Implications of Hacker Innovation for Firms

From Hacker Innovation: Redefinition and Examination of Outlaw Sources of Generativity for Future Product Development Strategies (2014) by Mike Pinder
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It has been made evident (but requires research and empirical findings to show), that hacker innovation can generate complimentary sources of innovation throughout the life cycle of innovations generated internally by firms across markets. Whether beneficial to firms or end users alike is another question, but there are a variety of firm responses to hacker innovation efforts and generative outputs.

Hacker innovation forces us to re-examine the role end-users in the innovation process as they no longer merely consume, but rather in some cases, consume and innovate on top of firm-led value creation. Hacker innovators learn and hack through technological use, as well as within virtual learning teams, creatively generating new artefact design configuration states more closely aligned with individual needs and desires, outside of those desired or indeed intended by firms who are more focussed on new innovation strategies that generate rents from IP within tight product development cycles [Rosenberg, 1982]. Much in the same way that computer games modders innovated with the Half-Life Source engine, by developing customised mods via a software development kit (SDK) offered by the games developers themselves. End user hacker innovators in this case study developed highly popular modules that could be experienced using the Source engine and later bought and sold on to consumers by Valve, the development company of the original game; a mutually beneficial arrangement for all parties involved.

Hacker innovation communities like XDA developers demonstrate how small groups of individual hackers working together freely reveal their efforts to a wider audience of consumers who adopt them can have a potentially significant impact on the way in which intended versus actual design management strategies play out in reality.

The impact of end user hacker innovators will be felt in the degree of appropriability of such efforts by firms (if any occurs at all) and the impact they may have on existing and future products, but also impacting upon business models, regulatory regimes and intellectual property management that support innovation. The strategic options for firms under these circumstances range from or mixture of the following strategies:

  1. Monitor
  2. Adapt
  3. Influence
  4. Absorb
  5. Exploit
  6. Attack

Firm responses to hacker innovation will be contingent on a number of factors such as firm strategy, sector and competitive context, product type and maturity and the scale and nature of hacker innovation activities [Flowers, 2007]. The continued deployment of the Linux kernel in increasing numbers of consumer artefacts broadens the scope of use of applicable hacker knowledge further towards outlaw communities of innovators. Hacker innovation in this instance creates an unregulated and uncontrollable market activity whereby the needs and desires of its lead users are satisfied by overcoming the limitations of use put in place by manufacturers.

The motivation and drivers for hacker activities are very different from commercially driven activities and innovation efforts. More widely hackers may shape the future of demand across further adopter categories and where firms appropriate and absorb such innovations, they may be in a better competitive position as a result, especially those built around fruitful firm/hacker community alliances based on openly developed GNU or Creative Commons licensed creative output. While IP regimes seek to outlaw forms of hacker innovation for fear of mixing and mashing proprietary IP, policy is currently in place to generally outlaw hacker innovation activities, particularly in light of piracy across all digital content domains in film, media and software industries. However, failing to develop suitable policy in response to hacker innovation effectively shuts-out and marginalises a potentially fruitful source of innovative ideas and creativity that can drive future economic growth opportunities.

Hacker innovation may to a large extent operate in conflict with commercial interests at the fringes of the Open Source movement, driven by creative interest and exploration of technologies rather than generating rents for hackers. This may not entirely be the case where hackers explore technologies and unlock new configurations for self interest, but instead supported and perhaps motivated by anonymous donations made possible by those users who appreciate the time effort and importantly skill involved in the hacks, thus generating a source of income for hacker innovators in conflict for the research indicating entirely altruistic motivations for hacking in the first place (Lakhani, 2003). Under these circumstances IP regimes may find themselves in a position to pursue valid legal proceedings against hacker innovators who generate private rents as a result of their labour efforts (bolstered on top of proprietary IP value) expended to personally benefit monetarily. There is evidence whilst following many hacker innovation ‘open’ projects of significant anonymous donations being made to project developers in this way. The extent to which donations are made and whether or not they are enough to negate the need for other personal revenue sources is yet to be established as well as the actual legal position firms are in to bring litigation against such acts by its consumers.

Hacker innovation poses significant challenges to policy making that legally permit firms to benefit, appropriate and encourage such activities. Future studies need to understand the size and scale of hacker innovation activities across a number of product classes and industries and to distinguish those activities that are generative against those that revolve around black hat hacking and cracking activities. A recent study by von Hippel et al. [von Hippel, 2012] made some initial ground in addressing this question and found that 6.1% of consumers engaged in complimentary innovation to the efforts of incumbent producers. The research also suggested that firms should adapt and reconfigure their product development strategies to find and build prototypes based on consumer innovation outputs, making the case for firms to actively seek out hacker innovations to absorb through firm boundaries.

In addition to these initial studies within end user innovation, future research should focus specifically on:

  • The nature of the linkages between firms and hacker groups.
  • Firm reactions to hacker innovations.
  • The impact on the direction and path future internal product innovations.
  • The circumstances under which firms can absorb and appropriate hacker innovations.
  • Establishing the conditions under which firms may directly benefit from intentioned interactions with hacker innovation communities.
  • Other research could analyse the quality of hacker innovation contrasted to innovation outputs by the time-constrained firm.

Future research such as this will help to develop a structured approach to expanding our understanding of this significant phenomenon, rather than merely disregard it as illegal, poor quality, outlaw innovation of no commercial or market value to the firm and its wider consumers.

A generative threshold point has been established in this paper to define the boundary between illegal and legal hacker activities with generative and non- generative outputs for firms. Research and policy making needs to be undertaken to inform new business model development, forms of R&D inside and outside of the firm and new intellectual property regimes to encourage generative forms hacking to allow firms and hackers alike to mutually benefit from innovation sources and outputs.

Immediate changes that would be beneficial to both firm and hacker communities would be promoting general awareness of activities to both parties and de-stigmatising hackers in general (perhaps by redefining the term entirely as outlined in this paper) and increasing the absorptive capacity competencies of firm-to-hacker activities, complimentary to firm R&D outputs whilst discouraging illegal, negative hacker activities and maximising the value generated for all parties involved based on the goals and interests of each party. The full impact of hacker activities like those found in XDA Developers is far from being understood within the current research literature (primarily focussed on lead users, Open Source, firm hosted co-creation), but vast online primary data repositories and historical records of all hacker innovation activities do exist in the public domain online, with many available data variables such as node communications frequencies, module outputs, release cycles, module augments, removals and replacements. This data could be analysed with Temporal Analysis software such as TeCFlow and Condor developed by Peter Gloor and his team at MIT [Gloor, Paasivaara et al., 2005] [Gloor, Putzke et al., 2005] to reveal the underlying communication and innovation development structures and patterns of activity, allowing firms to seek-out the most productive collaborative hacker innovation teams to integrate with in the future or extract design trajectory data from. Such analyses would uncover and reveal the internal and invisible structures of hacker innovation communities to allow firms to identify the most fruitful teams to integrate with and to understand which technologies hackers in particular target to develop and why. Research of this nature would use quantitative data collection via forum database dumps in order to draw analyses with visualisation and mapping software suites similar to those available in academic spin-off ventures such as the Intelligent Collaborative Knowledge Networks (ICKN).[1]

There are several parallels between hacker innovation and lead user innovation, but the underlying driving force and motivations behind hacker innovations are deeply routed in a cultural mind set based on a core set of values and ethics that create a rebellious reaction to the encroachment of firms on its core values and in direct conflict with the ethics of those underpinning the common commercial interests of firms. This divergent landscape needs to be carefully mapped out and understood in order to find the most appropriate future courses of action.

NEXT: Chapter 6.2 - Hacking and Counter-cultural Rebellion

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  1. A research spin-off firm ‘at the MIT Center for Collective Intelligence to help organizations increase knowledge worker productivity and innovation, by creating Collaborative Innovation Networks’. More information at


  • [Rosenberg, 1982] ^ Rosenberg, N. (1982). Inside the Black Box: Technology & Economics. Cambridge, Cambridge University Press.
  • [Flowers, 2007] ^ Flowers, S. (2007). From Outlaws to Trusted Partners: Challenges in mobilising User-Centric Innovation in R&D projects. Centre for Research in Innovation Management (CENTRIM), University of Brighton. Brighton, University of Brighton (CENTRIM).
  • [von Hippel, 2012] ^ von Hippel, E., J. Jong, et al. (2012). "Comparing Business and Household Sector Innovation in Consumer Products: Findings from a Representative Study in the United Kingdom." Management Science 58(9): 1669-1681.
  • [Gloor, Putzke et al., 2005] ^ Gloor, P., J. Putzke, et al. (2005). Studying Microscopic Peer-to-Peer Communication Patterns. Americas Conference on Information Systems.