Open innovation cannot be without risks, though.
No. Intellectual property is a particular challenge. You have to be careful that you actually have rights to use other people’s ideas and that they actually have the right to give them to you. If you allow your ideas to go outside, you have to pay attention to get the intellectual-property rights lined up correctly.
What has changed in the years that you’ve been researching open innovation?
One big change is that companies don’t have to figure it out by themselves any more. They now have the option of going to innovation intermediaries, such as InnoCentive, which helps companies with the process. [Chesbrough is on Innocentive’s board of advisors.]
I’ve also come to understand more the importance of public information resources. I’ve been working with an organization called GreenXchange, making a patent pool for green and renewable technologies that will be available for people around the world to use and license on very transparent terms. It should accelerate green-tech innovation.
You have just published a new book, Open Services Innovation. What did you learn about innovation in the course of writing it?
The new book looks at the service sector. When I started my research, I thought I’d be writing about banking, insurance, and retail. But I came to the view that there isn’t a hard line between technologies and products and services. Companies that had been making products and building new technologies have started to build services around those to complement and extend them.
I think this is the key to regaining U.S. manufacturing strength. We don’t just want to make the products—they’re just the platform upon which you can then erect applications and services that you and others can innovate with and on top of.
Can you give an example of a tech company that has done that?
Yes, Amazon. It began as a bookseller but now offers a lot of merchandise that has nothing to do with books. Most of those things are not stocked by Amazon. They made their internal tools and technologies used to manage their site available to external merchants. A user cannot tell the difference, but the third parties handle the complexity of figuring out how much stuff to stock and how to distribute it.
By opening up its internal tools to others like that, Amazon has become able to sell a lot more stuff without a lot of the risk of handling it directly.
Amazon has also opened up the very large server infrastructure it built to keep the website running, creating a new business, Amazon Web Services. Renting out their own server infrastructure provides a new revenue stream and reduces Amazon’s costs by increasing their utilization of the servers.
They’ve used open innovation to achieve economies of scope, by allowing third-party sellers, and economies of scale through their Web services.