Book summary “Wikinomics”: summary

Introduction

You face a business environment where traditional command-and-control hierarchies struggle to keep pace with rapid technological shifts and networked competitors. The old ways of managing proprietary silos and keeping customers at arm's length leave you vulnerable to agile challengers. You need a new model for organizing work, generating ideas, and capturing value across borders.

This book introduces wikinomics as the new art and science of mass collaboration, driven by the foundational pillars of openness, peering, sharing, and acting globally. You will discover how these principles transform every aspect of enterprise strategy.

The book explores this transformation across open source software, external research networks, and participatory consumer ecosystems. You will learn how collaborative science and global manufacturing platforms rewrite the rules of competition. The chapters ahead answer critical questions about your future operations:

• How do you harness external talent through open innovation marketplaces?
• In what ways can you turn passive customers into active co-creators?
• What steps must you take to dismantle internal corporate silos safely?

1. The Age of Participation

Information technologies and the Net Generation are dismantling traditional corporate boundaries through peer production and transparent value creation.

The New Web

The Web has evolved from a static publishing medium into a dynamic platform where users actively participate, cocreate, and program services together. In 2006, programmable platforms eclipsed static ones across categories: Flickr beat Webshots, Wikipedia beat Britannica, Blogger beat CNN, Epinions beat Consumer Reports, Google Maps beat MapQuest, MySpace beat Friendster, and Craigslist beat Monster.

Science-fiction writer and Boing Boing coeditor Cory Doctorow used his high-traffic blog to document Sony-BMG's DRM rootkit fiasco, turning it into a public relations firestorm that cost the company dearly.

The Demographic Watershed

The Net Generation, growing up interacting with digital technologies rather than passively consuming media, brings a profound collaborative ethos to society. This demographic cohort, born between 1977 and 1996, numbers over two billion globally. Over half of online American teens act as content creators, producing blogs, sharing original artwork, or building animé music videos by synchronizing Japanese art with popular tracks.

Jennifer Corriero and Michael Furdyk cofounded TakingITGlobal, which engages 110,000 members across nearly 200 countries in youth-led development projects and collaborative global education.

The Collaboration Economy

The Internet drastically reduces transaction costs, causing traditional vertically integrated corporations to shrink in favor of open business webs.

Ronald Coase originally explained that firms expand internally because searching, contracting, and coordination costs on the open market are too high. Today, Internet technologies slash these transaction costs, enabling external business webs to outperform monolithic corporations.

The MP3 business web emerged when decentralized groups of teenagers, content sites, and distribution tools like Napster bypassed traditional record labels, costing the industry millions.

2. The Principles of Wikinomics

Traditional business models focused on tight control, proprietary isolation, and hierarchical management are failing. Networked models now reward transparency, horizontal collaboration, and planetary scale.

The new art and science of wikinomics rests on four foundational principles: openness, peering, sharing, and acting globally.

Being Open

Making corporate boundaries porous to external ideas, standards, and transparency improves trust and drives innovation. Firms that share operational, financial, and technical information benefit from lower costs and enhanced loyalty.

Progressive Insurance openly shares both its own prices and those of its competitors with customers, building deep customer trust.

Peering

Horizontal peering networks provide a viable alternative to hierarchical command-and-control structures for creating complex products. Self-organized communities operate through voluntary coordination and meritocratic structures rather than top-down management.

In 1991, Linus Torvalds created Linux as a simple Unix version and shared it via an online bulletin board under a general public license, corresponding with 10 initial programmers. This effort grew into an informal organization of thousands of volunteer programmers producing foundational enterprise systems.

Sharing

Strategic sharing of intellectual property and infrastructure builds vibrant business ecosystems and accelerates technological breakthroughs faster than total proprietary isolation. Aggressively locking down intellectual property often restricts customer-driven innovation.

In 1999, over a dozen pharmaceutical firms abandoned proprietary R&D projects to support open collaborations like the SNP Consortium and the Alliance for Cellular Signaling. These firms shared basic genetic information to speed up molecular biology breakthroughs.

Acting Globally

Truly global enterprises must move beyond federated multinational structures with redundant regional fiefdoms to operate with unified global processes and IT platforms. In a borderless economy, duplication of local manufacturing and development efforts is severely punished by the market.

General Motors operated as a collection of separate brands with independent staff and procedures, generating billions of dollars in yearly duplication costs. CIO Ralph Szygenda and Vice Chairman Bob Lutz pushed toward a unified global operational structure to eliminate these inefficiencies.

3. A New Mode of Production

Peer production is a novel mode of creating goods and services through self-organizing, egalitarian communities acting voluntarily and nonmonetarily.

Peer production works most effectively when specific conditions regarding the object of production, task chunking, and integration costs are met. Following the London transport bombings on July 7, 2005, over twenty-five hundred Wikipedia users collaborated to create a detailed fourteen-page account of the event within a single day, outperforming traditional news outlets.

The Peer Pioneers

The California Open Source Textbook Project runs on wiki software to harness teachers' spare time to create world history texts, aiming to save taxpayers over $400 million every year.

IBM and the Open Source Experiment

IBM successfully reversed its historic proprietary strategy by integrating open source software like Apache and Linux into its core business, saving billions and shifting industry power. Companies looking to harness open source must follow specific strategic rules:

• play to your weaknesses by looking for areas where market efforts have floundered;
• take a balanced approach by integrating proprietary and open source models;
• adapt to community norms and clock speeds without criticizing until credibility is built;
• make open source a priority by involving senior leadership in oversight and strategy.

Dan Frye of IBM told his Linux development team to unplug from internal networks and communicate exclusively through the Linux community's preferred bulletin boards and chat rooms.

The Open Source Ecosystem

A second wave of open source is expanding beyond foundational plumbing into complex enterprise software applications, driven by start-ups offering affordable solutions. Medsphere provides open source hospital-management software for electronic health records at a quarter of the cost of proprietary systems, targeting small facilities with fewer than three hundred beds.

Harnessing peer production delivers vital business benefits, including tapping external talent, reducing costs, keeping up with rapid user innovations, and shifting the locus of competition.

4. The World Is Your R & D Department

Traditional R&D models often fail because internal talent is limited. Companies can dramatically accelerate innovation by sourcing ideas from external talent marketplaces and opening internal intellectual property portfolios.

Ideagoras

Ideagoras are emerging virtual marketplaces that connect innovation-hungry companies with a global pool of experts, ideas, and intellectual property. Modern ideagoras act as an eBay for innovation. They allow seeker companies to post unsolved problems or underutilized assets while specialized solvers and external partners submit solutions or license technologies.

Retired chemist Werner Mueller used InnoCentive to solve a raw material production problem for a pharmaceutical company, earning a $25,000 cash reward and turning his retirement hobby into a full-time consulting business.

Currently, 90,000 scientists from 175 countries are registered with InnoCentive, alongside 35 Fortune 500 companies. Solvers can win cash prizes ranging from 5,000 to 100,000 dollars.

Solutions in Search of Questions

Ideagoras generally operate in two main categories: solutions in search of questions and questions in need of solutions. Solutions in search of questions involve licensing out underutilized intellectual property that companies shelved due to costs or strategic mismatch. Questions in need of solutions involve posting unanswered R&D problems externally to tap into a broader network of external talent.

Online technology transfer marketplace yet2.com started out by helping companies like Boeing, DuPont, Honeywell, and P&G monetize mountains of unused intellectual property.

Procter & Gamble transformed its innovation strategy by shifting from an insular invention model to an open connect-and-develop approach. After discovering through an internal survey that it used less than 10 percent of its patented inventions internally, P&G opened up its portfolio for licensing and set aggressive targets to source a large percentage of new product ideas from outside its walls.

P&G used yet2.com to find Corium, a small company capable of commercializing a transdermal drug-delivery patch originally developed by P&G but left uncommercialized.

To implement this approach, you can follow these practices:

• Conduct basic stock taking on customer needs and growth opportunities.
• Direct external surveillance activities to top customer needs, adjacencies, and technology game boards.
• Employ technology scouts to mine literature, databases, and physical fairs for external opportunities.

Harnessing Ideagoras

Nascent technology marketplaces suffer from poor liquidity, making transactions significantly more complex than standard e-commerce exchanges. Unlike simple cash-for-goods transactions on eBay, technology transfers often involve equity exchanges, geographic exclusivity, technical testing, demonstrations, and ongoing technical assistance to ensure operational success.

Phil Stern of yet2.com notes that technology buyers must precisely describe their needs, evaluate multiple candidates, and secure organizational approval, which makes reaching a deal much harder than initially anticipated.

Shifting toward open innovation requires dismantling internal cultural barriers, such as the defensive mindset toward intellectual property and the not-invented-here syndrome. Companies must move away from treating IP merely as a defensive legal reserve and instead view it as an active profit center.

General Electric historically treated its IP strictly as a defensive tool until executive leadership noted how much revenue competitors like IBM generated from licensing practices.

You can embed these internal changes directly:

• Reward R&D professionals for spotting and acquiring external ideas alongside generating patents.
• Direct licensing revenues to the bottom line of the specific business units that invented them to build internal support.

5. Customers as Co-Innovators

Consumers are evolving into prosumers who actively design, customize, and hack products, turning consumption into a participatory activity.

Prosumers self-organize online to share product information, collaborate on customized projects, swap tips, and create their own product extensions without waiting for corporate invitations. Second Life users create virtual storefronts, clothing, and vehicles, with about 3,100 residents earning an average net profit of $20,000 a year among 325,000 participants in a virtual world generating an estimated turnover of $100 million dollars per year. Linden Labs produces less than 1 percent of its content, relying on users to generate 23,000 hours of free development effort every day. Anshe Chung runs a virtual real estate development company in Second Life, acquiring holdings that surpass a quarter of a million dollars.

Customer Co-Innovation Goes Self-Serve

Lead users who push the limits of existing technology and create their own prototypes serve as beacons for where mainstream markets are heading. BMW released a digital design kit on its web site to let interested customers design future telematic features like GPS navigation. Lego transformed its customer base into a decentralized virtual design team by embracing user tinkering and incorporating community innovations into official products through Lego Factory and Lego Mindstorms. At Lego World 2005 in the Netherlands, a participant revealed a fully functional pinball machine made from twenty thousand Lego blocks and thirteen programmable microchips.

The Prosumption Dilemma

Closed system architectures create a dilemma when loyal customers hack hardware to add advanced capabilities that the manufacturer refuses to support officially. Because the iPod is a closed system with a massive hard drive, impatient users developed software like Podzilla to run a pocket Linux environment. Hackers created Encyclopodia to carry Wikipedia on the iPod and figured out how to double the memory of an iPod Nano by soldering a chip from a broken unit bought on eBay. To succeed in the digital economy, you must stop fighting customer innovation and instead design modular, reconfigurable products that foster peer ecosystems.

You can apply these practical rules:

• Make your products modular, reconfigurable, and editable.
• Set the context for customer innovation and collaboration.
• Provide venues and build user-friendly customer tool kits.
• Supply the raw materials that customers need to add value to your product.
• Make it easy to remix and share.

6. The Science of Sharing

Plummeting computing and collaboration costs allow researchers to self-organize into large-scale networks. You can witness more scientific progress in the next fifty years than in the previous four hundred.

A new paradigm of collaborative science and precompetitive knowledge commons accelerates scientific progress and biomedical breakthroughs.

The New Alexandrians

Modern scientific projects handle petabytes of data using distributed grids and shared online databanks. The Large Hadron Collider at CERN processes petabytes of data with teams of thousands of physicists, while the Earth System Grid integrates supercomputing power for climate studies across distributed centers.

The Precompetitive Knowledge Commons

Companies can accelerate innovation and reduce costs by establishing a precompetitive knowledge commons, where competitors share basic foundational research while competing on final products. Merck and Washington University created the Merck Gene Index, releasing 800,000 gene sequences into the public domain to prevent biotech companies from locking up essential genetic inputs behind patents.

The SNP Consortium brought together eleven pharmaceutical firms, a nonprofit institution, and two IT firms, investing approximately $50 million to map 1.8 million single nucleotide polymorphisms by 2001.

Big Pharma Fights Back

Intel established exploratory research labs adjacent to UC Berkeley, University of Washington, Carnegie Mellon, and Cambridge, housing twenty company employees and twenty university researchers in each lab.

You can apply these practical rules:

• Use industry-university partnerships to shake up product road maps.
• Make sure the collaboration is a win-win.
• Deepen and broaden collaboration across research communities.
• Keep the science open and the applications proprietary.
• Learn from proxy customers early and often.

7. Platforms to the Rescue

Open platforms differ from prosumer communities by inviting various partners to build new businesses or add value on a broad stage, extending a company's productive capacity without increasing fixed costs.

Open digital platforms expose APIs and raw data to external developers, creating fluid ecosystems that drive viral growth and collaborative problem-solving.

Platforms for Web Services and Communities

Following Hurricane Katrina, David Geilhufe rallied tech volunteers, using screen scraping and a wiki built by Ethan Zuckerman to collect survivor data on katrinalist.net, ultimately processing 650,000 entries with contributions from about 3,000 volunteers.

Paul Rademacher created housingmaps by combining Google Maps and craigslist rental listings, but ultimately stepped back to join Google because he did not own the underlying data and faced low barriers to imitation.

Platforms for Commerce

Amazon provides functional building blocks, data fragments, and payment services to over a hundred thousand developers who create innovative applications. Developers created RefundPlease using Amazon pricing data to automatically notify customers of price drops and issue refunds, boosting customer loyalty.

Amazon offered its raw web index and A9 search technology database via pay-per-use web services to challenge traditional search engine giants. You can use these terms:

• Pay one dollar per CPU hour consumed.
• Pay one dollar per gig of storage used.
• Pay one dollar per fifty gigs of data processed.
• Pay one dollar per gig of data uploaded when publishing a new service.

Winning with an Open Platform

Flickr cofounder Caterina Fake defended nonmonetary rewards like attention and identity, while critics like Om Malik and Jeff Jarvis questioned whether unpaid user contributions unjustly enrich corporate entities. SAP opened up thirty thousand APIs to its enterprise software platforms, creating an ecosystem that includes over half a million independent developers.

8. Rise of the Global Plant Floor

The traditional hub-and-spoke multinational corporation is being replaced by a globally integrated enterprise that utilizes distributed networks to design and assemble physical goods. Manufacturing companies used to handle design and production internally through rigid hierarchies. Today you see winning firms open their boundaries to external knowledge and capabilities. By orchestrating collaboration across global value networks, companies reduce coordination costs and achieve greater efficiency and speed.

Traditional multinational manufacturers are being replaced by globally integrated enterprise networks that use modular architectures and shared collaborative environments.

Multibillion-dollar manufacturing specialists like Celestica, Jabil Circuit, Foxconn, Flextronics, and Solectron build complex electronic devices for consumer electronics companies while contributing to product design, testing, and distribution. Seventy to eighty percent of the new Boeing 787 is wholly designed and manufactured by global partners.

The Modular Motorcycle Gang

Modular product architectures enable peer production and collaborative manufacturing in heavy industries by allowing suppliers to independently build interchangeable components. By breaking complex physical products into modular components with standardized interfaces, you can enlist hundreds of lightly coordinated suppliers to design and build parts simultaneously. This decentralized approach lowers costs and accelerates development cycles compared to traditional top-down engineering.

In Chongqing, China, a self-organizing network of private motorcycle assemblers and specialized suppliers uses localized modularization to produce motorcycles in dense industrial clusters. This helps Chinese firms capture significant market share from Japanese competitors. The production volume of the Chinese motorcycle industry reached 15 million vehicles a year, up from 5 million in the mid-1990s. Japanese firms like Honda, Suzuki, and Yamaha lost 40 percent of market share to Chinese firms in less than ten years.

The Lego Block Airplane

Aircraft manufacturers are shifting from internal production to massive global collaboration, treating major suppliers as true development partners. Faced with intense economic pressures and complex engineering demands, aerospace leaders are shedding noncore manufacturing assets. Instead of issuing rigid blueprints to isolated suppliers, you form international partner networks that codesign aircraft subsystems and share both risks and financial burdens.

Boeing developed its 787 Dreamliner by building a horizontal network of over one hundred suppliers across six different countries, allowing large components to be snapped together like Lego blocks. The Boeing 787 specification document sent to electronics suppliers was only 20 pages long, compared to 2,500 pages for the 777. The final assembly process of the Boeing 787 dropped to 3 days, down from 13 to 17 days for the 777. The 787 remote health-monitoring system achieved an estimated 30 percent reduction in maintenance costs.

The Fabless Car Company

Automakers are shifting their core competencies away from mechanical engineering toward software, digital interfaces, and brand orchestration while outsourcing most vehicle production. As the value of a vehicle migrates from mechanical infrastructure to electronics and software, premium automotive brands rely on worldwide supplier networks to design, build, and assemble a majority of components. You retain only critical brand-differentiating capabilities in-house.

BMW partners with supplier Magna International for final assembly of the BMW X3, co-develops steering systems with Friedrichshafen, and shares engine development with French automaker Peugeot. Seventy percent of a BMW vehicle is designed, built, and assembled by a worldwide network of suppliers. 8,500 people are employed in BMW's global R&D network, collaborating with specialized regional units, universities, and software houses.

Consultants John Hagel and John Seely Brown describe productive friction as the new learning that takes place when knowledge and tasks are shared across enterprise boundaries. Boeing and Dassault Systemes created a real-time collaboration system called the Global Collaborative Environment, linking all program partners to a shared pool of design data and product life-cycle management tools. Boeing landed 354 orders worth more than $46 billion for the 787 in 2005, beating Airbus in new airplane orders for the first time since 2000.

You can harness the global plant floor by following these rules:

• Focus on the critical value drivers by striving to be the best at what customers value most and partnering for everything else.
• Add value through orchestration by weaving together the skills and competencies of disparate players into globally integrated ecosystems.
• Instill rapid, iterative design processes by decentralizing trials and leveraging specialized problem-solving partners.
• Harness modular architectures to stimulate innovation and iterative design by specifying product interfaces rather than production mandates.
• Create a transparent and egalitarian ecosystem by sharing critical business information through interenterprise systems to build trust.
• Share the costs and risks of large development projects with partners to ensure proper motivation and shared upside.

9. Geeks, Wikis, and Global Domination

Applying wikinomics inside the enterprise breaks down internal hierarchies and unleashes employee collective intelligence through social computing and prediction markets.

Robert Stephens founded Geek Squad, which was later acquired by Best Buy. Instead of relying on top-down directives, Stephens engaged agents in innovation, allowing them to self-organize, share service tips, and design award-winning products.

Geek Squad grew from 60 employees at the time of acquisition in 2002 and $3 million in annual revenue at acquisition to 12,000 service agents today booking nearly $1 billion in services from over 700 locations, which returned $280 million to Best Buy's bottom line.

The Wiki Workplace

Robert Stephens spent time building an internal wiki for agents to communicate, but adoption was slow. He later discovered that agents had self-organized inside online multiplayer video games using headsets to talk shop while gaming.

Geek Squad agents in Anchorage, Alaska, and across the country used Battlefield 2 and Ventrilo software to communicate, with up to 384 colleagues simultaneously playing, talking shop, and swapping tips, with 128 people simultaneously fighting in a virtual environment per server.

Store manager Gil Dennis initiated a collaborative process for general managers to share local customer insights with head office, bypassing traditional hierarchical boundaries and bureaucratic resistance. Best Buy created the Retail Leadership Forum facilitated by Gil Dennis, allowing senior executives to spend time with people interacting with customers every day at a $30-billion-a-year company.

Social Computing in the Enterprise

Traditional enterprise tools are designed as instruments of control that employees try to circumvent. Wikis ask users to share control, fostering trust, reducing email volume, and cutting meeting times.

At Dresdner Kleinwort, CIO JP Rangaswami saw lead users decrease email volume by 75 percent and cut company meeting times in half after adopting internal wikis. Socialtext operates with ten employees with zero overhead and serves over four hundred customers, with nearly thirty in the Fortune 500, while Dresdner Kleinwort's wiki contains over two thousand pages used by more than a quarter of the workforce.

Peer Production in the Workplace

Companies like Google recognize that while their employees represent only a fraction of global programming talent, they are among the brightest, and allowing them personal project time yields major innovations. Google CEO Eric Schmidt noted that virtually all product ideas come from the 20 percent of time employees work on their own projects, such as the social-networking service Orkut.

Internal prediction markets invite stakeholders to trade virtual stock on future outcomes, frequently outperforming expert forecasts. Hewlett-Packard used prediction markets to forecast annual computer workstation sales, with principal scientist Kay-Yut Chen noting that they outperformed internal corporate forecasts in six out of every eight cases.

Eighty million young people in the United States alone are entering the workforce, bringing high-technology adoption, creativity, and a preference for informal methods of working. Unlike older generations attached to command-and-control structures, the Net Generation views computers as doorways to social connectivity, instant messaging, and peer-to-peer file sharing rather than isolated boxes.

10. The Dark Side of Wikinomics

Mass collaboration generates controversies regarding amateur content quality, intellectual property protection, and leadership resistance against new business models.

Skeptics argue that Web 2.0 democratizes media into a flat noise of opinion. Andrew Keen's book The Cult of the Amateur argues that blogs and social networking threaten the vitality of culture.

Automated peer-review programs can analyze editing history and content longevity to establish author reputation. Luca de Alfaro developed a program at UC Santa Cruz that color-codes Wikipedia text entries in hues of orange to signal dubious content. It flags over 80 percent of poor edits on nearly two million pages and forty million edits.

When Worlds Collide

Incumbent media publishers cling to legacy analog business models through Tarzan economics. Jim Griffin notes that publishers refuse to let go of the old vine until they have a firm grip on the next one. Larger Hollywood studios retain strict ownership over virtual goods and copyrighted media.

Terry McBride of Nettwerk Records allows fans to consume music however they want across any platform. Nettwerk generates 40 percent of its sales online. During a UK tour, the Barenaked Ladies achieved a 70 percent ratio of USB live sales to media sales.

War on the Open Internet

Telecommunications companies face declining voice revenues from free internet services and attempt to create tiered internet delivery models. BellSouth CTO William Smith proposed charging fees so that a vendor like Yahoo could have search traffic work faster than Google.

10 Key Ideas

1. The new art and science of wikinomics rests on four foundational principles: openness, peering, sharing, and acting globally.
2. Peer production is a novel mode of creating goods and services through self-organizing, egalitarian communities acting voluntarily and nonmonetarily.
3. Companies can dramatically accelerate innovation by sourcing ideas from external talent marketplaces and opening internal intellectual property portfolios.
4. Consumers are evolving into prosumers who actively design, customize, and hack products, turning consumption into a participatory activity.
5. A new paradigm of collaborative science and precompetitive knowledge commons accelerates scientific progress and biomedical breakthroughs.
6. Open digital platforms expose APIs and raw data to external developers, creating fluid ecosystems that drive viral growth and collaborative problem-solving.
7. Traditional multinational manufacturers are being replaced by globally integrated enterprise networks that use modular architectures and shared collaborative environments.
8. Applying wikinomics inside the enterprise breaks down internal hierarchies and unleashes employee collective intelligence through social computing and prediction markets.
9. Mass collaboration generates controversies regarding amateur content quality, intellectual property protection, and leadership resistance against new business models.
10. The Internet drastically reduces transaction costs, causing traditional vertically integrated corporations to shrink in favor of open business webs.