIT professor Eric von Hippel defines free innovation “as a functionally novel product, service, or process that (1) was developed by consumers at private cost during their unpaid discretionary time (that is, no one paid them to do it) and (2) is not protected by its developers, and so is potentially acquirable by anyone without payment – for free.” The book is available as a free download here.
Free innovation is a tightly constrained subset of commons-based peer production, – also known as open, collaborative innovation. Participants in a commons-based peer production project can do so for monetary gains, either as individual users or as employees of a collaborating company, as has been the case with firms involved in the continuous development of Linux. In contrast, while free innovation has potentially important economic impacts, it’s fundamentally not about money.
Free innovation is part of the household sector of national economies, carried out by the members of a household for their own consumption, using their own capital and unpaid labor. “In just six countries surveyed to date, tens of millions of individuals in the household sector have been found to collectively spend tens of billions of dollars in time and materials per year developing products for their own use,” writes von Hippel.
How can individuals justify developing a product or service which is freely made available to anyone while no one pays for their labor? The book cites the example of parents of children with Type 1 juvenile diabetes, whose blood sugar level must be constantly monitored. A company, Dexcom, had developed a device that measures blood sugar every few minutes and displays the result in a nearby small receiver. But parents of children with diabetes were frustrated that the Dexcom device couldn’t transmit its data over the Internet. Working together, they developed an open source solution that made it possible to upload the data to the Internet. Now the parents could monitor their children’s glucose level no matter where they were, – in school, playing with other children, or on a sleepover. In 2013 they established the Nighscout Foundation, – #WeAreNotWaiting, – to make their very important innovation freely available to anyone.
To better explain the free innovation paradigm, von Hippel compares it to the traditional, profit-seeking producer innovation paradigm.
The producer innovation paradigm is composed of four key elements: market research to identify a new, potentially profitable business opportunity; investments in R&D to develop a novel product or service in response to that opportunity; production of the novel offerings in factories and/or software labs; and marketplace distribution to reach as many potential customers as possible. The producer innovation paradigm addresses the needs of both consumer and industrial products and services.
The free innovation paradigm consists of three key elements: individuals in the household sector devote their unpaid discretionary time to the development of a new product or service; other interested individuals contribute their ideas to test, improve, and build the new product or service; and the unprotected, free design information is made available to anyone who wants it through peer-to-peer transfers. The free innovation paradigm is almost exclusively devoted to address the needs of the household sector.
There are four important interactions between the two paradigms, some complementary and some that compete with each other:
Identical or similar designs can be made available to potential adopters via both paradigms at the same time. For example, Linux can be download for free from linux.org, but it’s also commercially available from a number of Linux distributors which provide, and charge, for their additional tools, support and services. Similarly, free and commercial products are available from a number of open source communities like the Apache Software Foundation. “Competition from substitutes diffused for free via peer-to-peer transfers can increase social welfare by forcing producers to lower prices. It can also drive producers to other forms of competitive responses with social value, such as improving quality or increasing investments in innovation development.”
Innovations available via the free innovation paradigm can complement innovations diffused via the producer innovation paradigm. “Free complements are very valuable to consumers as well as to producers. They enable producers to focus on selling commercially viable products, while free innovators fill in with designs for valuable or even essential complements.”
Designs developed by free innovators may be used by a producer for a valuable commercial product. The books cites the example of mountain bikes, where many of its key improvements were developed by innovator bikers and made available for free to bike producing companies to help improve commercial bikes.
Producers may also supply valuable information and support to free innovators. Enlightened producers view free innovators not as competitors, but as valued innovation partners. Such producers make available information and toolkits to assist the free innovators in improving their commercial offerings. The book cites Steam Workshop, a company-sponsored websites designed to help individuals develop their own game modifications and improvements and share them with other players.
Finally, von Hippel suggests several next steps to help advance the further development of free innovation. These include:
Research. Much of the innovation in the world is hybrid in nature. Researchers should help us better understand the merits of different forms of innovation as well as their interplay. For example, in some open source projects contributors are exclusively free household sector innovators, and in others they are paid employees of producers. It would be interesting to explore the extent to which the addition of paid employees changes the nature of open source projects and their outputs.
Also, the information driving specific innovations is different for users and producers. User innovators generate their own information first-hand based on their own needs. Producers, on the other hand, must acquire the information second-hand from users and consumers by conducting market research. How does this difference lead to the development of different types of offerings, and how can the flow of information be improved through the collaboration of individual users and producers.
Measurements. “At present, household sector free innovation is not measured at all in official governmental statistics.” Measuring free innovation in a way that’s compatible with economic analysis is very difficult, because, in contrast to producer innovation, there are no transactions, no patents, or other formal ways of quantifying the value of investments and outputs. “Still, compatible measures of activities within the two paradigms and paradigm outputs can be devised. In view of the extent and importance of free innovation, work toward this end clearly will be worth the effort.”
Policy. “The basic justification for public policy interventions to support innovation is to increase social welfare… These could include public funding of the development of open standards for the exchange of design information among free developers. Also, and analogous to the R&D subsidies provided to producers by government, support could be given to upgrading physical facilities used by free innovators, such as makerspaces… Other infrastructure improvements could include support for the development of big data methods to identify, collect, and organize open public data on consumers’ unmet needs. The net result would likely be an increase in both the number and the average social value of innovation opportunities worked upon by free innovators.”