The Secrets of Open-Source Managing
Start treating your customers like employees.
Published December 2004
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COMMENT ON THIS ARTICLEComputer-game maker Valve Software had high hopes for Half-Life 2, an eagerly anticipated sci-fi shoot-'em-up thriller that had been five years in the making. And when the game finally became available over the Internet last year, fans were ecstatic. There was just one problem: Valve hadn't actually released the game. Instead, the code had been snatched by hackers, who'd posted it online for anyone to download. "This could have been a real hit to our bottom line," says Valve marketing chief Doug Lombardi.
Online piracy, of course, is fairly routine. But what happened next isn't: Valve customers around the world joined forces to track down the thieves. They found them in Europe; one of them, a hacker nicknamed "Ago," was arrested in Germany in June.
Why would a posse of online gamers -- a group not known for respecting niceties like copyrights -- set out after the liberators of the program they had so eagerly awaited? The answer can be found in the open-source movement, in which software -- the Linux operating system is the best-known example -- is developed by a community of mostly volunteer programmers, and anyone is free to use or modify it. Open-source ideas are fast moving beyond the high-tech world that spawned them. And while few firms are ready to give their products away, a growing number of entrepreneurs are embracing the idea of handing over their intellectual property to a community of volunteer enthusiasts to perform tasks that have long been the province of salaried employees. Call it a "hybrid open-source" model: The company owns the product, but the customers help customize and improve it. "Having people constantly adding to a product extends its life and fills out market niches that the original product wouldn't have reached," says Lars Bo Jeppesen, a visiting scholar at MIT who has studied hybrid open-source efforts.
Valve, for example, has no intention of giving its software away. But managers at the Bellevue, Wash., company had noticed that the popularity of an earlier blockbuster game, Quake, soared when users were permitted to customize it by creating new scenery. So when Valve released the first version of Half-Life in 1998, it also made available software tools that allowed users to modify the look of the game. When the "mods" proved popular, the company put out more sophisticated tools so fans could make even more extensive changes to the game, including altering the way characters behaved. One modification grew so popular that Valve hired the two modders that had created it and spun off their handiwork as a new game called Counterstrike, which has since sold nearly four million copies. Now, Valve helps out modders with everything from technical expertise to marketing advice. "Every time we invest more in the mod community, the returns exceed our expectations," says Lombardi.
The gaming and software worlds are teeming with similar stories. How does it work outside the tech sector? Pretty much the same way. Take Van's Aircraft, an Aurora, Oreg., manufacturer of airplanes that are shipped as kits to be assembled by customers. A thriving community of Van's enthusiasts, meeting online, as well as at events known as "fly-ins," collaborates on and swaps designs for modifications and accessories -- ranging from more powerful engines to cockpit sunshades. The manufacturer's top managers spend plenty of time online checking out what its customers are doing, as well as untold hours at fly-ins to get a firsthand look at some of the innovations. The best ideas are quickly incorporated into the planes or sold as accessories. "If we see something we like, we find out who made it and ask if they'll let us market it," says Scott Risan, the firm's general manager. That happens dozens of times a year. Financial arrangements with the inventors vary. Sometimes, Van's will simply purchase rights to an innovation; in other cases, the company will serve as distributor and earn a commission on sales.
The open-source approach works best with products or ser-vices that spawn communities of passionate users. Windsurfers, in-line skaters, and skateboarders, for example, have been inventing and driving the evolution of new products for years. Even disease sufferers are banding together to shoulder some drug-company responsibilities: In 2000, when the Food and Drug Administration forced GlaxoSmithKline to take a drug for irritable bowel syndrome off the market because of side-effect risks, an online community of patients successfully lobbied the agency to reconsider.
