Peer Innovation and Production

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You can only communicate about Linux through the Linux community." And from then on the team used the same bulletin boards and chat rooms as Linux developers. This helped IBMers become full members of the community.

Coming of Age

Today, IBM spends about $100 million per year on Linux development, dedicating some 600 software developers from 40 countries to the project—an investment of human capital that is divided evenly between code that is specifically customized for IBM customers and more general contributions that may benefit the entire community of users. By contrast, IBM estimates that it would cost the firm up to $1 billion per year to develop and maintain an equivalent proprietary operating system. In other words, Linux saves IBM some $900 million per year.

Meanwhile, the Linux ecosystem has matured. Today, Fujitsu (FJTSY), Hitachi (HIT), Hewlett-Packard (HPQ), Intel (INTC), NEC (NIPNY), Novell (NOVL), Oracle (ORCL), and dozens of other firms have followed IBM into the open-source community. Like IBM, these companies now dedicate serious resources to Linux development. At a time when reliability and trust remain the big question marks surrounding Linux, IBM and other large companies not only contribute the bulk of Linux funding, they help indemnify client risk. This maturation, in turn, has paved the way for Linux to go into all sorts of new products, including set-top cable boxes, TiVo (TIVO) recorders, Motorola (MOT) RAZRs, home appliances, and even some BMWs.

Open source, it seems, may at last be coming of age.

Get Your Peer-Production Roadmap Ready

IBM's involvement with open-source communities provides a model of how even old-school companies can harness self-organizing webs of independent contributors to create value. A company that was proprietary, insular, and vertically integrated 15 years ago now partners extensively with the open-source community and is considered a positive force for collaboration and openness. What should other business managers be asking themselves as they contemplate the IBM example?

First, think about how self-organized collaborations can change the way we invent, build, market, and distribute products and services—and build scenarios for your industry. Remember that its greatest impact today is in the production of information goods—and its initial effects are most visible in the production of software, media, entertainment, and culture—but peer production won't stop there. We already see it at work in mutual funds (www.marketocracy.com), peer-to-peer lending systems (www.zopa.com), designer T-shirts (www.threadless.com), and to an increasing degree, in the production of complex physical goods such as cars, motorcycles, and airplanes (check out Boeing's 787 Dreamliner).

Second, remind the doubters that open source doesn't mean "no profits"—it means that the profits are migrating to new offerings, and increasingly these offerings are big business. So while Linux may be free, Gartner estimates that sales of complementary hardware, software, and services will reach $37 billion annually by 2008. Follow IBM's example and look for opportunities to nurture ecosystems that can contribute to innovation and growth in your sector.

Third, abide by community norms. IBM not only accepted open-source software products and processes but also accepted its philosophy, which is to spur quality and fast growth rather than just profits based on proprietary ownership of intellectual property. Giving up so much control is unconventional to say the least, but the rewards for doing so have been handsome. If the Linux community puts in $1 billion of effort, and even half of that is useful to IBM customers, the company gets $500 million of software development for an investment of $100 million.

Fourth, remember that to reap, you must sow. When firms join a peer-production community, sharing is the continued price of admission to the community from which the firm derives various benefits. This is why firms like IBM, Sun, Nokia (NOK), and others are granting open-source communities royalty-free access to their software patents. In exchange, they obtain a "license to operate" in the community—a form of tacit permission to harvest some of the value created in collaboration with community members.

It's time to get your peer-production roadmap ready. Barriers to entry are vanishing and the trade-offs that individuals make when deciding to contribute voluntarily to projects and organizations are changing, creating opportunities to reconfigure the way we produce and exchange information, knowledge, and culture. Companies that recognize, address, and learn to tap peer production will benefit, while those that ignore and resist will miss important opportunities for innovation and cost reduction and may even go out of business.

Tapscott is chief executive of New Paradigm, a technology and business think tank, and the author of 11 books about information technology in business and society, including Paradigm Shift, The Digital Economy, and Growing Up Digital. His recent book Wikinomics: How Mass Collaboration Changes Everything is a New York Times best seller. Anthony D. Williams is an author, researcher and former lecturer at the London School of Economics. He is vice-president and executive editor at New Paradigm and co-author of Wikinomics.