Author: Bill Snyder

British software developer Symbian beat Apple to market by five years by introducing an operating system for smartphones in 2002. Long before the first iPhone, Symbian built a network of partners and suppliers around its operating system that included the world’s largest maker of cell phones. By 2007, Symbian boasted a 63 percent market share.

Symbian appeared to have taken its strategy straight out of the open innovation playbook, a business strategy developed by Haas Adjunct Professor Henry Chesbrough, which asserts that “a company should make greater use of external ideas in its business and allow its own ideas to go out to others to use in their businesses.”

When multiple firms in a partnership cooperate to create value for customers, the partnerships succeed, argue open innovation theorists. That’s exactly what Symbian and its partners attempted to do. Yet by the end of 2014, the Symbian operating system had become so marginal that when IDG, a market research company, reported on the mobile OS market, it lumped it into the “other” category, with a share less of than half of one percent and the company itself no longer existed.

The story of the company’s precipitous fall is an important chapter in New Frontiers in Open Innovation (Oxford Press, 2014), a collection of analytical papers published late last year. It was edited by Wim Vanhaverbeke of the University of Hasselt, Joel West of the Keck Graduate Institute, and Chesbrough, who is also director of the Garwood Center for Corporate Innovation at Berkeley-Haas.

Chesbrough and his co-authors extend their analysis of open innovation to include socially focused non-profits, high-tech “platform” companies like Symbian, and the difficulties businesses have in capitalizing on the fruits of internal research and development that fall outside their core competencies.

In large part, Symbian’s failure can be blamed on a cumbersome network of customers (handset makers), who were also investors that hindered its battle for smartphone supremacy with Apple and Google, writes West.

Open Social Innovation

Students of management tend to focus upon the private benefits of innovation to consumers, producers, and investors while treating the overall social benefit “as an endnote for our papers,” notes Chesbrough in an essay written with Alberto Di Minin, a research fellow with the Berkeley Roundtable on the International Economy. Social change, not the simpler equation of profit and loss, is the yardstick by which social innovators need to measure their efforts, they write.

Emergency, an Italian non-profit dedicated to delivering top-quality emergency medicine in conflict zones, has had notable success operating in areas too perilous for most NGOs. In Afghanistan, for example, it operates three surgical centers, a maternity clinic, a network of 30 first-aid posts, and has performed more than 17,000 surgeries.

The 20-year-old organization exemplifies what the authors call an “inside-out, or outbound” open innovation strategy in which knowledge flows outward from an organization, as well as the better known “in-bound” open innovation strategy in which firms leverage external knowledge and technology to accelerate internal innovation.

One core principal of inbound open innovation is embodied in the expression “not all the smart people work for you,” write Chesbrough and Di Minin. In order to provide medical treatment to those in need, Emergency has to identify and rely on local suppliers and staff to support its activities, is sensitive to local customs and sensibilities, and is scrupulous about not taking sides in conflicts.

On the outbound side, Emergency’s exit strategy is to become redundant by transferring know-how and best practices to local institutions that can then assume its role.
When Chesbrough published his first work on open innovation in 2003, he proposed a number of “erosion factors,” such as increased mobility of workers and growing access to venture capital by startups that “undercut the logic of the prevailing closed innovation model.” A dozen years later, the rise of the Internet and social media have undercut that logic even further, as companies have access to more and better information from sources across the globe.

The new volume speaks to those changes and points to new areas of future research into open innovation.

It’s not much harder or more expensive to send a tweet or a Facebook post to hundreds or even thousands of people than to just a handful. So you’d think that the ease of communicating with lots of people via social networks would result in more and more people sharing their thoughts, political views, and cat videos.

But that’s not the case, says Associate Professor Zsolt Katona at UC Berkeley’s Haas School of Business (pictured, left). The flood of tweets and posts washing across cyberspace has created a huge imbalance in the number of people creating content and the number of people who receive it. That imbalance stems from some content creators giving up on actively contributing to social networks, while others choose to send out more and more messages to users in an effort to be noticed.

In a new research paper, Competing for Attention in Social Communication Markets, Katona and co-author Ganesh Iyer, Edgar F. Kaiser Chair in Business Administration at Berkeley-Haas, (pictured, right) suggest a seemingly counter-intuitive thesis: The cheaper and easier it becomes to reach large numbers of people via social media, the fewer “content creators” choose to participate and the more cluttered the networks become.  If it were as difficult to post messages to large numbers of people as it was just a few years ago – before the rise of mobile messaging apps — more users would create content.

Although more and more people are participating in social networking, a smaller percentage of users are actively creating and sharing content. Industry reports estimate that just 10 percent of Twitter users broadcast 90 percent of the network’s tweets, while only a tiny fraction of the 55 million users who blog post daily, notes Katona.

The relative scarcity of message creators has been noticed before. But what hasn’t been understood are the mechanisms responsible for the imbalance of senders and receivers and the implications for the social networking industry.

The research suggests that social networking is a bit like a market: People who create and send content are investing effort to win customers–in this case the “receivers” who will view their content.

But unlike businesses that use social networking as a marketing tool, individual senders aren’t looking for a definable economic reward. They want status, or the satisfaction of being heard. Instead of actual sales, senders measure their payoff by the number of receivers who listen to them, while the effort required to reach them is the cost of sales, say the researchers.

Social distance between senders and receivers largely determines the effort required to reach them. If a social network is small, and each sender targets just a few receivers, there’s not much competition for attention; receivers aren’t getting many messages.  On the other hand, senders aren’t getting a large payoff so they only make a minimal effort to be heard.

That changes when senders attempt to increase their payoff by targeting people who are more socially distant. Receivers, who once were the recipient of messages from only a few senders, are now targeted by many senders, leading to increased competition for attention. And the more distant the receiver, the harder it is for the sender to craft relevant messages, say the researchers.

As competition grows, some senders decide the payoff isn’t worth the trouble and drop out, and others decide not to enter the market, which explains why the proportion of senders to receivers is so low. It may also explain why some users turn away from popular social networks and are looking for more intimate places to share items with just a handful of people, say the researchers.

Facebook recognized this trend and modified its algorithms to present users with more news from people who are close to them. There have even been attempts to create new, more intimate social networks from scratch, although they have so far met with limited success.

When messaging costs go down, senders decide they can target more and more people and compete with other senders by sending messages more frequently. “But what is interesting is senders are worse off by making this choice,” say Iyer and Katona. Too much messaging creates clutter and lowers payoffs for everyone in the market.

When the cost and difficulty of messaging increases, senders have less incentive to compete by creating a flood of messages. That, in turn, makes it more likely that users will read a sender’s message, meaning his or her payoff is higher and senders are more likely to stay in the network.

The paper’s conclusions are based on mathematical modeling of social networking behavior along with an analysis of empirical data from a 2011 study of real-world social networks in a French primary school. It will be published in Management Science later this year.