Video Transcript: The Era of Open Innovation

What I'm going to do, in the spirit of collaborative creativity, is simply repeat  many of the points that the three people before me have already made, but do  them – this is called "creative collaboration;" it's actually called "borrowing" – but do it through a particular perspective, and that is to ask about the role of users  and consumers in this emerging world of collaborative creativity that Jimmy and  others have talked about. Let me just ask you, to start with, this simple question: who invented the mountain bike? Because traditional economic theory would  say, well, the mountain bike was probably invented by some big bike corporation that had a big R&D lab where they were thinking up new projects, and it came  out of there. It didn't come from there. Another answer might be, well, it came  from a sort of lone genius working in his garage, who, working away on different  kinds of bikes, comes up with a bike out of thin air. It didn't come from there. The mountain bike came from users, came from young users, particularly a group in  Northern California, who were frustrated with traditional racing bikes, which were those sort of bikes that Eddy Merckx rode, or your big brother, and they're very  glamorous. But also frustrated with the bikes that your dad rode, which sort of  had big handlebars like that, and they were too heavy. So, they got the frames  from these big bikes, put them together with the gears from the racing bikes, got the brakes from motorcycles, and sort of mixed and matched various  ingredients. And for the first, I don't know, three to five years of their life,  mountain bikes were known as "clunkers." And they were just made in a  community of bikers, mainly in Northern California. And then one of these  companies that was importing parts for the clunkers decided to set up in  business, start selling them to other people, and gradually another company  emerged out of that, Marin, and it probably was, I don't know, 10, maybe even  15, years, before the big bike companies realized there was a market. Thirty  years later, mountain bike sales and mountain bike equipment account for 65  percent of bike sales in America. That's 58 billion dollars. This is a category  entirely created by consumers that would not have been created by the  mainstream bike market because they couldn't see the need, the opportunity; they didn't have the incentive to innovate. The one thing I think I disagree with  about Yochai's presentation is when he said the Internet causes this distributive  capacity for innovation to come alive. It's when the Internet combines with these  kinds of passionate pro-am consumers – who are knowledgeable; they've got  the incentive to innovate; they've got the tools; they want to – that you get this  kind of explosion of creative collaboration. And out of that, you get the need for  the kind of things that Jimmy was talking about, which is our new kinds of  organization, or a better way to put it: how do we organize ourselves without  organizations? That's now possible; you don't need an organization to be  organized, to achieve large and complex tasks, like innovating new software  programs. So this is a huge challenge to the way we think creativity comes  about. The traditional view, still enshrined in much of the way that we think about

creativity -- in organizations, in government – is that creativity is about special  people: wear baseball caps the wrong way round, come to conferences like this, in special places, elite universities, R&D labs in the forests, water, maybe  special rooms in companies painted funny colors, you know, bean bags, maybe  the odd table-football table. Special people, special places, think up special  ideas, then you have a pipeline that takes the ideas down to the waiting  consumers, who are passive. They can say "yes" or "no" to the invention. That's  the idea of creativity. What's the policy recommendation out of that if you're in  government, or you're running a large company? More special people, more  special places. Build creative clusters in cities; create more R&D parks, so on  and so forth. Expand the pipeline down to the consumers. Well this view, I think,  is increasingly wrong. I think it's always been wrong, because I think always  creativity has been highly collaborative, and it's probably been largely  interactive. But it's increasingly wrong, and one of the reasons it's wrong is that  the ideas are flowing back up the pipeline. The ideas are coming back from the  consumers, and they're often ahead of the producers. Why is that? Well, one  issue is that radical innovation, when you've got ideas that affect a large number of technologies or people, have a great deal of uncertainty attached to them.  The payoffs to innovation are greatest where the uncertainty is highest. And  when you get a radical innovation, it's often very uncertain how it can be applied. The whole history of telephony is a story of dealing with that uncertainty. The  very first landline telephones, the inventors thought that they would be used for  people to listen in to live performances from West End theaters. When the  mobile telephone companies invented SMS, they had no idea what it was for; it  was only when that technology got into the hands of teenage users that they  invented the use. So the more radical the innovation, the more the uncertainty, the more you need innovation in use to work out what a technology is for. All of  our patents, our entire approach to patents and invention, is based on the idea that the inventor knows what the invention is for; we can say what it's for. More  and more, the inventors of things will not be able to say that in advance. It will  be worked out in use, in collaboration with users. We like to think that invention  is a sort of moment of creation: there is a moment of birth when someone  comes up with an idea. The truth is that most creativity is cumulative and  collaborative; like Wikipedia, it develops over a long period of time. The second  reason why users are more and more important is that they are the source of  big, disruptive innovations. If you want to find the big new ideas, it's often difficult to find them in mainstream markets, in big organizations. And just look inside  large organizations and you'll see why that is so. So, you're in a big corporation. You're obviously keen to go up the corporate ladder. Do you go into your board  and say, "Look, I've got a fantastic idea for an embryonic product in a marginal  market, with consumers we've never dealt with before, and I'm not sure it's  going to have a big payoff, but it could be really, really big in the future?" No, 

what you do, is you go in and you say, "I've got a fantastic idea for an  incremental innovation to an existing product we sell through existing channels to existing users, and I can guarantee you get this much return out of it over the  next three years." Big corporations have an in-built tendency to reinforce past  success. They've got so much sunk in it that it's very difficult for them to spot emerging new markets. Emerging new markets, then, are the breeding grounds  for passionate users. Best example: who in the music industry, 30 years ago,  would have said, "Yes, let's invent a musical form which is all about  dispossessed black men in ghettos expressing their frustration with the world  through a form of music that many people find initially quite difficult to listen to. That sounds like a winner; we'll go with it." So what happens? Rap music is  created by the users. They do it on their own tapes, with their own recording  equipment; they distribute it themselves. 30 years later, rap music is the  dominant musical form of popular culture – would never have come from the big  companies. Had to start -- this is the third point – with these pro-ams. This is the  phrase that I've used in some stuff which I've done with a think tank in London  called Demos, where we've been looking at these people who are amateurs -- i.e., they do it for the love of it – but they want to do it to very high standards. And across a whole range of fields – from software, astronomy, natural  sciences, vast areas of leisure and culture like kite-surfing, so on and so forth -- you find people who want to do things because they love it, but they want to do  these things to very high standards. They work at their leisure, if you like. They  take their leisure very seriously: they acquire skills; they invest time; they use  technology that's getting cheaper -- it's not just the Internet: cameras, design  technology, leisure technology, surfboards, so on and so forth. Largely through  globalization, a lot of this equipment has got a lot cheaper. More knowledgeable  consumers, more educated, more able to connect with one another, more able  to do things together. Consumption, in that sense, is an expression of their  productive potential. Why, we found, people were interested in this, is that at  work they don't feel very expressed. They don't feel as if they're doing  something that really matters to them, so they pick up these kinds of activities. This has huge organizational implications for very large areas of life. Take  astronomy as an example, which Yochai has already mentioned. Twenty years  ago, 30 years ago, only big professional astronomers with very big telescopes  could see far into space. And there's a big telescope in Northern England called  Jodrell Bank, and when I was a kid, it was amazing, because the moon shots  would take off, and this thing would move on rails. And it was huge -- it was  absolutely enormous. Now, six amateur astronomers, working with the Internet, with Dobsonian digital telescopes – which are pretty much open source – with  some light sensors developed over the last 10 years, the Internet – they can do  what Jodrell Bank could only do 30 years ago. So here in astronomy, you have  this vast explosion of new productive resources. The users can be producers.

What does this mean, then, for our organizational landscape? Well, just imagine  a world, for the moment, divided into two camps. Over here, you've got the old,  traditional corporate model: special people, special places; patent it, push it  down the pipeline to largely waiting, passive consumers. Over here, let's  imagine we've got Wikipedia, Linux, and beyond -- open source. This is open;  this is closed. This is new; this is traditional. Well, the first thing you can say, I  think with certainty, is what Yochai has said already – is there is a great big  struggle between those two organizational forms. These people over there will  do everything they can to stop these kinds of organizations succeeding,  because they're threatened by them. And so the debates about copyright, digital  rights, so on and so forth – these are all about trying to stifle, in my view, these  kinds of organizations. What we're seeing is a complete corruption of the idea of patents and copyright. Meant to be a way to incentivize invention, meant to be a  way to orchestrate the dissemination of knowledge, they are increasingly being  used by large companies to create thickets of patents to prevent innovation  taking place. Let me just give you two examples. The first is: imagine yourself  going to a venture capitalist and saying, "I've got a fantastic idea. I've invented  this brilliant new program that is much, much better than Microsoft Outlook."  Which venture capitalist in their right mind is going to give you any money to set  up a venture competing with Microsoft, with Microsoft Outlook? No one. That is  why the competition with Microsoft is bound to come – will only come – from an  open-source kind of project. So, there is a huge competitive argument about  sustaining the capacity for open-source and consumer-driven innovation, because it's one of the greatest competitive levers against monopoly. There'll be huge professional arguments as well. Because the professionals, over here in  these closed organizations – they might be academics; they might be  programmers; they might be doctors; they might be journalists – my former  profession – say, "No, no -- you can't trust these people over here." When I  started in journalism – Financial Times, 20 years ago – it was very, very exciting  to see someone reading the newspaper. And you'd kind of look over their  shoulder on the Tube to see if they were reading your article. Usually they were  reading the share prices, and the bit of the paper with your article on was on the  floor, or something like that, and you know, "For heaven's sake, what are they  doing! They're not reading my brilliant article!" And we allowed users, readers, two places where they could contribute to the paper: the letters page, where  they could write a letter in, and we would condescend to them, cut it in half, and  print it three days later. Or the op-ed page, where if they knew the editor – had  been to school with him, slept with his wife – they could write an article for the  op-ed page. Those were the two places. Shock, horror: now, the readers want to be writers and publishers. That's not their role; they're supposed to read what  we write. But they don't want to be journalists. The journalists think that the  bloggers want to be journalists; they don't want to be journalists; they just want 

to have a voice. They want to, as Jimmy said, they want to have a dialogue, a  conversation. They want to be part of that flow of information. What's happening  there is that the whole domain of creativity is expanding. So, there's going to be  a tremendous struggle. But, also, there's going to be tremendous movement  from the open to the closed. What you'll see, I think, is two things that are  critical, and these, I think, are two challenges for the open movement. The first  is: can we really survive on volunteers? If this is so critical, do we not need it  funded, organized, supported in much more structured ways? I think the idea of  creating the Red Cross for information and knowledge is a fantastic idea, but  can we really organize that, just on volunteers? What kind of changes do we  need in public policy and funding to make that possible? What's the role of the  BBC, for instance, in that world? What should be the role of public policy? And  finally, what I think you will see is the intelligent, closed organizations moving  increasingly in the open direction. So it's not going to be a contest between two  camps, but, in between them, you'll find all sorts of interesting places that people will occupy. New organizational models coming about, mixing closed and open  in tricky ways. It won't be so clear-cut; it won't be Microsoft versus Linux –  there'll be all sorts of things in between. And those organizational models, it  turns out, are incredibly powerful, and the people who can understand them will  be very, very successful. Let me just give you one final example of what that  means. I was in Shanghai, in an office block built on what was a rice paddy five  years ago – one of the 2,500 skyscrapers they've built in Shanghai in the last 10 years. And I was having dinner with this guy called Timothy Chan. Timothy Chan set up an Internet business in 2000. Didn't go into the Internet, kept his money, decided to go into computer games. He runs a company called Shanda, which is the largest computer games company in China. Nine thousand servers all over  China, has 250 million subscribers. At any one time, there are four million  people playing one of his games. How many people does he employ to service  that population? 500 people. Well, how can he service 250 million people from  500 employees? Because basically, he doesn't service them. He gives them a  platform; he gives them some rules; he gives them the tools and then he kind of  orchestrates the conversation; he orchestrates the action. But actually, a lot of  the content is created by the users themselves. And it creates a kind of  stickiness between the community and the company which is really, really  powerful. The best measure of that: so you go into one of his games, you create  a character that you develop in the course of the game. If, for some reason, your credit card bounces, or there's some other problem, you lose your character. You've got two options. One option: you can create a new character, right from  scratch, but with none of the history of your player. That costs about $100. Or  you can get on a plane, fly to Shanghai, queue up outside Shanda's offices –  cost probably $600, $700 – and reclaim your character, get your history back.  Every morning, there are 600 people queuing outside their offices to reclaim 

these characters. So this is about companies built on communities, that provide  communities with tools, resources, platforms in which they can share. He's not  open source, but it's very, very powerful. So here is one of the challenges, I  think, for people like me, who do a lot of work with government. If you're a  games company, and you've got a million players in your game, you only need  one percent of them to be co-developers, contributing ideas, and you've got a  development workforce of 10,000 people. Imagine you could take all the  children in education in Britain, and one percent of them were co-developers of  education. What would that do to the resources available to the education  system? Or if you got one percent of the patients in the NHS to, in some sense,  be co-producers of health. The reason why – despite all the efforts to cut it  down, to constrain it, to hold it back – why these open models will still start  emerging with tremendous force, is that they multiply our productive resources. And one of the reasons they do that is that they turn users into producers, consumers into designers. Thank you very much.