doi:10.1016/j.respol.2005.07

Research Policy 34 (2005) 1533–1549

The industrial dynamics of Open Innovation—Evidence from the transformation of consumer electronics Jens Frøslev Christensen ∗ , Michael Holm Olesen, Jonas Sorth Kjær Copenhagen Business School, Department of Industrial Economics and Strategy, Solbjergvej 3, 2000 Frederiksberg, Denmark Received 14 November 2004; received in revised form 10 June 2005; accepted 15 July 2005 Available online 30 August 2005

Abstract This paper addresses how the Open Innovation concept, as recently coined by Henry Chesbrough, can be analyzed from an industrial dynamics perspective. The main proposition of the paper is that the specific modes in which different companies manage Open Innovation in regard to an emerging technology reflect their differential position within the innovation system in question, the nature and stage of maturity of the technological regime, and the particular value proposition pursued by companies.

The proposition is analyzed through an in-depth study of the current transformation of sound amplification from linear solid state technology to switched or digital technology within the consumer electronics system of innovation. The analysis especially addresses the complex interplay between technology entrepreneurs and incumbents, and demonstrates that Open Innovation sometimes has to be conducted under conditions of high transaction costs. © 2005 Elsevier B.V. All rights reserved.

JEL classification: L6; L68; O32 Keywords: Consumer electronics; Digital amplification; Open Innovation; System of innovation; Technological regime; Technology entrepreneurs

1. Introduction In his recent book, Chesbrough (2003) coined the notion Open Innovation to signify a new model for organizing technological innovation in large R&Dintensive companies. According to this model, “firms can and should use external ideas as well as internal ∗

Corresponding author. Tel.: +45 38152535; fax: +45 38152540.

E-mail address: jfc.ivs@cbs.dk (J.F. Christensen).

0048-7333/$ – see front matter © 2005 Elsevier B.V. All rights reserved. doi:10.1016/j.respol.2005.07.002

ideas, and internal and external paths to market, as the firms look to advance their technology” (Chesbrough, 2003, p. XXIV). It is contrasted with the old model, termed Closed Innovation, according to which companies generate their own ideas, do their own research and development to transform ideas into innovative products, produce these products, market them, distribute them, service them and finance them on their own (Chesbrough, 2003, p. XX). The Open Innovation model has, according to Chesbrough, emerged in the

1534

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

wake of factors undermining the effectiveness of the closed model, in particular the increasing availability and mobility of knowledge workers, the flourishing of the venture capital market specializing in creating new firms and the increasing scope of capable external suppliers. Chesbrough studies the phenomenon of Open Innovation from the company-level perspective, that is, in terms of innovation strategy and management, and he illustrates his analysis with cases of large American companies such as IBM, Intel, Lucent and Xerox.

While the book is intended for managers, this article seeks to place the concept of Open Innovation in the theoretical and intellectual tradition associated with industrial dynamics and applied evolutionary economics. Within the context of a sectoral system of innovation (consumer electronics), we study the industrial and strategic dynamics associated with the development of a new technological regime (class D amplifier technology). The late 1990s experienced a scientific and technological breakthrough for this radically new amplification technology, and the first years of the new millennium have witnessed a rapid replacement of linear solid state amplifiers with class D amplifiers in numerous market segments. According to leading industry observers, the foreseeable future will show a massive adoption of this new technology in most audio consumer products. In less than 10 years, since the mid-1990s, this technology has undergone a condensed cycle from a stage of embryonic experimentation pioneered by small startup companies, to a fairly mature stage characterized by chip-based technology and mass production controlled by large incumbents.

This case provides an ideal stage for a study of the industrial dynamics of (more or less) Open Innovation. We specify the commercial system of innovation in which this new technological regime unfolds (the comparative and complementary features of the different categories of firms involved). We then analyze the special characteristics of this technological regime and the changes it undergoes from an embryonic stage into a mature stage. The analysis focuses on the innovation strategies of small technology entrepreneurs, how their strategies change as the technology regime moves into a mature stage and, in particular, how the partnering game between technology entrepreneurs and innovative incumbents change. In other words, we address the particularities of Open Innovation from the perspec-

tive of the technology entrepreneurs, a perspective not analyzed in Chesbrough’s book.

Section 2 gives a short review of the literature on Open Innovation and provides an analytical framework for the subsequent empirical study. Section 3 presents the major types of players constituting the global system of innovation in consumer electronics. Section 4 gives an account of the history of amplification technology and the current paradigm transition.

After a brief description of data sources (Section 5), Sections 6 and 7 describe and analyze, respectively, the pioneering phase and the maturing phase in the technical and commercial evolution of the new amplification technology, with special focus on the innovation strategies of two small Danish ventures and how they linked up with complementary incumbents.

Section 8 summarizes the article and discusses the way in which the notion of Open Innovation can be applied in an industrial dynamics perspective.

2. Literature review and an analytical framework The notion of Open Innovation does not signify an altogether new phenomenon. Cohen and Levinthal’s (1990) concept of absorptive capacity addressed the particular competence that companies build in R&D, not only for managing internal innovation but also for being able to access and absorb external ideas, science and other kinds of knowledge inputs to innovation. Rosenberg (1982), Lundvall (1992), Pavitt (1998) and von Hippel (1988) among others, have addressed the interactive, cross-disciplinary and (mostly) interorganizational nature of innovative learning. What Chesbrough (2003) has added in his book “Open Innovation”, apart from offering a new term, is a more comprehensive and systematic study of the “internal” corporate modes of managing such more externally oriented processes of innovation. He has more generally pointed to the emergence of a fairly radical organizational innovation in the way large high-tech corporations engage in technological innovation, from an introvert and proprietary to a (much more) extrovert and open paradigm. But he has also argued (in Chapter 4) that the specific level and mode of open/closed innovation is contingent on the particular business models chosen by firms in particular industrial and technolog-

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

ical contexts. A critical element in creating a business model is to specify the two goals of the value chain: to create value throughout the chain and to allow the firm to claim a sufficient portion of the value to sustain its position in that system (Chesbrough, 2003, pp. 66–67).

This has two implications for the notion of Open Innovation: first, there will always be a level of “closedness” in innovating firms depending on how large a portion of the overall value they strive to appropriate. Second, in the particular industrial context there need not be a consistent linear movement from closed towards open styles of innovation.

This paper focuses on the determinants of more or less open modes of innovation associated with the industrial dynamics of an industry segment currently undergoing a process of radical technological innovation. We use an industrial dynamics framework (Carlsson, 1989) in analyzing the emergence of a new amplifier technology and a new industry segment within the audio-visual consumer electronics sector.

We apply the concept of sectoral systems of innovation to specify the diversity of agents involved, the complementarities among them, and the boundaries of the system investigated. And we apply the notion of technological regimes to analyze the changes in the innovation process as the technology moves from the early embryonic stage into maturity. This industrial dynamics perspective makes it possible to track the modes of innovation among both small companies and large incumbents, the interdependencies between different categories of firms, as well as the changing contingencies for managing innovation over the life cycle of the technology and the industry segment.

We shall study a particular technological regime (Malerba and Orsenigo, 1997; Shane, 2001) which is characterized by a rich opportunity set – providing powerful incentives to engage in innovative activities – and a complex knowledge base consisting of different, complementary parts that are distributed among different agents, thus not owned, controlled or easily accessed by one agent. In such a context, firms will depend on critical external knowledge assets for the successful realization of their innovative endeavors.

And our prediction is that the innovation strategies of different firms will depend on their position in the innovation system, the nature and stage of the technological regime, and the firms’ choice of business model or value proposition.

1535

A given technology is embedded in a system of innovation (Breschi et al., 2000; Malerba and Orsenigo, 1997) and subject to life cycle dynamics (Abernathy and Utterback, 1978; Tushman and Andersen, 1986; Foster, 1986). The concept of systems of innovation (Edquist, 1997; Malerba, 2002; McKelvey, 2003) can help us to provide an overview of the various roles that different agents can play in bringing innovation processes through the various stages of an emerging technology. Over these stages, the nature of resource demands for innovation undergoes substantial change.

In the early embryonic stage, science-based inputs may be critical for leveraging the still experimental technology into a more stable stage. Moving out of the experimental science laboratories and into early technological application and market testing may involve specialized engineering and design, and the exploration of different design strategies targeted at different niche markets or lead customer segments that are willing to try out and pay handsomely for new technical solutions.

As the technology matures or stabilizes and one or more designs come to prevail in the market, efforts are made to calibrate the product technology for mass markets, and for the associated development of manufacturing processes that can make the technology’s performance/cost ratio attractive to the mainstream markets.

Within this industrial dynamics framework (integrating a sectoral innovation systems perspective with the dynamic perspective of technological regimes), we shall analyze the determinants of the (more or less) Open Innovation strategies applied by high-tech startups and different categories of incumbents, the interplay between these players, and the changes in innovation strategy as the technology regimes moves from the embryonic to the mature stage. We shall provide a study of the changing innovation strategies of two startup pioneers in the field of class D amplification. In particular, by drawing on and extending the perspectives raised by Gans and Stern (2003), we shall address the complex relationships between complementary and sometimes rival actors (technology entrepreneurs and different kinds of incumbents). This analysis points to the fact that Open Innovation sometimes has to be conducted under conditions of high transaction costs.

The main proposition of this article is that the specific modes in which different companies manage Open Innovation in regard to an emerging technology

1536

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

Fig. 1. Categories of commercial players in the system of innovation of consumer electronics.

reflect their differential position within the innovation system in question, the nature and stage of maturity of the technological regime, and the particular value proposition pursued by companies. Before analyzing the innovation strategies of different players associated with class D technology, we shall first identify the main players in the consumer electronics system of innovation (Section 3) and the technological paradigm shift in sound amplification (Section 4).

3. Consumer electronics as a global system of innovation Intuitively, one tends to think of the audio-visual (AV) core of the consumer electronics industry as being strongly dominated by a small group of large providers of end-user products, including CD and DVD players, stereos, TVs, VCRs, portable audio and home-theatre systems, the most well known being Sony, Matsushita (with the Panasonic, National, Technics and JVC brands) and Philips. From a supply chain and a sectoral system of innovation perspective, however, we should not forget the important role for the innovative enhancement of consumer electronics of several other categories of firms that are mostly not associated with consumer electronics: small specialized suppliers of components and modules, broad-scoped electronic component providers, small providers of end-user products in the high-end markets, and the dedicated manufacturers and assemblers of components and systems. Fig. 1 shows this more elaborated picture of the commercial players contributing to innovation in consumer electronics.

The dominating providers of AV products in the global mass markets (termed large-scale OEMs in Fig. 1) are Japanese (Matsushita, Pioneer, Sanyo, Sharp and Sony), South Korean (LG Electronics and Samsung) or Dutch (Philips). They are the renowned system integrators, strongly devoted to innovation, manufacturing, marketing and distribution of AV products and a large array of other consumer electronics products, and to varying degrees they also possess in-house component portfolios and associated industrial research, design and manufacturing assets (particularly Philips, Sony and Matsushita).

Another category of OEMs typically address highend market niches (termed high-end OEMs in Fig. 1).

These firms range from very small OEMs dedicated to products for the small niches of high-income groups and/or HIFI enthusiasts, professional sound studios and musicians, to medium-sized firms (such as Bang & Olufsen) offering a combination of exclusive design and high quality AV products. Compared to the largescale OEMs, these firms have a narrow product portfolio and have more extensively outsourced component design and manufacturing.

While none of the globally dominating providers of AV products are American,1 US-based companies play important roles as component suppliers. Some prominent examples of large-scale component providers are 1 Recently though American players, e.g. Dell, HP and Gateway, have entered the consumer electronics industry. As the leading PC vendor, Dell’s entrance reflects the convergence between the two industries. Broadly stated, Dell’s success in computers reflects its ability in sales and marketing to conceive the computer as a consumer electronics product.

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

Texas Instruments, Motorola, National Semiconductor, Intel and Analog Devices. Large Japanese players (especially Hitachi and NEC) and European-based STMicroelectronics and Philips are also important large-scale electronic component providers, supplying in particular semiconductor components to many other parts of the electronics sector than the AV industry.

However, beyond this category of well-known largescale component suppliers, there is a highly diverse category of narrowly specialized small science-based or high-tech suppliers of technological knowledge or intellectual property (IP), products or components. Just within the narrow field of class D amplification, many small specialist firms can be identified, of which only few are mentioned in Fig. 1 (for a more complete account, see the Table in Appendix B). These are the “Silicon Valley-type” firms, small ventures springing out of universities or high-tech corporations, often funded by venture capital or corporate venture units and providing new specialized technologies or components to the market.

Fig. 1, furthermore, points to two categories of dedicated electronics manufacturers, the US-dominated Electronic Manufacturing Services (EMS) providers, such as Flextronics and Samina-SCI, and the Taiwandominated Original Design and Manufacturing (ODM) providers which have experienced hyper-growth in recent years. While the former are large-scale companies dedicated to cost-effective manufacturing and assembling of a broad array of electronic components and systems for OEM customers, the latter also possess design capabilities and have established lead-positions in a few areas (e.g. notebooks) (Merrill Lynch, 2001, 2002, 2003; Robertson Stephens Inc., 2001). The outsourcing wave underlying the hyper-growth of EMS and ODM providers has been much weaker in consumer electronics than in other electronic sectors. Thus, according to UBS Investment Research (2003) only an estimated 0–3% of Japanese consumer electronics OEMs’ production has been outsourced to EMS providers.

Out of these categories of firms, all but the two categories of manufacturer specialists have been strongly involved in the development of the new amplifier regime. Before moving on to address the industrial dynamics and innovation strategies associated with the new technology, we shall give a brief overview of technical digitization dynamics in recent decades within

1537

consumer electronics and explain the central features of the current paradigm transformation in amplification technology.

4. Digitization of AV consumer electronics and the case of sound amplification Over the last 20 years, most sectors of the economy have been experiencing a process of digitization involving a comprehensive influx of technologies and components originally developed by and for the semiconductor and computer industries (Carlsson, 2003). In AV consumer electronics, the significant technological transformations include: • The replacement of traditional analog formats of TV, radio, VCR and cassettes with formats that record and restore signal sources in digital form, including CD (1983), MiniDisc (1991), DVD (1995) and more recently digital radio and TV and MP3/Internet audio.

• The replacement of various removable media for storing sound and picture (records, tapes, CDs and videos) by “on board” or embedded storage technologies like flash memory cards and hard disks—devices traditionally used for computers.

• The change in the form in which audio content (music) is embodied and accessed, from tangible products (tapes and CDs) to ’streamed media’ downloaded through the MP3 format from the Internet (for instance in Internet radio) – yet another import from the computer industry – and the probability of visual content (film), presently embodied in videos and DVDs, becoming increasingly “streamed” as sufficient bandwidth is more broadly implemented (e.g. in on-line video).

• The transition of display technology in visual products from cathode ray tubes (CRT) to liquid crystal displays (LCD) or plasma-based displays.

• The incorporation of networking and wireless networking technologies into AV products for facilitating interaction and connection to the Internet— largely enabled by the influx of technologies from the computer and communication industry.

• The replacement of the hitherto predominant form of audio signaling and power processing, the linear mode associated with conventional class A/B

1538

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

transistor-based amplifiers, by a switched amplification mode (class D or digital amplifiers) and the increasing use of digital signal processing.

The rest of this section gives an account of the technological trajectories of sound amplification and the current transformation.

In audio equipment, the amplifier amplifies the audio signal, for example from a CD player, and sends the amplified signal to the speakers. Historically, analog sound amplification can be differentiated into two major generations: valve-based and transistorbased amplification. Originally, amplifiers employed vacuum tubes or valves to boost the analog signal. This technology dates back to the early 20th century and Lee de Forest’s invention in 1906 of the ‘audion’ as the first purely electronic component that could amplify a signal.2 This invention paved the way for sound amplification in telephones, radios, phonographs, motion pictures and later televisions. Through the licensing and maturation of the technology by large corporations such as General Electric, it became a practical and reliable commercial device.3 Still, vacuum tubes suffered from drawbacks of being large and clumsy, consuming much power, creating much heat and incurring high maintenance costs by burning out rapidly.

The transistor, invented in 1947 by Shockley and his colleagues at Bell Laboratories, represented a genuine revolution in amplification technology (Braun and Macdonald, 1982). In the late 1950s, manufacturing technologies were developed by companies such as Western Electric and Texas Instruments, making low-cost mass production of transistors feasible—first materializing commercially in the “transistor radio”.4 Over the years, technical improvements made transistor-based amplifiers superior in most respects to tube-based amplifiers. By the mid1960s, solid state amplifiers had become mainstream in both professional and consumer audio products, leaving vacuum tubes behind in niche areas such as musical instruments amplifiers and microphone amps (Sweeney, 2004). However, the energy-efficiency of transistor-based amplifiers remained quite low implying, on one hand, a need for large power supplies and, 2 http://www.wikipedia.org/wiki/Vaccuum tube and http://www. ieee.org/organizations/history center/legacies/deforest.html.

3 http://uv201.com/Tube Pages/deforest audion.htm.

4 http://www.vac-amps.com/page0030.html.

on the other hand, bulky heat sinks to absorb the waste current and prevent over-heating. The development of chip-based solid state power amplifiers in the 1970s and 1980s prompted further commoditization in terms of compactedness and cost-efficiency of amplifiers, and made possible the development of products such as cell phones and Walkman-type portable music systems (Sweeney, 2004). However, no seminal developments have occurred in the solid state amplifiers for the last 20 years.

Since the mid-1990s, a radically different approach to amplification, class D or switched amplification, has been subject to a major scientific, technological and commercial breakthrough. “It marks a clear break with tradition, and incidentally demands an almost entirely different set of design skills than those we are used to seeing in analog electronics generally” (Sweeney, 2004, p. 5). While known at least in conceptual form for more than 40 years, class D amplifiers had never been successfully applied in an audio context. Even if early class D amplifiers offered big advantages in terms of space efficiency, energy efficiency and low heat dissipation, they also suffered from severe fidelity and reliability problems and tended to burn up due to overload or radiate unacceptable amounts of interference (Sweeney, 2004, p. 7). However, as these problems have recently been overcome, we are now witnessing a technological transformation comparable with the solid state revolution in amplification some 50 years ago.

Class D amplifiers produce a power output by modulating a carrier frequency with an audio signal through a technical principle termed pulse width modulation (PWM). A conventional class D amplifier is not digital, because the width of the pulses is continuously variable rather than variable according to some given number of discrete values. However, through various modifications (in which so-called pulse code modulated input signals are transformed into the PWM format), it is possible to make class D amplifiers truly digital. In the final stage of the audio signal path, a passive lowpass filter transforms the PWM signal into an analog power signal that can drive a speaker. Being far more energy-efficient than linear amplifiers, they do not need big heat sinks and can be equipped with smaller power supplies, drastically reducing their size as compared to conventional amplifiers.

Class D amplifiers can be embedded in either discrete modules (based on discrete standard components)

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

or in chip-based modules (based on integrated components). The former are high cost/performance amplifiers which have since the late 1990s penetrated parts of the high-end niche markets, while the latter have since 2000 penetrated the mid-level mass markets, in particular the DVD receiver market, and increasingly are moving down towards the lower-end markets. The large audio product markets are generally still clearly dominated by conventional technology. Rodman & Renshaw Equity Research estimates the size of the analog amplifier market between US$ 2.1–3.0 billion as of 2003 and the size of the digital amplifier market between US$ 80–100 million, or only 2–3% of the total amplifier market (Rodman & Renshaw, 2003). This level is expected to increase to US$ 515 million, or 15% of the total amplifier market by 2006.

A more recent and profound analysis from Forward Concept (Sweeney, 2004) estimates the total class D amplifier 2003-market at US$ 84 million, and forecasts a 51% increase in 2004 followed by a 66% growth in 2005 as cell phones, automotive audio and other markets are expected to make an input. By 2008, the market is expected to be above US$ 800 million.

5. Data sources Data from three sources have been collected for this study. Our primary data stem from in-depth interviews with leading pioneers in research, development and early commercialization of class D amplification localized around the experiences from Technical University of Denmark, Toccata Technology, Bang & Olufsen ICEpower and Texas Instruments (see list of interviewees in Appendix A). Our attempt to expand the primary data to include larger parts of the industry was unsuccessful and probably reflected the reluctance of firms to open up to “non-familiar” outsiders in the early stage of a new technology characterized by hectic innovative entrepreneurship, a wave of new entrants, and everybody’s fight to survive and find some position in the market. Furthermore, the close correspondence with Daniel Sweeney, the author of the hitherto most profound and comprehensive market analysis of class D amplification, provided us with invaluable insights on especially the US-part of the industry. He gave extended comments on earlier versions of this paper and responded to numerous questions by e-mail. Two

1539

sources of secondary data have supplemented our primary data. The first concerns knowledge of the class D technology and industry accessed through specialized trades literature (e.g. Rodman & Renshaw, 2003; Sweeney, 2004) and two specialist websites on class D technology (http://www.classd.com/ and http://www.puredigitalaudio.org/). The second involves a thorough review of the websites of all registered companies with a class D engagement.

6. The pioneering phase: out of research and into business venturing Early attempts to build a switched amplifier in the mid-1970s were disappointing. However, by the early to mid-1990s, basic scientific research in audio power conversion had matured, thus putting both switched, and ultimately purely digital, amplification within practical reach. At the very frontier was a research community lead by Professor Michael A.E. Andersen at Institute of Electric Power Engineering at the Technical University of Denmark, where the research culminated in two spin-off ventures: Toccata Technology founded

by Lars Risbo and ICEpower initiated by Karsten Nielsen.

In the early 1990s, Michael A.E. Andersen was investigating the opportunities for audio processing from class D amplifiers, while Lars Risbo completed a Ph.D. on audio converters at a neighboring institute.

The two works offered promising synergies and during the subsequent research collaboration, Lars Risbo began to explore the principles of PWM. In 1995, Karsten Nielsen began a Ph.D. project addressing the opportunities for increasing energy-efficiency in amplification. The project was carried out in close collaboration with Bang & Olufsen. Both Lars Risbo’s and Karsten Nielsen’s researches resulted in a number of patents that provided a sound IP base for their respective ventures. The research activities at Technical University of Denmark further expanded as numerous master and doctoral students became attracted to the vibrant research community. This created a highly specialized base of engineers who were later recruited for R&D projects in the two ventures.

Lars Risbo founded Toccata Technology (henceforth, Toccata) in 1997. The firm was funded through a development contract with the HIFI OEM Audio

1540

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

Nord, a small Danish company with a strong market position in HIFI products in Scandinavia. The objective of the contract was to (hopefully) develop the world’s first fully digital amplifier and launch it under the Audio Nord brand name, Tact Millenium.

This objective was successfully achieved the following year. This high-end-market product created huge international attention in HIFI circles and eventually sold 500 US$ 10,000 units—a great commercial success for a small HIFI company, and Toccata’s technology, separately branded as the Equibit technology, obtained nearly cult status especially in Japanese HIFI circles.

Upon defending his Ph.D. in 1998, Karsten Nielsen was hired by Bang & Olufsen and associated with the company’s world-class R&D community in acoustics and speaker technology. He was charged the task of integrating an analog class D amplifier into a new HIFI speaker system under development. This pioneering speaker was successfully launched in 1999. To expand and mature the broader opportunities of switched amplification technology, Karsten Nielsen’s team was spun out as a separate firm, Bang & Olufsen ICEpower (henceforth, ICEpower) with ownership shared between Bang & Olufsen (75%) and Karsten Nielsen (25%). While Karsten Nielsen brought the patents and innovative know-how on switched amplification, Bang & Olufsen provided important complementary assets such as a strong global brand, manufacturing facilities and a sophisticated R&D lab in speaker technology.

This constituted a critical lead-user role in the first development of switched amplifier modules for Beolab 1 as well as in the subsequent development for the much more ambitious high-end speaker, Beolab 5 (launched in 2003).

The very first pioneers of class D amplifiers were Philips, Toccata and Tripath, launching products in 1998. In 1999, ICEpower and Texas Instruments joined in, and during the following 4 years, numerous semiconductor incumbents as well as startups dominated the wave of new products. (Fig. 2 shows the cumulative number of firms’ first launches over the period 1997–2004). By early 2004, we have identified 25 firms with at least some activity in the area (see Table in Appendix B). They can be divided into three groups: First, a number of small startup ventures like the Danish ones, including Apogee (USA), JAM Technologies (USA), NeoFidelity (Korea), and Tripath (USA); sec-

Fig. 2. Accumulated number of firms’ first product launches within class D amplification.

ond, a group of large vendors of semiconductors and digital signal processing chips, for example National Semiconductor and Texas Instruments; third, a small group of large-scale AV OEMs, including Philips, Sony and Sharp.

A little over half of these firms are based in the US, and the great majority are associated with the semiconductor industry rather than the AV industry. Several of the startups were established in close cooperation with universities prior to their founding (besides the two Danish ventures, Mueta, Powerphysics and Pulsus). With the exception of Sony and Philips, the large AV OEMs have either refrained from or been comparatively slow in developing in-house switched amplification systems.

Important features of Open Innovation have been critical in leveraging innovation processes in small high-tech startups. During the early/mid-1990s, class D technology witnessed a significant breakthrough in a university or “Open Science” context. As the commercial prospects of this breakthrough materialized towards the end of the 1990s, young researchers left the academic community to become entrepreneurs exploring the commercial opportunities of this technology.

While maintaining their academic relations and recruiting young engineers from the thriving research community, they engaged in transforming the science-based knowledge foundations into a practical technological device. That included closing the window of Open Science through the development of proprietary IP assets protected either by patents or by the very complexity of

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

the knowledge. But on the other hand, acknowledging the embryonic nature and systemic properties of this technology, and the need for complementary assets, these entrepreneurs early on realized that they would not be able to mature and commercialize the technology on their own. While “closing” their technology base from potential rivals, they had to open up for complementary partners. In the Danish context, these university-spin-offs were, from the very start, able to link up with nationally available partners (Bang & Olufsen and Audio Nord) possessing complementary knowledge and other assets in manufacturing, distribution and marketing specialized for the high-end AV market, where the new and still not cost-competitive technology would most likely carve out a niche position. Hence, while the small technology suppliers, in close relations with university scientists, could take the science base and transform it into a workable technology, they could not, on their own, take the next steps of maturing and adapting the technology for the market-place. In the two Danish cases, the highend OEMs would specify user-requirements to the technology and bring it into HIFI niche markets that would combine high performance requirements, low price sensitivity and great fascination for new technology.

According to Gans and Stern (2003), technology entrepreneurs may either commercialize their technology through establishing a novel value chain on their own, implying a relatively closed mode of innovation, or through integrating their technology into an existing value chain, involving intimate cooperation with established players. The latter will generally be the choice if incumbents possess complementary assets which can contribute to the value proposition from the new technology. Gans and Stern (2003) are particularly concerned with the contractual hazards that technology entrepreneurs face when aligning with incumbent owners of complementary assets, exactly because these incumbents also tend to be the market players with the strongest incentives to expropriate the innovator’s technology and commercialize it themselves (Gans and Stern, 2003, p. 334).

Both Toccata and ICEpower acknowledged the need to link up to an existing value chain and align with incumbents controlling key complementary assets (Audio Nord and Bang & Olufsen). The fact that they both engaged in value propositions/chains in exclusive

1541

niche markets can be explained by the very embryonic nature of the technology, making it immature for the AV mass markets, and by the local availability of AV OEMs operating in exactly these niche markets. Moreover, the alignments with Audio Nord and Bang & Olufsen reflected a way of engaging in partnership under conditions of relatively symmetric bargaining power and avoiding the contractual hazards of engaging in cooperation with large incumbents with strong incentives to expropriate their technology. Toccata and ICEpower possessed the technology, and Audio Nord and Bang & Olufsen possessed key complementary assets and had – prior to these alignments – lacked both realistic opportunities (knowledge-wise) to engage in R&D in switched amplification, and economic incentives to do so since they had no legacy in traditional amplification technology.

From the perspective of the high-end OEMs, there is evidence of Open Innovation in the sense that both companies obtained access to new external technology that made it possible to launch genuine innovations in the market-place. For Audio Nord, access to Toccata’s technology provided an opportunity to make a high-profile launch of the world’s very first fully digital amplifier. It demonstrated to the rest of the audio-visual industry and its customers that this technology was, although still expensive, a high-quality alternative to traditional technology. Even if Audio Nord in this way earned an image of being a hightech innovator, in practice, it remained a supplierdominated (Pavitt, 1984) OEM player with no ambitions to build deep technical capabilities in the new technology. By contrast, Bang & Olufsen acquired the ICEpower team, made it a separate, nearly fully owned subsidiary, and engaged in advanced lead-user interaction with the amplifier engineers in order to develop a HIFI speaker with the unique feature of having integrated a class D amplifier. Thus, Bang & Olufsen not only played the role of a supplier-dominated provider of operational assets. The speaker engineers engaged in a close and challenging technical dialog with the amplifier specialists making it more rational, from a transaction cost perspective, to assume effective cooperation through vertical integration (Monteverde, 1995). In both cases, the new technology came from external sources, but while the technology remained external to Audio Nord, in Bang & Olufsen we see a move from Open Innovation (when “importing”

1542

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

the external technology agents) towards more closed innovation.5 In the embryonic stage of class D technology, successful innovation required the alignment not only of three complementary types of innovative assets: science-based assets, high-tech product design assets, and lead-user assets (Christensen, 1995; von Hippel, 1988), but also the usual operational types of complementary assets such as manufacturing, distribution and marketing (Teece, 1986; Christensen, 1996). As we have seen, this occurred through a dynamic interplay between university research (providing science-based assets), specialized high-tech startups (providing the design and product technology parts) and small and medium-sized high-end OEMs (providing lead-user assets and operational complementary assets). Hence, the technology entrepreneurs opted for value propositions along existing value chains in which the parties would not become rivals, and in which commercialization would not pose a threat to the dominant incumbents within AV consumer electronics. Instead, the large incumbents could become interested in future cooperation with those pioneers who had demonstrated capabilities in showing the way through the embryonic phase of a new technological regime with much broader prospects.

These particular cases of innovation strategies support the results from Shane’s (2001) study of dimensions of technology regimes favoring firm formation.

Especially, firm formation is more likely when technical fields are younger, when patents are effective, when complementary assets in marketing and distribution are less important, and when there are good options for market segmentation. In our cases, the decisive factors for making successful startup strategies possible have 5 In fact, we can, in the Bang & Olufsen case, observe a process of partial re-externalization of the amplifier business. Karsten Nielsen and his team first worked at the acoustics R&D center close to the Bang & Olufsen Headquarters in a small town in Jutland, Denmark.

Somewhat later, after the early development of the Beolab speakers, was the team formally established as a nearly fully owned subsidiary (ICEpower), and as a distinctive unit organizationally, physically and financially separated from the rest of Bang & Olufsen. ICEpower was relocated to the Copenhagen area very close to Technical University of Denmark. This governance structure would make it possible for ICEpower to pursue a strategy as a fairly autonomous OEM provider of amplification modules and technology and at the same time not close the option for Bang & Olufsen of a later spin-off of ICEpower to another owner.

been the particular combination of embryonic technology, relatively effective patents and good opportunities for market segmentation, while the role of complementary assets cannot be characterized as of little importance.

7. The maturing phase: the evolving strategic game In 1999, with a small group of specialized technology suppliers having demonstrated the viability of switched amplification in high-end niche markets, the strategic game proliferated in different directions. It was clear that the small technology specialists on their own would not be able to bring the new technology to maturity and penetrate the larger audio market segments. The questions regarding which technical design approach to follow, which AV products to adapt to (speakers, DVD receivers, etc.), which market segments to pursue (high-end versus mid- or low-end), whether to focus on discrete amplifiers or chips-based amplifiers, and which partners to align with, remained open. We shall here trace the evolving strategies of Toccata/Texas Instruments and Bang & Olufsen ICEpower, reflecting the two principal routes for developing and commercializing digital amplification technology, the one pursuing chip-based solutions for the medium- to (eventually) low-end markets, the other discrete module solutions for high-end markets.

Through the successful launch of Audio Nord’s TACT Millenium amplifier, Toccata’s Equibit technology had become acknowledged within the global HIFI audio community. However, the small royalties that Toccata gained from this amplifier would not sustain the further development of the small firm’s leading position in digital amplification. For the management team in Toccata, the vision was to engage in transforming digital amplification into chip-based solutions.

This was clearly outside both the financial and competence scope of the small company although the chiporiented trajectory was obvious since the modulator part of Toccata’s digital amplifier was described in the very high speed integrated circuit hardware description language (VHDL) that is broadly used for design of integrated circuits. In the search for an appropriate new partner for this endeavor, Toccata’s reputation proved an invaluable asset. After having explored part-

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

nership opportunities with some other semiconductor companies, Toccata was approached by Texas Instruments (TI). Just prior to this, TI had demonstrated its commitment to engage in this new field through two acquisitions. First, TI had obtained a strong position in catalog analog semiconductors for power management through the acquisition of Unitrode, a major supplier of power management components. Secondly, TI had acquired Power Trends, a leading supplier in the fast-growing market for point-of-use power solutions. Partly through these acquisitions, TI had come to possess key complementary components and knowledge necessary for transferring digital amplification technology into chip design.6 Furthermore, TI was recognized as one of the world’s most cost-efficient chip manufacturers.

Initially, a license contract was signed, providing TI rights to use Toccata’s technological knowledge (1 year exclusivity and to IC manufacturing only), and supplying Toccata with down payments. In March 2000, following a mutual recognition that the technology transfer from Toccata to TI and the chip design project was showing more complex than expected, TI came up with an acquisition offer and eventually, after some negotiation, purchased Toccata (the price is not disclosed). Through the acquisition, TI reduced the vulnerability and uncertainties from being dependent on critical core capabilities located in an independent firm, and eliminated further contracting issues (as well as future royalty outlays). TI moved quickly to integrate the diverse R&D activities in digital amplification in order to ensure a more effective design process. The main challenges in chip design were on the hardware side which is difficult to model, particularly with regards to semiconductors, while the software side was well defined. Later the same year (2000), TI could launch its first generation of digital amplifier chips. By late 2003, TI was producing its fourth generation chip in the millions. TI’s digital amplification chips consist of a modulator and an output stage, made in two separate silicon processes.

Total integration, though technically possible, is still considered too costly. TI is thus focused on developing new processes that will lower production costs and facilitate such integration in the future.

6 http://www.ti.com/corp/docs/press/company/1999/c99041.shtml, http://www.ti.com/corp/docs/press/company/1999/c99055.shtml.

1543

TI has in particular targeted the DVD-receiver segment, which stands out as perhaps the only AV segment experiencing consistently high annual growth rates (in recent years around 30–40%). The DVD receiver aspires to become the core unit of the ‘home-theatre entertainment system’, clearly one of the core units for integrating amplifier chips. By early 2004, the highend DVD-receiver market was experiencing nearly full penetration of digital amplification, while linear technology still remained cost-competitive in the lowend mass market.

This story illustrates a small technology entrepreneur’s wish to radically change its innovation strategy (value proposition) and move away from the fairly protected niche market into the large mass markets.7 This strategic move reflected the maturing of the new amplifier technology. In linking up with TI, Toccata jumped unto the mainstream value chain for AV markets and into the arms of a large incumbent, which not only controlled key complementary assets, but also had strong incentives to control the core technology. In other words, this is an exemplary case of the difficulties, extensively discussed in Gans and Stern (2003), of aligning with a powerful complementary player and potential rival.

The second Danish technology supplier, ICEpower, pursued an entirely different strategy, directed at discrete (rather than chip-based) modules and with an initial focus on applications in the high-end speaker market. This strategy, which represented continuity rather than change, was strongly influenced by ICEpower’s close ties to Bang & Olufsen, the world’s fourth largest speaker manufacturer, with strong emphasis on sound quality and aesthetic design. ICEpower was from the start encouraged to develop nearly complete switched amplifier modules, not only the core components, for integration into Bang & Olufsen’s speakers.

The small size of these modules relative to conventional amplifiers offered Bang & Olufsen much greater freedom when addressing aesthetic and functional concerns in speaker design. Technical development was directed at improving the quality features of the amplifier modules based on discrete standard components.

7 Even if TI initially addressed a particular segment of the AV markets (DVD receivers), which showed to be particularly well-suited for introducing chip-based amplifiers, the strategy represented a critical step of bringing digital amplifiers into a mass market.

1544

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

After the early exclusive focus on amplifiers for the captive market of Bang & Olufsen’s HIFI speakers, ICEpower modules were increasingly developed for frictionless plug ’n play with other vendors’ speaker systems.8 While most of the other specialized suppliers of digital amplification technology moved into amplifier chips or aspects of the technology underlying chips design (especially the front-end modulator part), ICEpower was among the first suppliers of switched amplifiers to develop a full amplifier module. Besides addressing the same high-end AV consumer segments that Bang & Olufsen serves, ICEpower has also targeted another high-end audio area, namely professional audio (e.g. equipment for concerts and sound recording studios). The company has established market relations with speaker producers such as Acoustic Reality and Foster Electric, as well as with semiconductor companies and large AV OEMS (e.g. supplying amplifier modules for Sony’s subwoofers), to whom ICEpower either sells standard modules or develops customized amplification solutions. ICEpower is currently the leader in class D modules for the high-end markets.

Since 2002, ICEpower has also developed a chiporiented strategic arm through a licensing contract with Sanyo, who is one of the absolute leaders in analog amplifier hybrid modules for many AV markets and possesses strong competencies in cost-efficient massproduction, distribution and sales. The contract allows Sanyo to use ICEpower technology in its design of amplifier chips for both analog and digital platforms, and assures ICEpower a per unit sold royalty rate. After about 2 years of R&D cooperation and technology transfer, Sanyo started shipment of chipsets on license at the end of December 2004.

This case has demonstrated that small technology entrepreneurs may have other options than aligning with large incumbents/rivals. ICEpower has through its alignment with Bang & Olufsen survived by further exploring up-market segments which have so far not been within effective reach by the larger vendors’ chip-based solutions.

In the more mature stage of this technology, we have seen most of the small technology specialists trying to move beyond the high-end/HIFI scope of the 8

This may be a contributing explanation for the organizational and locational decoupling of ICEpower from Bang & Olufsen’s speakers lab as mentioned in note 5.

early commercial experiments by efforts to develop the technology for chip-based penetration into the larger AV markets. However, none of the small players have been able to take these decisive steps on their own.

Instead, they have aligned with large semiconductor companies, as we have seen with the takeover of Toccata by TI and ICEpower with Sanyo. Two other distinctive small technology specialists in class D amplification, Apogee and Tripath, both fabless semiconductor IP firms, have engaged in alliances with STMicroelectronics (especially Apogee), United Microelectronics Corporation (Tripath) and other companies for testing and assembly operations. The small Korean class D specialists, Pulsus and NeoFidelity, were founded by employees from the Korean AV giants, Samsung and LG Electronics, with whom they also established supplier relations.

Generally, the targets of alliance formations have changed from high-end OEMs providing complementary assets such as marketing and lead-user feed-back in product development during the pioneering phase, to large-scale semiconductor component suppliers, in the more mature phase, providing advanced complementary R&D inputs to chip design (including systems-ona-chip skills), advanced semiconductor manufacturing assets, and strong global marketing and distribution assets.

In order to move into the broader mass markets, the small specialized technology suppliers become deeply embedded in a type of Open Innovation milieu implying strong dependency on powerful complementary competencies in other firms. This not only applies to the mobilization of operational types of complementary assets (marketing, distribution, manufacturing, etc.) that Teece primarily adheres to in his 1986 paper in Research Policy. It also applies to the further leveraging of the very core of the innovation process, for which specialized suppliers are bound to embark on the risky endeavour of aligning their IP assets with complementary innovative assets controlled by large-scale component incumbents.

8. Discussion and conclusion This article has sought to situate the concept of Open Innovation in an industrial dynamics perspective. We have studied how differently positioned

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

commercial players in a sectoral system of innovation pursue different innovation strategies to leverage a technological regime characterized by a rich opportunity set and a complex and distributed knowledge base.

In such a context, Open Innovation implies that firms will depend on critical external knowledge assets for the successful realization of their innovative endeavors.

The main proposition of this article is that the specific modes in which different companies manage Open Innovation with regard to an emerging technology reflect their differential position within the innovation system in question and the stage of maturity of the technology, along with their choice of value proposition.

The story of the emerging new amplification paradigm in consumer electronics has demonstrated substantial variation in the modes of practicing Open Innovation. Combining a system of innovation framework to identify the complementary agents of innovation, and a technological regime perspective to identify the different technical and organizational requirements for innovation in different stages of the technology cycle, has proven fruitful in analyzing the complex mechanisms of coordination and interactive learning processes (Lundvall and Vinding, 2004). The knowledge base necessary for leveraging the embryonic class D technology was (and still is) complex. It has required the mobilization of different specialized knowledge areas, including those associated with the front-end/modulator stage and the output stage, chips design and manufacturing, the integration of the various components into a complete amplifier module, and the integration of the amplifier module into the particular end-product systems. The innovation system of consumer electronics comprises four categories of firms that have played important complementary roles in the technological evolution of class D amplification: small technology-based firms (for the most part startups), small or medium-sized AV OEMs, large-scale component providers and large-scale AV OEMs. Moreover, university research played a decisive role in the early stages, providing the essential point of departure for several of the technology-based startups.

In this article, we have not made any systematic and in-depth study of the response to this new technology by the large AV OEMs. Suffice it to say that most of the large AV OEMs have been reluctant to engage in in-house R&D in this field, and seem to have embarked on an outsourcing strategy. Only Sony and

1545

Philips have made offensive steps to develop their own amplifier systems, and Sanyo has tried to catch up through a license contract with ICEpower.

Small technology-based firms are – at best – able to set the agenda for upcoming technological innovation founded on a core of highly specialized and deep technical knowledge (Bhide, 2000; Gans and Stern, 2003; Giarratana, 2004; Shane, 2001). In order to become technologically mature and commercially viable, the innovation process needs complementary contributions from different types of players. In the early stage of the technology cycle, the major challenge to hightech startups is twofold. First, they must establish a deep technology base that can be well-protected from quick imitation or replication. Secondly, through codification, documentation and communication they must make this technology base attractive in the eyes of one or more complementary players, and try to persuade them to engage in cooperative efforts to create functional solutions and to test market potentials. As we have witnessed in the case of switched amplification technology, small technology-based firms may start out exploring commercial opportunities in cooperation with smaller established players with the complementary assets to commercialize the new technology in high-end niche markets. In such partnerships, the small startup would have the advantage of a more balanced bargaining relation than would generally be feasible when immediately partnering up with a much larger incumbent. If both parties in this relationship are located in the same national and cultural industrial environment, the risks of opportunistic behavior may be reduced and heavy contractual and coordination costs may be avoided. Examples can be seen in the cases of two Danish ventures. Each linked up with an OEM provider, thus facilitating the early launch of their pioneering technologies.

However, as the technology becomes more mature, and large incumbents acknowledge the future prospects of the new technology for the global mass markets, the coordination role is likely to change. In order to continue playing an active (and profitable) role in the further propagation of the new technology beyond the niche markets, the small technology-based supplier will have to engage in negotiating and cooperating with one or more of the heavyweight incumbents, and that is likely to incur much higher transaction costs. Small firms may establish a bargaining power comparatively

1546

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

stronger than their size would otherwise indicate if they are able not only to control critical technological knowledge and to signal a promising future for this technology through, for example, a good reputation among professional lead-customers, but also to successfully partner up with large companies committed to Open Innovation. Such commitment would imply the consistent avoidance of short-term opportunistic appropriation behavior in order to leverage a reputation for and competence in long-term relational contracting and fair and effective inter-firm cooperation (see the extended outline of this phenomenon in Gans and Stern, 2003 and the theoretical justification in Dyer and Singh, 1998). However, in practice, alliances and licensing contracts between technology entrepreneurs and large incumbents often suffer from heavy coordination costs, including contractual renegotiation costs that can make the alliances quite ineffective. There are at least three reasons for this. Firstly, problems of asymmetric information and bargaining power may arise in a context of continuous technological uncertainties and changing requirements for upgrading and trade-offs in design choices. Secondly, there can be problems of subtle economic incentive conflicts and associated opportunistic behavior in dealing with, for instance, the sharing of rents from the joint technological development. Thirdly, differences in traditions, procedures, norms and language between the parties may reinforce problems of communication and trust.

In the transition stage of the technology cycle, the small technology suppliers are likely to suffer (and eventually exit or being acquired) if they are not able to engage in such more intricate partnership relations.

However, the partnership may also be the beginning of an interactive learning process that may for some period become stabilized based on a mutual recognition of the continued options for innovative synergies between the two parties. This seems to have been the case for a couple of years in the relationship between Apogee and STMicroelectronics. Alternatively, the partnership may represent the first steps towards a takeover of the small firm by the large incumbent (like the case was with TI’s acquisition of Toccata).

Or the small firm may become squeezed in the next round of royalty negotiations, when the technology has been transferred to the incumbent, whose incentives for continuous profit-sharing is therefore likely to decline.

In any case, small technology entrepreneurs are bound to attempt to close their technology base, while at the same time opening up for partnering with holders of complementary assets, even if this means a high risk that the latter end up appropriating critical parts of their technology without a fair compensation.

From the large incumbents’ perspective, Open Innovation implies more of a reactive than proactive response to the challenge of the new technology, at least to the extent that technology-based startups have pioneered the embryonic stage of the technology cycle. In the amplifier case, two categories of incumbents, differently positioned in the innovation system of consumer electronics, had clear incentives to “embrace” the new technology, the “pure play” semiconductor companies and the AV OEMs with a strong legacy in the old linear amplifier technology. Two large-scale component companies, TI and STMicroelectronics, have managed to establish leading positions in the market for chip-based digital amplification through the use of comprehensive up-front strategies of Open Innovation involving alliance building or acquisitions. An interesting inherent paradox of a strongly acquisition-based way of practicing Open Innovation is that the external sources of technology are fully integrated. Thus, a highly extrovert innovation strategy that is considered necessary for managing and controlling a technological discontinuity in the early stages of a new technology, is succeeded by a much more closed strategy in the subsequent rounds of follow-up innovations as the technology becomes more mature. We can hypothesize that as the new technology and its associated interfaces become routinized and standardized, another stage of Open Innovation will emerge, implying outsourcing and external partnering, as indicated in Chesbrough’s (2003a) study of the evolution of the hard disc drive industry. This shows that companies cannot freeze their modes of managing innovation into one particular set of routines, and that there are important cyclical aspects to innovation strategies.

In conclusion, we maintain that in the case of class D amplification, much of the variation in innovation strategies among different types of firms can be attributed to their differential point-of-departure positions within the innovation system and the stage of the technology cycle in which they initiated innovative efforts. While small firms were able to set the innovative agenda in the early stages, large incumbents

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

have tended to take over an increasingly dominant role in organizing and maturing the technology. However, even if the position in the innovation system and the stage of the technology provides an indicator of the scope and limits of innovation strategies open to different firms, the specific timing and framing of the innovation strategy, including the level of openness and the choice of complementary partners, is far from fully preempted by the initial structural position of the firms.

Indeed, most successful innovation strategies entail not only firm-specific inputs of technical and managerial skills, a good analysis of the innovative opportunities and the competitive and cooperative context and an entrepreneurial vision. Successful strategies also entail the abilities or luck to exploit more or less coincidental opportunities emerging outside the boundaries of the firm. In other words, the firm-specific choices of innovation strategy and business model matter and these choices may have to be made in a context of many unknown and unknowable factors. Pavitt (1990, p. 20) eloquently phrases this issue as follows: “In many areas, it is not clear before the event who is in the innovation race, where the starting and finishing lines are, and what the race is about”.

But in any case, trying to understand the global innovation system, the nature and stage of the technological regime, and the particular coordination requirements, are necessary preconditions for devising an effective innovation strategy, including its level and mode of openness vis-`a-vis complementary partners.

Acknowledgements We gratefully acknowledge the comments on previous versions of this paper from Lee Davis, Keld Laursen, Peter Lotz, Ron Sanchez, Jim Shanahan, Nils Stieglitz, Daniel Sweeney, John Zysman and

1547

two anonymous referees. We also acknowledge the CISTEMA funding from the Danish Social Science Research Council. The usual disclaimer applies.

Appendix A. List of interviewees • Michael A.E. Andersen, Professor, Technical University of Denmark (interviewed 28 October 2003).

• Niels Anderskouv, Vice President of Digital Audio & Video, Texas Instruments (interviewed 19 December 2003).

• Lars Michael Fenger, Research and Technology Access Engineer, Bang & Olufsen ICEpower (interviewed 9 September 2003).

• Karsten Nielsen, founder and Chief Technical Officer, Bang & Olufsen ICEpower (interviewed 12 November 2003).

• Steen Klint Pedersen, Global Sales Manager, Bang & Olufsen ICE power (interviewed 9 April 2002).

• Poul Præstgaard, Senior Technology and Innovation Manager, Bang & Olufsen (interviewed 21 October 2003).

• Lars Risbo, founder of Toccata Technologies and Strategic Research Manager, Digital Audio & Video, Texas Instruments (interviewed 6 October 2003).

• Jim Shanahan, founder of and VP of Marketing in Jam Technologies (correspondence via e-mail, April 2004).

• Daniel Sweeney, technology expert and author of Forward Concept’s report on the emerging class D market (Sweeney, 2004) (correspondence via e-mail, June–October 2004).

Appendix B. Companies with in-house class D amplifier products in 2004

Company name

Country

Products/servicesa

Introduction of first product

Turnover in 2002/2003 (US$ million)

Small specialized companies Apogee (1995)b Bang & Olufsen ICEpower (1999)c Champion Microelectronics (1999) D2Audio Corporation (2002) JAM Technologies Inc. (1999)

USA Denmark Taiwan USA USA

Chips/IP Modules/IP Modules Modules IP

1999 1999 2002 2002 2003

5 (11.1) 4 (6.9) N/A N/A 0.5

1548

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

Appendix B. (Continued ) Country

Products/servicesa

Introduction of first product

Turnover in 2002/2003 (US$ million)

Monolithic Power Systems (1997) Mueta (2001) NeoFidelity Inc. (2000) Powerphysics (1998) Pulsus (1999) Toccata Technology (1997–2000)d Tripath (1995)

USA Netherlands Korea USA Korea Denmark USA

Chips IP Chips Chips/modules Chips/modules IP Chips

2002 – 2001 2000 2000 Early 1998 End of 1998

12.2(24.2) N/A N/A N/A N/A – 16.2 (13.9)

Large component incumbents Analog Devices Crystal Semiconductors/Cirrus Logic Maxim Microsemi Motorola Semiconductor e National Semiconductor STMicroelectronics Texas Instruments Wolfson Microelectronics Zetex

USA USA USA USA USA USA Switzerland USA UK UK

Chip Chips Chips Chips Chips Chips Chips Chips Chip Chips

2003 2003 2000 2000 2000 End of 2002 2002 1999 2004 2000

1.700/2.047 417/262 1.025/1.153 213/197 26.700/4.864 1.494/1.672 6.318/7.238 8.380/9.834 34/76 139/163

Large AV incumbents Philips Electronics Sharp Sonyf

Netherlands Japan Japan

Chips Modules Modules

1998 End of 1999 2001

31.820/29.037 17.179/19.078 57.117/63.264

Company name

Source: Website of the individual companies, http://www.classd.com/, http://www.puredigitalaudio.org/. a We roughly distinguish between three products/services: amplifier chips (termed chips), amplifier modules (termed modules) comprising the complete amplifier system whether exclusively based on discrete components or also containing amplifier chips, and technological knowledge or intellectual property (termed IP). The latter is an element of most of the firms’ offerings, but IP is only mentioned where tangible products could not be identified on the firm website. b Apogee made speakers since 1987, but chose to discontinue this business in 1995 to exclusively focus on its digital amplification technology, DDX. STMicroelectronics and Apogee began collaborating on the DDX development in early 2001 under the terms of a technology licensing agreement, later expanded to a joint development agreement in March, 2002. c Even if Bang & Olufsen has a majority stake in ICEpower it has here been registered as a startup because it has largely operated as an autonomous module supplier with a strong entrepreneurial leadership and an R&D team based in the digital amplifier research community at Technical University of Denmark. d Toccata was in 2000 acquired by Texas Instruments. e Today called Freescale Semiconductor. Previously, the semiconductor division of Motorola. f Previously in cooperation with Mitsubishi Semiconductor. Now with, among others, Texas Instruments.

References Abernathy, W.J., Utterback, J.M., 1978. Patterns of Innovation in Technology. Technology Review 80 (7), 40–47.

Bhide, A., 2000. The Origin and Evolution of New Businesses.

Oxford University Press.

Braun, E., Macdonald, S., 1982. Revolution in Miniature. The History and Impact of Semiconductor Electronics, second ed. Cambridge University Press, Cambridge.

Breschi, S., Malerba, F., Orsenigo, L., 2000. Technological regimes and schumpeterian patterns of innovation. The Economic Journal 110 (463), 388–410.

Carlsson, B., 1989. Industrial dynamics: an overview. In: Carlsson, B. (Ed.), Industrial Dynamics. Technological, Organizational, and

Structural Changes in Industries and Firms. Kluwer Academic Publishers, Boston.

Carlsson, B., 2003. The new economy: what is new and what is not?

In: Christensen, J.F., Maskell, P. (Eds.), The Industrial Dynamics of the New Digital Economy. Edward Elgar, Cheltenham, UK. Chesbrough, H., 2003. Open Innovation: The New Imperative for Creating and Profiting from Technology. Harvard Business School Press, Cambridge, MA. Chesbrough, H., 2003a. Towards a dynamics of modularity. a cyclical model of technological advance. In: Prencipe, A., Davies, A., Hobday, M. (Eds.), The Busines of Systems Integration. Oxford University Press.

Christensen, J.F., 1995. Assets for technological innovation.

Research Policy 24, 727–745.

J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549 Christensen, J.F., 1996. Analyzing the technology base of the firm.

In: Foss, N.J., Knudsen, C. (Eds.), Towards a Competence Theory of the Firm. Routledge, London.

Cohen, W., Levinthal, D., 1990. Absorptive capacity: a new perspective on learning and innovation. Administrative Science Quarterly 35 (1), 128–152.

Dyer, J.H., Singh, H., 1998. The relational view: cooperative strategy and sources of interorganizational competitive advantage.

Academy of Management Review 23 (4), 660–679.

Edquist, C. (Ed.), 1997. System of Innovation. Frances Pinter, London.

Foster, R., 1986. Innovation: The Attacker’s Advantage. Summit Books, New York.

Gans, J.S., Stern, S., 2003. The product market and the market for “ideas”: commercialization strategies for technology entrepreneurs. Research Policy 32 (2), 333–350.

Giarratana, M.S., 2004. The birth of a new industry: entry by start-ups and the drivers of firm growth. The case of encryption software.

Research Policy 33 (5), 787–806.

Lammers, D., 2003. Startup bets on drop-in digital amps. Electronic Engineering Times, Friday, October 31. http://www. eetimes.com/showArticle.jhtml?articleID=18309565. ˚ 1992. National Systems of Innovation. Towards A Lundvall, B.-A., Theory of Innovations and Interactive Learning. Pinter, London. ˚ Vinding, A.L., 2004. Product innovation and ecoLundvall, B.-A., nomic theory—user–producer interaction and the learning econ˚ (Eds.), Product omy. In: Christensen, J.L., Lundvall, B.-A. Innovation, Interactive Learning and Economic Performance, Research on Technological Innovation. Management and Policy, vol. 8. Elsevier Ltd., Oxford.

Malerba, F., 2002. Sectoral systems of innovation and production.

Research Policy 31 (2), 247–264.

Malerba, F., Orsenigo, L., 1997. Technological regimes and sectoral patterns of innovative activities. Industrial and Corporate Change 6 (1), 83–117.

McKelvey, M., 2003. Changing boundaries of innovation systems: linking market demand and use. In: Prencipe, A., Davies, A., Hobday, M. (Eds.), The Business of Systems Integration. Oxford University Press, Oxford.

1549

Merrill Lynch, 2001. EMS Outsourcing Survey—Navigating the Next Generation of Outsourcing. Merrill Lynch Inc. Merrill Lynch, 2002. EMS—Coming of Age. Merrill Lynch Inc. Merrill Lynch, 2003. EMS Outsourcing Survey—Growin’up. Merrill Lynch Inc. Monteverde, K., 1995. Technical dialog as an incentive for vertical integration in the semiconductor industry. Management Science 41 (10), 1624–1638.

Pavitt, K., 1984. Sectoral patterns of technical change: towards a taxonomy and a theory. Research Policy 13 (6), 343– 373.

Pavitt, K., 1990. What we know about the strategic management of technology. California Management Review 32 (3), 17–26.

Pavitt, K., 1998. Technologies, products and organization in the innovating firm: what Adam Smith tells us and Joseph Schumpeter doesn’t. Industrial and Corporate Change 7 (3), 433– 452.

Robertson Stephens Inc., 2001. EMPS Continues to Perform Admirably—Outsourcing and Diversification Continue to Benefit Industry. Robert Stevens Inc. Rodman & Renshaw, 2003. Tripath Technology, Media Technology, Market Outperform/Speculative Risk. Rodman & Renshaw, LLC. Rosenberg, N., 1982. Inside the Black Box: Technology and Economics. Cambridge University Press, Cambridge.

Shane, S., 2001. Technological regimes and new firm formation.

Management Science 47 (9), 1173–1190.

Sweeney, D., 2004. Emerging Markets for class D Power Amplification. Forward Concepts, http://www.fwdconcepts.com/.

Teece, D.J., 1986. Profiting from technological innovation: implications for integration, collaboration, licensing and public policy.

Research Policy 15 (6), 285–305.

Tushman, M.L., Andersen, P., 1986. Technological Discontinuities and Organizational Environments. Administrative Science Quarterly 31 (3), 439–465.

UBS Investment Research, 2003. Electronics Manufacturing Services. UBS. von Hippel, E., 1988. The Sources of Innovation. Oxford University Press, New York.