Making Innovations to work

Mass collaboration is revolutionizing the corporation, the economy, and nearly every aspect of management. Today, web-enabled teams numbering in the thousands or even millions are creating encyclopedias, jetliners, operating systems, and many other things that used to be produced by conventional firms. This explains new business models that will empower the prepared firm and destroy those that fail to adjust.

Conventional wisdom says that “being open” is rather like inviting your competitor into your business only to have them grab a large chunk of business from your customers. But in an economy where innovation is fast, fluid and distributed, conventional wisdom is being challenged.

A growing number of smart companies are learning that openness is a force for growth and competitiveness. As long as you’re smart about how and when, you can blow open the windows and unlock the doors to build vast business ecosystems on top of what we call “platforms for innovation”.

Amazon, eBay, Google, and flickr represent a new breed of innovators that know how to make platforms for innovation work. They’ve opened up their applications and business infrastructure to create a global stage where hundreds of thousands of customers and partners add value and establish synergistic businesses. Amazon, an open platform prodigy, harnesses the power of 140,000 active software developers and gains nearly 30% of its revenue from 975,000 third-party sellers that leverage its e-commerce engine.

Here’s how Amazon does it. It takes a massively sophisticated online ordering, inventory and distribution infrastructure and hands over the keys to just about anyone. They call it web services. In plain English this means that third parties get access to a significant proportion of Amazon’s proprietary software code, and virtually all of its product data, over the web. This makes it easy to build compatible applications and services that will drive more traffic, more clicks, and ultimately more purchases through Amazon’s online system. Third-party sellers and developers stand to make between 3% and 7% commission on the revenue they create for Amazon, so everyone walks away a winner.

Conventional wisdom says Amazon should closely guard all of its proprietary tools and data, but the opposite is true today. The new web makes collaboration easy for people and firms. When you open up certain assets and invite people to come in, you can actually increase the speed, scope, and success of innovation.

Amazon’s web service program, says developers and marketplace sellers are “increasing the surface area of Amazon”. They add more and more things to sell, in more and more places on the web. All of this happens in a completely self-organization fashion, which makes Amazon’s already low overhead even lower.

Giving away the keys to your most prized assets is not something you should take lightly. It’s almost like you’re taking down your borders and opening up for no tariffs, no tax competition. You need to know that your core assets and your skill sets allow you to continue to innovate fast enough as a corporation.

SAP would know. The company just opened up 30,000 application programming interfaces (APIs) to its market leading enterprise software platforms. A large pool of innovative software companies can now provide them with additional solutions with integration by design, not integration as an after thought. SAP’s platform for innovation now includes over half a million independent developers.

In an economy where growing number of individuals eek out a living as free agents, open platforms becomes all the more important. Most of the free electrons will gravitate toward the biggest centers of gravity. In other words, companies can harness today’s global pool of free agents by creating dynamic platforms for innovation that provide opportunities for partners to share in the profits.