Application of Nonproprietary Production to Startup Companies

-- By JamieSavren - 17 Oct 2021 (revised 5 Jan 2022)

This paper will apply the thesis presented in the book “The Wealth of Networks: How Social Production Transforms Markets and Freedom”, by Yochai Benkler to the operation of a startup company. Benkler expresses his view that the emphasis our models of innovation place on proprietary strategies hinders global human development, and that a shift must take place to give a substantial role to nonproprietary production.

Startups are built on the assumption that what they do is innovative, unique, exciting and profitable. Their valuable intellectual property – their algorithms and software – is their crown jewel. Therefore, these companies usually patent their core software products and keep them secret so that they cannot be copied, modified or redistributed by others.

Implementing Benkler’s theory in the world of startups would warrant a drastic restructuring. Although not entirely a solution as progressive as Benkler’s theory, there have been some baby steps in that direction. Enter “building in public”, or BIP for short refers to when a startup builds a product or service in public, they allow people to see their building process from the start.

Why would a startup BIP? Firstly, it creates greater transparency, by definition. This transparency helps build trust in the brand among potential investors and customers. It shows that the company isn’t just a house of cards and makes it seem more authentic. The transparency has other effects, for example, with regard to privacy concerns. A BIP startup would reveal exactly what personal information is being used and how.

Secondly, BIP allows the company to receive valuable feedback, tips and advice from the public, in order to improve their product. Maybe the company’s programmer is having trouble fixing a bug. If an outsider has dealt with something similar in the past and was able to figure out how to solve it, it could spare the programmer a lot of hard work and frustration. Furthermore, getting feedback on a product, especially before it has even launched, is invaluable. It’s the most authentic market survey that could be performed. The company can then use this valuable information in order to tweak the product and better tailor it to the target customer group.

Thirdly, BIP enables a practice called “forking”. For example, Company A’s programmers wrote code for a program that takes pictures of trees and colors them blue. A programmer, who is unassociated with Company A, but has access to its code, can then “fork” the code by copying it and building onto it so that she can create a program that colors trees red, white and blue and plays the Star-Spangled Banner.

However, Benkler takes us one step further. Under his theory, startup companies would not patent their inventions and software would be free. Doing so would mean that anyone could copy, modify and redistribute software without payment or restriction. These companies would have to be prepared to compete against giants such as Google, Amazon and Apple, without the classic intellectual property protections that are currently viewed as essential for the protection of any invention. A good example of this rationale is Wikipedia – it’s free and anyone can contribute and edit articles. This revolution, on the face of it, goes against startups’ entire raison d’être, according to capitalism. This revolution would affect every aspect of the life of a startup company. In my view, this necessarily means that the underlying assumption is that money is not the only motivating factor in this ecosystem.

In our capitalist society, investors of various kinds, whether fund or private, invest in startups hoping that their safe-guarded and protected intellectual property is unique and valuable enough to be monetized and lead to an increase in the value of the company. Under Benkler’s regime, investments in startups would look completely different. Investors would not be investing in a company to gain a large return on their investment. Instead, investing in this startup could bring good publicity. It might also signal that they are interested in social change or support innovation regardless of whether they capitalize on it directly.

Under the current regime, a startup company hires employees, paid to develop its product. Since there is a relatively small number of employees, even the best have limited time and resources to spend on the software. Under Benkler’s regime, the same product could be open-sourced, such that the aggregate knowledge of many people that would edit, redistribute and copy it (for free!), would lead to a better product, accessible to more people. The software might even utilize their aggregate computing power.

In terms of financing a company’s operations, if its revenue does not come from the ability to monetize on the scarceness of the service it offers, revenue could come from advertising. However, there is a better option, under which the company could have little to no operation costs. For example, it costs a lot of money to hire employees to create the product. What if the startup split its initial tasks up into thousands of little pieces, asking people on the internet to perform them for free? The initial plan could be designed at little cost, while the people who participate would feel good knowing that they contributed to a cool project, for free, because it’s fun or interesting. It might give them a sense of purpose or meaning, or a new social circle. This phenomena is the exception in today’s capitalist society, but the rule in Benkler’s.

Furthermore, contributors to the product do not need to ask permission to make changes, which eliminates those transaction costs, since this is not a property-based regime. Companies would be able to spend the money that they usually do on IP protection on advancing and improving their technology and products in other ways.

What’s exciting about this regime is that startups might even not be able to anticipate the developments that other people make to the initial software, and the final product might be better than they expected. Benkler’s vision would lead to a different way of doing humanity’s inventing.