Thinking Differently
In the twentieth century, business leaders believed the secret to corporate growth and longevity was finding a way to differentiate your products from your competitors and exploiting that difference to sustain the advantage. This exploitation is accomplished by rigorously safeguarding proprietary knowledge stocks, maximizing cost efficiencies, and constructing barriers to entry to hold off current and potential competitors. This way of thinking was the unquestioned conventional wisdom for achieving market dominance for decades.
Chris Anderson, however, disagrees with the conventional wisdom. Anderson, the former editor of Wired magazine, is a highly successful entrepreneur who, in addition to his well-known publishing interests, has also dabbled in open-source ventures. One such venture is ArduPilot, an open-source platform able to control autonomous multicopters, fixed-wing aircraft, traditional helicopters, and ground rovers. In his book, Makers: The New Industrial Revolution, Anderson relates the story of what happened when, in late 2010, several members of the ArduPilot design community noticed that Chinese clones of their products were for sale in various online marketplaces and how, when asked by the community members what he was going to do about this blatant “piracy,” Anderson stunned them when he responded that he was inclined to do nothing.
Anderson’s unconventional response reflects his understanding that the digital revolution has radically shifted business's core dynamics and axioms. The most dramatic consequence of this shift is that technological advances over the past two decades have made knowledge an increasingly important—if not the most important—economic asset. This is significant because knowledge is uniquely different from other types of economic assets.
Unlike other natural resources, knowledge is not scarce. Knowledge is an abundant resource and is most valuable when combined with other knowledge. The only way it grows is by giving it away. Thus, holding knowledge as proprietary is counterproductive because it diminishes its value over time. Although it may seem counterintuitive, when knowledge is shared, everyone’s intelligence is increased, and all the contributors receive more than they give away.
With this understanding in mind, when Anderson discovered the clones were the work of a single individual who went by the name of “Hazy,” he gave the supposed “pirate” edit permission to the community’s wiki. He was impressed with the quality of Hazy’s Chinese translation of the instruction manual and, given that the operating license of open-source communities means that any work performed by any member is available to all the members, Anderson saw no harm in adding the pirate’s voice to the ArduPilot community.
With his new credentials, Hazy proceeded to enhance the product by integrating a seamless Chinese translation of the manual onto the official site. Once that was complete, he surprised Anderson by making quality corrections to the English manual, working through the issues list, and fixing bugs that others were too busy to handle. Hazy quickly became one of ArduPilot’s best development team members. By fully including an apparent competitor in the open-source community as a collaborator, the product's Chinese and English versions were substantially enhanced.
Anderson’s unusual approach to apparent piracy provides an essential lesson on how the emergence of abundant economic assets is transforming many of the traditional tenets of business. We need to rethink what we mean when we say knowledge is power. In the past, this power was maintained by safeguarding proprietary information and being able to have knowledge no one else has. However, a natural consequence of proprietary power is the development of that knowledge is stunted because it remains in the hands of a few people. Meanwhile, one company gains an advantage over others by hoarding and exploiting its knowledge.
Before the digital revolution, hoarding knowledge was a workable business strategy for cornering markets and preserving steady profits because business leaders had the wherewithal to do so. However, that’s all changed thanks to the digital revolution, which has dramatically increased the velocity of the exchange of information. Today, knowledge flows are far more valuable than knowledge stocks because, in a post-digital world, the return on assets is far greater on knowledge flows.
This new understanding of knowledge assets is the foundation behind Apple’s remarkable success. The iPhone is a platform designed for knowledge flows, which are popularly known as apps. Anyone is free to build an app, and when an app succeeds, both Apple and the developer win. Innovative companies like Apple are making it difficult for traditionally minded companies to build sustainable competitive advantage because the innovators’ products have radically reduced the barriers to entry. Today, all an entrepreneur needs to disrupt a market is a good idea, an iPhone, and a credit card as we’ve experienced with the rapid rise of Uber. Clearly, the rules for building business and product models in the Digital Age radically differ from the norms that guided constructing models in the Industrial Age.
To learn more about how business leaders are thinking differently, see my new book Nobody Is Smarter Than Everybody: Why Self-Managed Teams Make Better Decisions and Deliver Extraordinary Results.