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Why Open Beats Closed

2016 October 2
by Greg Satell

The history of business has been defined by rivalries. Great companies, such as GM and Ford, Coke and Pepsi, General Electric and Westinghouse were locked in mortal combat and the choice for customers was binary. Strategy was a zero-sum game. You either won or lost. There was no in-between.

Businesses approached their value chains the same way. They pushed hard to maximize their bargaining power with customers and suppliers, while at the same taking steps to defend against new market entrants and substitute goods. Business was seen as war, and managers looked to Sun Tzu and von Clausewitz for guidance.

Now, however, it’s becoming increasingly clear that no one can go it alone and firms must choose where they will cooperate and where they will compete. This is especially true when it comes to innovation, where no single entity is likely to be able to develop more than a piece of the overall puzzle. Today, open systems are not a choice, They are an imperative.

The Smartest People Work For Someone Else

In 1997, in a landmark article, McKinsey declared a war for talent.  The firm argued that due to demographic shifts, recruiting the “best and the brightest” was even more important than “capital, strategy, or R&D.” One big proponent of this idea was Bill Gates, who proudly viewed Microsoft as an “IQ monopolist.”

Yet Bill Joy, cofounder of Sun Microsystems disagreed. He said, “no matter who you are, most of the smartest people work for someone else” and argued, “It’s better to create an ecology that gets all the world’s smartest people toiling in your garden for your goals. If you rely solely on your own employees, you’ll never solve all your customers’ needs.”

This idea, now referred to as Joy’s Law is the first principle of distributed innovation. The truth is that no one, not even a massive enterprise like Microsoft, can afford to go it alone anymore. Today, even a teenager with an Internet connection has access to more resources than an engineer, scientist or executive at a world class institution did a decade ago.

Perhaps even more importantly, that teenager can link to others of like mind and forge a shared purpose. That’s how disruption happens.

The Need For Standards

When the Internet was opened up to allow commercial applications in 1994, some early entrepreneurs set up companies to host corporate websites. It was an exciting time, with the power of technology unleashing a torrent of new possibilities. The opportunities seemed endless. Yet it was also a period fraught with danger for nascent online businesses.

One of the problems was that there was no dependable web server software, which meant that websites could go down at anytime due to a glitch. There was also the risk that a corporate giant like AOL or Microsoft would create their own proprietary standard and exert control over the Internet. Or possibly worse, competing standards could arise that would balkanize cyberspace.

These were all unacceptable risks, so in 1995 eight guys formed the Apache Group to create an open source version. Soon, others joined their ranks and Apache became the most popular web server software in the world. It has remained so ever since. In 1999, the group was incorporated as the Apache Software Foundation, which supports millions of developers across dozens of open source communities.

Today, most software standards are open for many of the reasons that the original “Apache Eight” banded together in 1994. Open software creates a stable environment for proprietary businesses to develop and run applications, without fear of functionality or licensing conditions changing abruptly. People can also customize the software to suit their needs.

The Value Of Strategic Focus

Not everybody was enthusiastic about open software. Microsoft, for example, saw it as a major threat. Its business model leveraged its control of the operating system and the Linux operating system which, like Apache, was an open technology, threatened to undermine its control of the industry. CEO Steve Ballmer even went so far as to call Linux a cancer.

Some saw it differently though. Irving Wladawsky-Berger, who led IBM’s e-Business initiative in the 90’s, told me that he saw open source technology as an opportunity. Unless you have a monopoly, developing basic software isn’t a great business. If legions of developers are willing to take on that task for free, then that frees up resources to develop higher margin products.

To understand how, let’s return to Apache, which formed a core part of the open source LAMP stack (Linux, Apache, MySql and PHP) that many of IBM’s customers based their web sites on. Because those standards spurred adoption and created rapid change in the marketplace, its customers needed its help that much more.

Today, most major technology companies have followed IBM’s lead. Google has open-sourced its TensorFlow technology so that others can contribute to it and Tesla has done the same with all of its patents. In fact, it has become standard practice for tech giants to donate patents in order to protect open technologies. These days, even Microsoft loves Linux.

A New Breed Of Innovators

It used to be that a smart, ambitious person could come up with an idea and change the world. Chester Carlson built the first Xerox machine in his kitchen. Jobs and Wozniak built the first Apple computer in a garage. Small groups like the original Apache Eight were able to create something even the world’s most powerful corporations couldn’t match.

That’s still true to a certain extent, but the world is also changing in important ways. Today’s challenges, such as creating fundamentally new computing architectures, developing next generation batteries to power the world and curing cancer are far more complex than anything we’ve tackled in the past. Simply devising clever solutions is no longer enough.

That’s why we’re seeing a new breed of innovators that collaborate across old boundaries. One example is IBM’s announcement of the formation of a new Cognitive Horizons Network, which will combine its efforts with top academic institutions like MIT and Rensselaer Polytechnic Institute to advance artificial intelligence across a number of dimensions.

At the recent Cognitive Colloquium where the initiative was announced, it was clear that nobody thought they could go it alone. In fact, members expressed hope that more institutions would join in the future. It was also noted by several of the scientists that a key reason for joining the alliance was IBM’s willingness to share information that many firms would consider proprietary.

To solve 21st century problems we need to tackle grand challenges. We will need to work in larger groups, working across boundaries of organizational and technical domains in a way that would have been unthinkable a generation ago. Collaboration is truly the new competitive advantage.

– Greg

2 Responses leave one →
  1. October 2, 2016

    You never fail to scratch my brain.
    This is another example
    Love your work.

  2. October 3, 2016

    That’s great to hear! Thanks Allen. I appreciate you longstanding support.

    – Greg

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