Eric von Hippel: Open and User Innovation

hey um 20 minutes later U thank you for uh staying thank you for being brave yes I I just start where we ended and a big round of applause for that's so cool it's so undeserved I just got to stand here while you're doing all this stuff I I feel uh so happy to be here so what we're going to talk about I know that open innovation is something that's important around here and uh later in the afternoon Petri we'll talk about what finland's doing about this and we're doing in conjunction with Finland uh what

I'd like to do now is uh describe to you the phenomena the economics and the policy options in a way that will sort of get us all into the same playing field okay so um if it now disconnects it's my fault cuz there's now this huge tangle of wires here so um basically there are two kinds of uses of the term open Innovation and there's some confusion amongst the two and so I just sort of briefly mentioned what we're talking about what the two terms are the first is open as impr Proctor gambles connect and

develop and what that is it's based on sort of uh Joy's law it's no matter who you are somebody you know most of the smartest people work for somebody else so it it it's addressed to firms and it says you know what you really ought to look outside your own R&D labs and you ought to buy and sell intellectual property to get what you need and so PNG will proudly say you know what we needed to print messages on potato chips for reasons unclear and we instead of developing ourselves we're proud to say we looked

around the world until we found somebody to license it from and that is our version of open Innovation what it means is open organizationally to the idea of innovation from outside now there's another more fundamental use of the term and that's the one we're going to be talking about here this is the one that is revolutionary this is the one that's open as in information Commons free information information as a public good this is the kind of thing that Linux and open source software is based on okay so that's really what we're talking about now

what's going on so you in the back can you see this thing at all or aren't you so happy that you have it yeah okay good so here's here's what's going on in in one slide it's it's kind of a it's it's it's we think it's the biggest revolution in Innovation and the understanding of innovation and Innovation patterns since the Industrial Revolution is just huge and what you see here is a curve and it's a market curve Market starts small they grow all these circles are users or customers and eventually the market tails off now

ever since cheder 1934 maybe even since Marshall what you have is an assumption that the producer is the innovator now why is that that's because if you look in the middle of this curve what you see is that users oh you told me not to reach over to the thing didn't you sorry Richard yes all right what you see in the middle of the curve is a lot of users so you as a manufacturer or you as an economist look at that and you say well a manufacturer can aggregate demand across all those customers he

can spread his costs over all those customers therefore the manufacturer can afford to spend more than can any individual user on the Innovation therefore it must be that the manufacturer can do a better job so got to be that in fact producers are the innovators now there's another view however because those economists and others never looked to see actually where Innovations were coming from so what we and others did was we observed something quite different what we observed was that at the beginning of the market everything starts off small and uncertain and it's not the

case that in fact there are a lot of users at the beginning which a manufacturer can spread his costs over there might be just a few users and the market at that point would be small and uncertain so that what we see is that the manufacturer at that point is not interested but that's sort of a surprise who's going to do it if at the very beginnings of things the manufacturer is not interested and the answer is it's the user so let me give you now an illustration this is uh John hasham Gibbon and this

is in the 1930s and John hasham Gibbon is a heart surgeon and in the 1930s there were many children who were dying of romatic fever because what would happen one of the side effects of romatic fever is that the heart valves get scarred and often they were so damaged that you couldn't fix them on the beating heart and therefore those children would die now this particular man and and the story is and I'm not certain if it's true or not but the story is it was a neighbor's child so these people were all you know

it was terrible children were dying all over the place and and and basically what happened was this child died on his operating table and he said that's it you know I mean we have to do something about this and so he went to producers and he said we need a heart lung machine so that the we can bypass the heart and operate on the heart and replace a valve and so on and so forth and the producers said to him have you yet developed the operations which the heart lung machine will make possible he say

no I need a heart lung machine in order to develop the operations which the heart lung machine May possible and they said well then how do we know that you can develop those operations and he saidwell I'm really a good vascular surgeon I think I can and they said perfectly reasonably from their perspective that's not good enough and so they withdrew the tea and cookies that they'd offered him when he brought his proposal and said come back when there is a heart lung machine as if it would come flying through the air so he then

went back and over 20 years he not a mechanical engineer recruiting people and a little bit of money from Charities and so on and so forth built the first heart lung machine now let's return then to this curve this is the situation that I'm explaining to you right at the beginning over here there is no Market that's strong and certain for a manufacturer so the user has to do something and the user then built it now what happens well what happens is other surgeons come along and they say you know what this works I think

we'll build one too and then their technicians come and they build one too and they also begin to doing these operations and then somebody says you know it's stupid having each of our technicians come and build this thing what we really ought to do is start a little company so that we can buy from somebody and so that happens and basically what you see here from the perspective of a producer in that area is that the signal is getting stronger that this is a desirable Innovation and that it's going to be successful information about what

the market is and what the solution is is growing steadily As you move from here to here so now notice this function is also serving as a filter because basically there are lots of other things that people are bringing to these companies and saying you know you really need a heart ear machine and a heart nose machine and a heart Hair Machine you know and the producer can't necessarily tell the difference so what happens is the the heart lung machine has a stronger signal these other things that are proposed by users don't get picked up

by user communities they drop off and go away so there's a filtering part here as well as an innovation part and that's really how The Innovation process works now what's going on then is that instead of a oneart process with the producer sensing need as is the standard thing he has marketing research he senses the needs he then has his R&D developing this thing what you have instead is a sorry I'm really sorry somebody yeah it's oh thank you right okay so what happens here then is that that is sort of how how The Innovation

process works with two parties involved we have over here the manufacturers picking up and producing things in volume that are developed by the users now as I'll show you later there are two different systems that need two kinds of policies we have been focusing on the producer system where basically it is assumed that the producer needs intellectual property in order to pay back his investment you need patents you need copyrights and so on and so forth and that's true for producers because they invest in order to sell something but what you see on the user

side is something quite different John Hasam Gibbon built that thing to use it and typically what happens is users as I will show you reveal their Innovations for free so what we really have here is this side is a feed stock for this side this is where the Innovations start out from that's what the manufacturers select from and it needs different policies than does the standard manufacturer Innovation process that we've been focused on okay now here's an essential definition when we talk about users we don't just me mean individuals we mean a user is a

firm or individual or organization that develops something in order to use it a manufacturer is one that develops an innovation in order to sell it so a given firm can have different relationships to the same Innovation thus Airbus when they make a machine tool to make airplan exps better that is a user Innovation it's a process Innovation they don't want to sell it they make it to use it that's a user Innovation that same company when they develop the 380 that is a producer Innovation they expect to benefit from selling it okay now how do

we know that this pattern exists just in three slides you know you can find an example of anything so in three slides what I want to show you is how we do this so that you know whether you believe it or not so basically what we have been doing and what we did back in the 80s was we did a series of studies where we would select a particular area let's this one happens to be scientific instruments we would select a particular area and we would say okay here are four important scientific instruments gas chromatography

being the top one let's identify the most important Innovations in that field gas chromatography that have been developed over the last 30 years that's not a lot of Innovations you know when you're talking about real major changes that's not a lot of Innovations but that was our sample so for example those of you who know about gas chromatography for example would be something like temperature programming and the first device was the first gas chromatograph so then what we did we do what we did was we searched back in each case to find out who the

innovator actually was now interestingly we learned two things the first thing we learned is over here you would ask the commercializing company and you would say who developed this thing you or somebody else now that's a bad question to ask a person since there's enough credit to go around because everybody takes it right and the answer was by these firms we did you know and when you sort of send us the plaque be sure to spell our names right now we would then get the story from them we'd say okay that's really cool tell us

how you did it and what you did and they would tell us this story that began you know with well we improved this and yeah no no no tell us about the first thing and then it was sort of like H well one day I came into the lab and a prototype had fallen out of the ceiling ah it's the ceiling prototype fairy that's what the key is here but in fact so interesting issue that they didn't know but the second interesting issue was in fact when we looked further back five to seven years prior

to the first commercial introduction users had developed this thing just like John hasham gibon and what had happened is just like John hasham gibon in that five to seven years other users had asked what it was they had replicated it and then you had a population of users in your client base that were basically saying to you as an instrument company for Pete's sake why are we buying your instrument when we're making it better ourselves or we have improved what you've done why don't you fix it up for Pete sake and the manufacturer will then

fix it up now that's the results in this area and as you can see about 80% of the Innovations come from this pattern now as we study further what we found out was that the users were developing the functionally novel Innovations remember I told you at the the start when I talked about John hasham Gibbon that the market was small and uncertain because nobody had ever had a heart lung machine before the kinds of things that the producer does is they make dimension of Merit improvements to what already exists so if you look back at

that curve what you would see is the first heart lung machine was built by John hasham Gibbon then the Market improves and what happens is the producers start doing things like making them more energy efficient you know making them cleaner easier to use and so on and so forth but when a new function comes in again I want to use the heart lung machine for for refusing across the brain barrier or whatever it might be then it's again the user so functionally novel because that is where the markets are small and uncertain now okay now

why did the producer not know where its Innovations were coming from this is sort of fascinating because I told you in the beginning that the economists were saying and the policy makers are following the idea that the producers are the innovators but here are these scientific instrument companies and they're right in it they're benefiting from what the user does and they don't know it why don't they know it so what you see on the left hand side here is a typical user Innovation that user Innovation is hacked together to do what you want it to

do any of you who worked in Laboratories know that what you do is you get something from here and something from there and you put it together and you make it work because you need to in this particular instance what happened was this was the first automated radio assay system it's used in clinical medicine and uh basically a doctor said to his graduate students look I want to do a a heart study with 20,000 patients and The Graduate students looked and discovered there were only manual methods and you know and I know that you can

get a graduate student to do something once or maybe twice but after that they'll automate so what happened was the users at the University of Virginia they made this thing now what was the producer doing because remember there's a 5 to sevene lag the producer's saying nobody does 20,000 tests there's no need for that but eventually after 5 years or so there is a need for that and the producer creates this now this has this in it but to the manufacturer who primarily has product product design engineers in there not doctors and so on this

is the point this is the product that's an idea and so when you talk to them and you say well who invented this thing they will say well we did look it has a nice slopey front it has it really works all the time it has an operator's manual it has room for our logo it's a masterpiece then you say well what's that and they say well that's a piece of junk you know maybe there's a germ of an idea there but in fact from the story I've told you what happens is by the time

it gets to this that has been out in the field a number of years many users have picked it up modified it improved it tested it in use shown its value in use designed the solution I would argue that that's the Innovation process largely and this here this process that we're rewarding with patents and so on this is something that is somewhat Less in terms of originality although not necessarily importance now whatever field you go into you see the same pattern this is again this is Center pivot this is a uh uh in in agriculture

and uh what you see up in the corner there is you see you know a field that is irrigated in this way and you've probably seen these things this down here in the black and white is the first one and it is a user development it is a farmer who built that and other Farmers copied it and it's quite sophisticated but it uses just like the scientific instrument it uses what was around so that pipe is the pipe that he used to lay on the field to irrigate and then pick up again and move over

and irrigate again and he's put it on towers and the towers have wheels and the wheels are his old tractor wheels you can see that there and there's a piston and that piston is a water-driven piston and the water rushing through this pipe is diverted into that piston to turn the wheels okay now this is the producer version and it's clearly much fancier right it's got electric motors instead of water run Motors it's got rubber tires it's entirely fancy here but it's the same thing now you can repeat this experiment for yourself as often as

you want and I being somebody of enormously poor taste have done this experiment a number of times I called up the company and I said ah company who developed this thing you were someone else and they said well we did my son and I would press the point and I would say did you get any inputs from users living or dead and they'd say certainly not and then I say as I told you I had enormously poor taste I say well what about this isn't that an innov no what's wrong with that why isn't that

that was a piece of crap is literally what he said why was it a piece of crap say I he said it you should have seen the lousy quality of his wels which is you know certainly true it was but I mean the point is again not seeing the Innovation process clearly here's another one this is a uh ceiling bolt drills uh workers used to have to this comes from yon deong workers used to have to drill ceilings like this and and drill hundreds of holes a day and was wrecking their shoulders so the drill

manufacturers didn't do anything about it but the workers did and so this is a pist an operated device that pushes it up in the and then when youron asks this guy well how come the producer didn't make this he said it wasn't their shoulders right so now okay it's also true in uh and and and and Peter asked me to mention this it's also true uh in financial services you know the first uh credit card was done by somebody who was embarrassed at not being able to pay his bill because he left his wallet in

his other suit and so he ended up creating this sort of uh Diners Club thing when we studied the most important banking Innovations these are now Services 40% of the retail and 55% of the computerized Services were developed by users first this is the computerized services so you all get from your banks for instance a u a statement from each bank that you deal with and you integrate them well there's now a computerized service that does that where it's automatically will pull your Banks years before the banks introduced that computerized service user hackers had programmed

their computers had put in their their their passwords had them dial up each of their Banks put all the information into a spreadsheet they did it first okay same pattern whether it's services or yeah I don't know if I should tell you that I I should move along because we haven't got but this is so fun I'll tell you this anyway and then we'll move on do you want to hear this maybe having advertised that is so much fun I mean how can you not all right so again producers in Services This was um the

history of in room Hotel internet services you've all used your computer and your hotel and uh in room and we talked to Marriott who said yeah you know we developed that it was good of us said okay so how did that happen and he was a very nice honest guy and he said well what what happened was Hotel guests would disconnect their room phones how many of you have ever disconnected a hotel room phone that is so hysterical what 10 or 15 and yeah a lot of us me too so uh and to to get

a dialup provider to hook your computer to the to the phone system so that you could uh contact something like AOL and then I asked well what was the hotel's response we installed tamperproof screws good response to an innovation um what did the guests do the guests brought special screwdrivers and unscrewed the tamperproof screws and what did you do we welded steel boxes around the connector so that they couldn't do that and what did the guests do they cut the cord so that they could wire to the cord they would strip the cord and wor

of that and what did you do we thought we better find out what the hell is going on or they'll tear the hotel down and then of course they advertised and said we have invented in room internet services right it's a difficult process from The Producers side because the users are the innovators now when we talk about this what economists say and what anybody in policy should also to say is yeah but those are all special cases right and here's where Petri comes in because we said fine what we will do is do representative surveys

of national populations and this is quite an expensive thing to do because we do telephone interviewing to make sure we understand what they're doing and so on and so forth did the first one we're doing now the second one in in in Finland and Petri will talk about that at some point uh but we did it first in the UK and what did we find we found that the consumers 6.2% of them we could only talk to people over 18 so it's more of the population than that 6.2% of the population 2.9 Million people have

been developing products for themselves we're modifying products and they're EXP expenditure was 2.3 times more than all the expenditure of all the consumer development companies in the UK so in other words we have this fascinating situation here which is why Petri wants to measure it and we want to measure it and so on and so forth because the Paradigm that the producers are the innovator has been so strong that nobody even looks at the consumer to see if they're innovating and so you have no metrics there you have nothing and yet it is bigger than

this thing that you are spending all your energies as a policymaking group to support now users motives are not Profit just like John Hasam Gibbon was making that thing in order to use it these people are making it this is now uh where when when we get to to Petri study we didn't do this in the UK but when we get to the Finland study we're going to do the same thing this is now in a particular case this is in uh Whitewater kaying where we surveyed all the innovators and asked them to divide up

a 100 points amongst various motives personal need for the Innovation enjoyment from creating it learning from creating it to help others and profit now profit 2% almost nothing almost nothing personal need over 50% personal need for the Innovation itself like the heart lung machine but now fascinatingly amongst consumers there's another huge chunk of this which is enjoyment or learning from the process itself in other words that's again a private return you get when you innovate and you make something a you benefit from learning B you benefit because you're having fun often times or so you

wouldn't do it C you benefit from the thing that you create all of those benefits are obtained without selling it to anybody the result is since consumers are not Rivals they give it away this is now how many of these people shared details now what's not shown here is about essentially everybody was willing to but only 33% of the cases were people interested because it looked like a general solution to something so 33% actually shared and of those 177% actually transferred it others adopted it and intellectual property was only 2% vanishingly small and getting paid

for this was vanishingly small so in other words you remember I told you about the beginning of that curve where John hasham Gibbon and so on what we're doing is we're filling in the fact a users innovate and B users innovate and give it away for free this is a totally different Paradigm needs totally different policies now here it is in the industrial sector we also measured it in the industrial sector this is for example a uh a loader for uh logs and uh basically when you study uh you you talked to remember I told

you that user innovators can also be firms they make process Innovations for themselves so people using these things improve them now when we studied the samples across again these are representative samples across the UK Netherlands and Canada across industry we found out that basically a quarter of the Innovations were transferred to others and when we looked at the terms on under which they were transferred over half of them were given away for free this is amongst now firms that are sort of in business to make money but they're giving it away for free so now

why are they giving it away well several reasons it turns out one is protection costs money right you got to patent it you got to actually pursue the person and say you know we're going to sue you or whatever and when you look at it you see that a lot of these things are practiced in the open anybody can inspect this different people are using it and walking away from it and know what it does how are you going to actually keep that thing secret it's expensive to patent it it's expensive to pursue people also

there are private gains and this is now again all research that we've done on this there are private gains from open sharing if I share this thing back to the company let's say I'm a Logging company if I share what I did back to the company the company will make me the next one in the way that I want it to be and the competitive Advantage here is really on getting access to the logs it's not really the issue about exactly this particular machine and is it 5% Better or Worse that's item number three three

often the items shared are not a big rivalry Advantage now this is really fascinating too because when you have a large population of innovators an innovation matters more to some people than others Christina rash over there has shown that in uh you want to raise your hand Christina so they know who you are this is Christina rash's a a colleague from from uh T techn University of Hamburg and is also at MIT uh basically what you find is that when uh uh uh there's rivalry amongst firms they don't want to share as much and this

is also true amongst athletes you know they will if you are in a racing boat and you don't want to you know you're about to win and you don't want to show somebody else how you're doing it you don't do it the interesting thing is there are many people innovating in parallel and it'll be less valuable to somebody else so somebody is going to spill the beans so basically you simply can't hide this stuff your secret is Hostage to the person with the least to lose by revealing it that's again why this is so robust

now another study where we compare and we show and so on I'll go over that now here are the economics of open user innovation in summary users get private returns to Innovation investment from use and from The Innovation process itself not from sale that is entirely distinct from the traditional producer Innovation idea that they get money from selling it and so they need to protect it free riding is a not a cost to nonrival so users sell them patent in other words in Linux nobody's saying you have to contribute to Linux in order to download

Linux free riding is fine nobody cares protection is effort it's nice if a lot of people use it they'll find bugs and so on same thing is true in hardware and finally social welfare likely is increased due to free Innovations rather than IP protected Innovations so now what about it well so what's going on we see that a lot of users are innovating I don't when do I because we started late when should we stop this thing oh moderator I'm sorry I don't want to go over your time 20 20 he appears out of nowhere

20 P okay I better hurry up full control what full control okay so now let me switch gears for just a moment and say to you that at this point what's happening is that users are dominating The Innovation process they are it used to be that we would plead to manufacturers to pay attention to users now it is that users are taking over and let me show you how that works so basically what I showed you earlier was important Innovations come from users but that said nothing about how many users are innovating except for the

UK study and here what we see in a range of areas that a lot of users who care about something are innovating now here's a particular example about what happens next so this is an area this is kit surfing and we studied kit surfing because my students seem to seek death at all possible occasions and they kite serve now those of you who don't know what kite surfing is it's it has some small boards here and it it basically you're zooming along and then it has a giant kite and that is almost like a reverse

parachute it lifts you out of the water as you can see over here and you can actually you see these five wires you actually can steer this thing and you need good control because when you're 40 m up you'd prefer not to drop like a stone okay so entirely developed by users over years to this state then what happened was a producers started to say remember that curve producers started to say you know what now we'll take over now we'll innovate you know and we'll produce these things there's aund million Market here so they did

in other words they were saying thank Q now the big boys have arrived okay and they each hired two engineers and they said we're in it we're going to start to patent we're going to start to do all this stuff then what happened well a guy named Saul Griffith was uh one of the early kite Surfers who in fact had developed a lot of this stuff or developed you know been in it in early days he said well I don't really think that user you know I think that users are not done with this I

think that that in fact the producer Innovations are not all as hot as I would like and so I'm going to start to post my designs just on a website and I'm going to invite others to join in so he did that and what happened was that others started to join in so this is from from somebody Sebastian in Argentina super high aspect ratio Mountain board kite one of the things users develop also as you can go up mountains with these things he explained what he did he showed you know the design and so on

and so forth then what happened what happened was that people started sharing designs first like these pictures what you do is you make a kite by sewing together a lot of flat panels like a dress into into a 3D object but then they did it in terms of CAD files where where they figured out the sale Lofts actually cut out large pieces of cloth and you can uh send anybody a cad file and they can make an exact copy of your Innovation aerodynamic from NASA started to show up aerodynamicist from around the world top top

people they brought aerodynamic modeling tools what was happening was you had a hundred real experts and a thousand other people sort of downloading these designs trying them commenting and now what do you have you have several companies with two Engineers each competing against a 100 of the top aerodynamicists in the world that's not going to work very well so what happened next was the companies said in effect okay we give up we're going to adopt the Innovations from the users they're doing it for free will make their designs so that is an example of embedded

producers being driven back out that's where we are nowadays now why does this work why can users out compete producers the answer is twofold this consider this the design space for all of of something like all of all of kites or all of heart lung machines all possible heart lung machines are in this blue border the users of the X's they can simply cover more of the ground there's simply more of them who are innovating and because they do not patent anybody can use the best solution and subsolution that anybody has developed producers in contrast

come up with some subsolution that's better than somebody else's they patent that they say you've got to buy the rest of our stuff along with our subsolution whenever you've gone out to look to buy a car you've experienced that kind of a thing you say well I really like the engine of this car they say too bad then you have to buy the whole car you can't buy the tailgate of somebody else's car and my car right so users can get the best of all solutions but no producer really can do that so that's why

it is working out now basically it's also true that this kind of innovation is better for social welfare and this is uh I keep on mentioning Christina rash because she's she's over at MIT and she's doing wonderful work and you basically what we're talking about here is the social welfare which venova and others care about when users when producers innovate what happens is this is now the producer's price and this is willingness to pay this is a standard curve and what you see here is the producer's design cost in this Square then you see the

profit above it then you see the consumer surplus the producer sets his price at the level where he thinks he can make the most money anybody who wants to pay less than that cannot participate in the market but if it's an innovation which is basically an information product for example you know the marginal cost of reproduction zero so that's where this kind of triangle comes from all these people have a positive value for the Innovation but they can't get it so it's a dead weight loss now if users come in and innovate they also it's

never they've always been considered consumers in that curve but Christina's idea was well you know what they're innovators as well they have Innovation costs their Innovation cost some of them are very good if they can collectively get together and innovate like in Linux they don't have to buy Windows right and they give it away so dead weight loss disappears because everybody can then get it and they will all those green bars are saying basically the the top of this bar is willingness to pay as long as the green bar the amount that they have to

innovate or spend on Innovation is lower than that they'll innovate and what you see today because communication costs are dropping is that many innovators are in fact in this position to create Innovations and share them now again quickly to policy implications so what are we going to do about this we are in a position where basically our policy is built around an obsolete sense of how the Innovation process works what I've shown you is that it's always been the case that users are the sources of the functionally new Innovations and that they give them away

this is getting stronger and I hope I have a slide here somewhere but I I let me just go ahead this is getting stronger all the time because because communication costs are dropping and design costs are dropping which makes the users able to collaborate in things like Linux or a collaborative effort to make a heart lung machine or anything like that so what are the what are the policy implications here the first one and very important and what we're working on with Petri and what we worked on in the UK is you know we've got

to measure this as long as only producer Innovation is measured they'll only be the ones who have a place at the table nobody ever measured Innovation by users before because it's not supposed to exist and so the astonishing matter is that what we're showing is it's the dark matter of innovation it's bigger than producer Innovation and it's complimentary to it right it is an essential feed stock so we're measuring it the the second issue is protect the Innovation common space these two things have have uh uh uh complimentary needs and I think maybe I say

more about this later so let me Rush on and support the infrastructure so let's go on so first the user Innovation model and the linear Innovation model the line linear Innovation model is on the top there basic research applied research that's where all your current policies come from that's where you know you have to sub I basic research applied research and so on and then at the end of that model is marketing and we sort of begin here and say no no this is where it all starts you know the stuff that you're you're ignoring

um given the interest of time okay so now here we are let's talk for just a moment again about what's going on so what you see here is a paper that uh Carlos bolman and I did and what you see is these communication cost are the AIS and design cost and what's going on here is on the far left you have John hasham Gibbon this is a single user innovator okay he could only innovate up to the point where it paid in his practice even over 20 years after that he was done the producer then

picked up from there that's the green square or green triangle and and did the rest where you had to cost spread what recently has happened is communication costs have dropped to the point where now you can get collaborating users each one doing a piece of the problem and when each one does a piece of the problem that they can afford all of a sudden you can do very large projects so basically What's Happening Here John hasham given didn't care about communication costs because he just talked to himself he was a single innovator this kind of

collaboration and communication because of the Internet it's dropped to the point where suddenly you can do big projects design costs are also dropping because everything's get computerized as you know users can now have very powerful tools that they use on their own this means that any opportunity that used to be in these spaces up here in the green triangle is as time passes steadily moving downward and to the L left it's moving into these other zones so it's very important now it's going to progressively get more important again measuring it we've now measured it across

the US Japan and the UK the UK is the one that's published we've got some preliminary numbers here what you see is something kind of interesting you see that the US and the UK have roughly the same proportions of their population inating Japan has about half so we can have some metrics just like we have the consumer Innovation survey CIS we can start to have some metrics now between governments and countries and so on and that sort of sort of document this kind of a thing the next thing I wanted to mention to you was

protect the Innovation common space okay so what we have in our regulations is things built around an assumption that Innovation is done by companies so the regulations are often quite costly for instance there's unlicensed white space in the Spectrum in the US they this is now the space that you have for uh for electromagnetic spectrum radio and TV and so on in the United States the only space that was unregulated was the space for microwave ovens because they figure what the heck you know that's a junk space that's where WiFi was developed because it was

the only open space so this is an example of because you do not understand that Innovation is the feed stock you haven't opened up the resources for users to innovate with in medicine patients and clinicians are free to innovate for themselves without FDA regulatory approvals an enormous number of Innovations come from there because as soon as you start to become a manufacturer and sell something you've got these huge huge reg regulatory burdens but nobody is observing that space and trying to protected almost as if we protect Wetlands it is a resource it's not the residual

that we didn't get to yet it's a resource it turns out to be where the Innovations come from also you should allow free personal use I would argue of patent interventions it takes a major search cost off users when you say we are protecting firms and this is an example of the conflict when you say we are protecting firm Innovation by allowing them to patent something what we're really saying is that users have to search they don't they want to give it away free they don't get any benefit from that system but you're imposing a

cost on them because now they have to search and as I showed you no matter what the the cost is of all this interaction regulation the costs go up the amount of innovation goes down from this source that is in fact the fertile ground for Innovation so in venova in Finland in the United States we have to start to pay attention to where the Innovation really comes from and not just regulate from and and incent from the perspectives of the companies who sort of do the carry-on Innovations and I think I should stop here so

that we can just chat together all this stuff is um um oh I will mention one thing I have to mention one thing so talking about policy um so you know I go around preaching and also other people uh are doing Innovative things too we're we're a large group now it's not I mean when I'm talking about these findings I want to make really clear that I have many colleagues and we're all we're all in the boat together either sinking or swimming we're not sure now at one point basically in Denmark they decided they were

going to pay attention to this they said you know what yes we're going to have user-driven Innovation we see it's important we're going to do something about it and so they started to invest in this and they set up a program in 2005 but what happened was this program was captured by business as usual okay it was fantastic how they did it definition of user-driven innovation systematic approach users are defined as consumers customers employees Enterprises cooperation Partners suppliers or citizens in other words they totally solved their problem they said this is a user Innovation thing

but we'd like to serve our existing clients so we'll Define users as anybody and that's how it works worked out there was basically it continued on its old path now Petri and I met and a couple years ago I guess right and Petri solved the same problem in Finland I mean uh basically what had happened was they were thinking about yeah this is a producer centered thing but then lo and behold thank thanks to Petri lato and and jar kuso who's who can't be here today the new innovation policy that he'll talk about talks about

user Innovation explicitly as well as about um producer Innovation uh that oh yes say the producers we will pay attention to users send us more money okay so what have I said and let me quickly conclude then so I've said that we're in a paradigm shift that a lot of the old policies simply don't apply anymore that it's going to become quickly more visible because of people like Petri and I would love it if in this country we did a two we're starting to get you know with the Finland experiments and others we're starting to

get standardized questionnaires we really should start to measure this stuff to get it onto the policy agenda and then my final point is it's Bigger Than The Innovation we see now and it requires different policies so we really this is I think something important to pay attention to so thank you yeah thank you so much Eric and uh a few of you we have a separate Workshop now in the other room and uh thank you so much for for being here and uh we really apologize for um the disruption in the beginning welcome back