A recent blog commentary points to a presentation by IBM Vice-President Linda Sanford, where she mentions a study that shows that
both internal R&D and universities are no longer the main sources of innovation, instead, the own employees, business partners, and customers are key.

This echoes a consistent theme at the P2P Foundation, about the growing importance of social innovation. How is social innovation related to peer production. To understand its inter-relatedness, here’s an excerpt to a text we have written for an upcoming issue of Audience 2.0:

The consensus that would seem to emerge would seem to indicate that a profound shift is taking place in where the key value is originating. We could argue that, in a capital-intensive material economy, the value is created with the production process under the control of corporations; but that as we move to an economy dominated by immaterial production, and which seems to happen through the use of distributed means of production (mainly the distribution of intellect as well as of the enabling technology of computers), value creation shifts to the social field, outside of the direct control of the corporation. The role of capital shifts from the a priori funding of innovation, to the a posteriori capturing of the value of social innovation through financial markets.

I would like to distinguish 3 scenarios, based on a different interplay between the new peer producers on the one hand, i.e. the new actors creating value in the social field; and the corporate world.

Scenario 1: Externalizing innovation to the users/consumers

This is the scenario used by an early wave of successful disruptive corporations, which succeeded in outsourcing key aspects of the production process to their consumers. Examples are Dell, which allows consumers to set up the computers themselves; Ikea, which outsourced the so-called ‘last mile’ to their buyers, which became responsible for transport and mounting of the furniture.

This companies still operate well within the traditional corporate model however; they still look for cheap production of their goods, and the input of their consumers in knowledge creation remains limited, and completely in the control of the corporation.

Scenario 2: Enabling Cooperation and Profiting from it

The second group of companies is much more innovative. They have more fully understood that it is the user communities that create value, so they create platforms that enable it. Think of Amazon, which of course still sells books, but has enabled its users to create a whole context of user-generated knowledge, which is in fact, its core value proposition distinguishing it from its competitors. Or think about Google, which lives from the production of knowledge on the web, but makes it available to that same community. Think of eBay, which doesn’t sell anything directly, but created a platform for buying and selling. Finally, think of Skype, which became the world’s largest telecommunication company, using user-generated capital and interconnection to grow.

This new wave of companies is quite radically different. It no longer relies on its own production of knowledge, and also no longer of any rents on intellectually property. However, they do control the platforms, and device ways to control the context in which the content is generated.

The companies of the first scenario are still profit oriented and still see their customers as consumers. As for-profit enterprises let’s characterize their behaviour by the metaphor of shark. With this metaphor, we simply indicate that they are constitutionally obliged, to their shareholders, to generate profit in a competitive environment).

The companies of the second scenario are somewhat different. They are still for-profit, hence sharks, but they also have to ride the wave of user-generated production of content and knowledge, hence they are also dolphins. As dolphins, they cannot alienate their users-producers, who might have other choices than their own platform. But as we witness from time to time, their shark nature will periodically inspire them to actions that weaken the autonomy of the users-producers and try to appropriate the content in some way or other.

Scenario 3: Autonomous Production of Knowledge without the Corporation

We are finally entering the domain of the pure dolphins. What changes here is not just the nature of the corporation, which in many instances disappears, but the nature of the audience as well. Perhaps whch should call the users/producers of the second scenario: Audience 2.0. but qualify the users/producers of the third scenario as Audience 3.0.? The difference is that in the second scenario, the users produce as individuals, and merely aggregate their efforts to learn and benefit from each other. But here we enter the realm of pure peer production, collaborative production using the peer to peer model. Examples are the free software and open source communities, the Wikipedia, and tens of thousands of similar projects springing up on the web.

Peer production is when individuals freely engage in the production of a common good; using new collaborative techniques (largely enabled by internet and now Web 2.0 technologies), managing themselves through such ‘peer governance’; and finally, protecting the common good, which can be freely used without monetary exchange by any user on global basis. Finally they use new universal common property regimes, which we could call regimes of peer property, to avoid the private appropriation of common wealth. We are referring to such innovative legal techniques as the General Public License and the Creative Commons.

The role of the corporation in this environment is significantly different. Peer production groups often used the legal format of non-profit foundations, so-called ‘for-benefit’ organizations, to manage those parts of their production process which needs capital (usually a core team and some technical infrasctructure consisting of servers etc…). Most peer producers work without a priori financial compensation, producing a good through a resource allocation process which is not determined by market pricing nor corporate hierarchy, and which is not sold on the marketplace.

Nevertheless, a certain type of companies can succeed in monetizing such socially generated value, by creating a service model around the a priori free good (free, because as software or knowledge, its source code is available and thus, in theory, it is possible to download it for free). Such companies need to nurture the peer producing companies, cannot afford to alienate them, and create ecologies of support, often financially supporting the nonprofit foundations. To continue using our metaphor, the shark genes are even more significantly reduced.

For the success of such production, three processes are crucial: the raw material for its production must be freely available; hence the paradigms of free or open knowledge, and the necessary conflict with types of intellectual property protection that hamper such innovation; second the paradigm of participation, which indicates the new processes such as the self-selection of participants without a priori selection (the principles of equipotentiality and anti-credentialism); and the process of communal validation of the produced artifacts; Finally, the third process is geared toward avoiding the private appropriation of the common effort. There is the creation of a Commons, i.e. the use of legal tools that put the resulting production in the public domain. It is easy to see the cyclical nature of these three processes, as the final result, the Commons, in turn creates more free and open content that can be used for further creation of value.