In the 1987 movie Wall Street, the character Gordon Gekko famously declared that “greed is good,” a line that has come to symbolize the darkest aspects of materialism. But the latest research from Wharton management professor Ethan Mollick sheds light on that bleak outlook and shows that not everyone is in it for the money.
In his paper titled, “Filthy Lucre: What Motivates the Commercialization of Innovation,” Mollick posits that financial gain sometimes plays little to no role in the decision making of highly creative people. In fact, the desire to stay out of the market can even smother some people’s career aspirations.
Mollick builds his theory around a study of one of the most successful product launches of all time — Apple‘s iPhone. When the long anticipated device was finally released in 2007, many of the technological innovations that developed around it — specifically, novel user applications, or “apps” — were incubated underground, providing an excellent environment to examine the notion that some innovators are motivated by more than material gain. “Part of the reason that the commercialization decision has been understudied is due to the difficulty of finding nascent entrepreneurs and potential innovators before they decide to commercialize,” Mollick writes. “I identified a natural experiment associated with the launch of the iPhone that allowed me to sidestep this problem.” He adds: “This is an especially compelling sample because of the importance of the innovations developed by the individuals in the sample. In addition to eventually starting a number of successful ventures, these innovators developed key new software categories for the iOS platform: the first photography applications, the first games, the first electronic reading applications and many others.”
For the first year after its release, the iPhone was a closed system with proprietary software designed and licensed only by Apple. But almost as soon as the product was on the shelves, hackers were busy developing free, unlicensed software and an underground distribution system for users who wanted to modify their phones. This process, called “jailbreaking,” was done to an estimated 25% of the millions of iPhones sold, Mollick notes, despite the fact that installing outside applications would void the warranty from Apple.
A year later, Apple unveiled the second-generation iPhone and a new “app store” to sell applications that were legally developed for the smartphone. The company also invited hackers to go straight by selling their pirated software through the app store. It was a sweet deal for those looking to capitalize on their work. Apple would handle all marketing and distribution, while developers collected 70% of sales revenue.
Hackers had three choices: They could continue their commitment to staying underground, update their software under Apple’s watchful eye and commercialize their work through the app store, or abandon their project. “It turns out it’s a complicated dance,” Mollick says. “It’s a lot about freedom. Hackers found [Apple’s] closed system bad, but they found Apple [products] elegant. They were motivated by the aesthetic beauty. Innovation is art to these people. So when you dump a bunch of cash on the table, does that change their behavior? For some it does. But you’d be surprised that some do not shift. They leave the cash on the table.”
In his paper, Mollick notes that the stakes were high for commercializing: One group of underground developers sold their firm to Walt Disney Company for more than $40 million. “Thus, it would be entirely rational to expect individuals, with almost no opportunity cost and essentially complete products, to pursue commercialization.”
Mollick identified 158 “jailbroken” applications for the study and spent several years tracking down the hackers. He found 88 applications were abandoned by the inventor, 35 were kept free and 35 were eventually commercialized. Among the 88 developers, 32 ultimately abandoned their development efforts altogether, 19 continued to develop only free software and 37 commercialized by selling at least one piece of software — including eight developers who created new applications that were sold on Apple’s app store.
The results of the study bolster the argument that some innovators do not respond to economic incentives. For many, innovation is about solving problems, such as a parent who comes up with a novel idea for dealing with picky eaters at dinner time. For others, it’s about creating the best possible product, such as the winery that stays small in order to maintain quality control. And for some, including hackers, the reasoning is far more elusive. “A lot of people sell out when given a chance,” Mollick notes. “But the ones who sell out are not always the ones you’d expect. They are not always the ones who are most innovative.”
Mollick says more research in this area could be useful for companies looking for a new approach to the next big thing. What’s important, he notes, is “thinking hard about what motivates people. It’s about understanding who you are trying to talk to and getting them engaged. People are innovating around products all the time. Reaching them is not just about cash; it’s about understanding what these communities want.”
Republished with permission from Knowledge@Wharton, the online research and business analysis journal of the Wharton School of the University of Pennsylvania.