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 ideas, and internal and external paths to market, as the

In his recent book, Chesbrough (2003) coined the
notion Open Innovation to signify a new model for
organizing technological innovation in large R&D-
intensive 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).
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 inno-
vative 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

0048-7333/$ – see front matter © 2005 Elsevier B.V. All rights reserved.
doi:10.1016/j.respol.2005.07.002
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 manage-
ment, 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 arti-
cle seeks to place the concept of Open Innovation
in the theoretical and intellectual tradition associated
with industrial dynamics and applied evolutionary eco-
nomics. Within the context of a sectoral system of inno-
vation (consumer electronics), we study the industrial
and strategic dynamics associated with the develop-
ment 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 pio-
neered 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 Innova-
tion. We specify the commercial system of innovation
in which this new technological regime unfolds (the
comparative and complementary features of the differ-
ent 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 innova-
tive 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 innova-
tion. Rosenberg (1982), Lundvall (1992), Pavitt (1998)
and von Hippel (1988) among others, have addressed
the interactive, cross-disciplinary and (mostly) inter-
organizational nature of innovative learning. What
Chesbrough (2003) has added in his book “Open Inno-
vation”, 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 gen-
erally 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 inno-
vation 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 Inno-
vation: first, there will always be a level of “closed-
ness” in innovating firms depending on how large a
portion of the overall value they strive to appropri-
ate. 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 inno-
vation. 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 innova-
tion 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 inno-
vation (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 tech-
nology into a more stable stage. Moving out of the
experimental science laboratories and into early tech-
nological 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 manufactur-
ing processes that can make the technology’s perfor-
mance/cost ratio attractive to the mainstream markets.
Within this industrial dynamics framework (inte-
grating 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 pro-
vide a study of the changing innovation strategies of
two startup pioneers in the field of class D ampli-
fication. In particular, by drawing on and extending
the perspectives raised by Gans and Stern (2003), we
shall address the complex relationships between com-
plementary and sometimes rival actors (technology
entrepreneurs and different kinds of incumbents). This
analysis points to the fact that Open Innovation some-
times 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 innova-
tion (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 sec-
toral 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 Sam-
sung) or Dutch (Philips). They are the renowned system
integrators, strongly devoted to innovation, manufac-
turing, marketing and distribution of AV products and
a large array of other consumer electronics products,
and to varying degrees they also possess in-house com-
ponent portfolios and associated industrial research,
design and manufacturing assets (particularly Philips,
Sony and Matsushita).
Another category of OEMs typically address high-
end 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 large-
scale OEMs, these firms have a narrow product portfo-
lio 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 promi-
nent 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 large-
scale 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 spring-
ing 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 ded-
icated electronics manufacturers, the US-dominated
Electronic Manufacturing Services (EMS) providers,
such as Flextronics and Samina-SCI, and the Taiwan-
dominated Original Design and Manufacturing (ODM)
providers which have experienced hyper-growth in
recent years. While the former are large-scale com-
panies 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 out-
sourcing wave underlying the hyper-growth of EMS
and ODM providers has been much weaker in con-
sumer 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 ampli-
fier regime. Before moving on to address the industrial
dynamics and innovation strategies associated with the
new technology, we shall give a brief overview of tech-
nical 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 econ-
omy have been experiencing a process of digitization
involving a comprehensive influx of technologies and
components originally developed by and for the semi-
conductor 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, includ-
ing 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’ down-
loaded 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 net-
working technologies into AV products for facili-
tating 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 amplifi- on the other hand, bulky heat sinks to absorb the waste
cation mode (class D or digital amplifiers) and the current and prevent over-heating. The development of
increasing use of digital signal processing. chip-based solid state power amplifiers in the 1970s
and 1980s prompted further commoditization in terms
The rest of this section gives an account of the
of compactedness and cost-efficiency of amplifiers,
technological trajectories of sound amplification and
and made possible the development of products such as
the current transformation.
cell phones and Walkman-type portable music systems
In audio equipment, the amplifier amplifies the
(Sweeney, 2004). However, no seminal developments
audio signal, for example from a CD player, and
have occurred in the solid state amplifiers for the last
sends the amplified signal to the speakers. Historically,
20 years.
analog sound amplification can be differentiated into
Since the mid-1990s, a radically different approach
two major generations: valve-based and transistor-
to amplification, class D or switched amplification, has
based amplification. Originally, amplifiers employed
been subject to a major scientific, technological and
vacuum tubes or valves to boost the analog signal. This
commercial breakthrough. “It marks a clear break with
technology dates back to the early 20th century and
tradition, and incidentally demands an almost entirely
Lee de Forest’s invention in 1906 of the ‘audion’ as the
different set of design skills than those we are used
first purely electronic component that could amplify a
to seeing in analog electronics generally” (Sweeney,
signal.2 This invention paved the way for sound ampli-
2004, p. 5). While known at least in conceptual form
fication in telephones, radios, phonographs, motion
for more than 40 years, class D amplifiers had never
pictures and later televisions. Through the licensing
been successfully applied in an audio context. Even
and maturation of the technology by large corporations
if early class D amplifiers offered big advantages in
such as General Electric, it became a practical and reli-
terms of space efficiency, energy efficiency and low
able commercial device.3 Still, vacuum tubes suffered
heat dissipation, they also suffered from severe fidelity
from drawbacks of being large and clumsy, consuming
and reliability problems and tended to burn up due to
much power, creating much heat and incurring high
overload or radiate unacceptable amounts of interfer-
maintenance costs by burning out rapidly.
ence (Sweeney, 2004, p. 7). However, as these problems
The transistor, invented in 1947 by Shockley and
have recently been overcome, we are now witnessing a
his colleagues at Bell Laboratories, represented a
technological transformation comparable with the solid
genuine revolution in amplification technology (Braun
state revolution in amplification some 50 years ago.
and Macdonald, 1982). In the late 1950s, manufac-
Class D amplifiers produce a power output by modu-
turing technologies were developed by companies
lating a carrier frequency with an audio signal through
such as Western Electric and Texas Instruments,
a technical principle termed pulse width modulation
making low-cost mass production of transistors
(PWM). A conventional class D amplifier is not digital,
feasible—first materializing commercially in the
because the width of the pulses is continuously variable
“transistor radio”.4 Over the years, technical improve-
rather than variable according to some given number
ments made transistor-based amplifiers superior in
of discrete values. However, through various modifica-
most respects to tube-based amplifiers. By the mid-
tions (in which so-called pulse code modulated input
1960s, solid state amplifiers had become mainstream
signals are transformed into the PWM format), it is
in both professional and consumer audio products,
possible to make class D amplifiers truly digital. In
leaving vacuum tubes behind in niche areas such as
the final stage of the audio signal path, a passive low-
musical instruments amplifiers and microphone amps
pass filter transforms the PWM signal into an analog
(Sweeney, 2004). However, the energy-efficiency of
power signal that can drive a speaker. Being far more
transistor-based amplifiers remained quite low imply-
energy-efficient than linear amplifiers, they do not need
ing, on one hand, a need for large power supplies and,
big heat sinks and can be equipped with smaller power
2 http://www.wikipedia.org/wiki/Vaccuum tube and http://www.
supplies, drastically reducing their size as compared to
ieee.org/organizations/history center/legacies/deforest.html.
conventional amplifiers.
3 http://uv201.com/Tube Pages/deforest audion.htm. Class D amplifiers can be embedded in either dis-
4 http://www.vac-amps.com/page0030.html. crete 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 compo-
nents). The former are high cost/performance ampli-
fiers 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 bil-
lion 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 mar-
kets 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 prac-
tical reach. At the very frontier was a research com-
munity 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 (hence-
forth, 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 mar-
ket 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 follow-
ing year. This high-end-market product created huge
international attention in HIFI circles and eventually
sold 500 US$ 10,000 units—a great commercial suc-
cess for a small HIFI company, and Toccata’s tech-
nology, 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 ICE-
power (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 semi-
conductor incumbents as well as startups dominated
the wave of new products. (Fig. 2 shows the cumu-
lative 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 Dan-
ish 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 semicon-
ductor 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 Pul-
sus). With the exception of Sony and Philips, the large
AV OEMs have either refrained from or been compar-
atively slow in developing in-house switched ampli-
fication 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 com-
mercial prospects of this breakthrough materialized
towards the end of the 1990s, young researchers left the
academic community to become entrepreneurs explor-
ing the commercial opportunities of this technology.
While maintaining their academic relations and recruit-
ing young engineers from the thriving research commu-
nity, they engaged in transforming the science-based
knowledge foundations into a practical technological
device. That included closing the window of Open Sci-
ence 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 techno-
logy 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, distri-
bution 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 posi-
tion. Hence, while the small technology suppliers, in
close relations with university scientists, could take the
science base and transform it into a workable techno-
logy, 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 high-
end 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 techno-
logy through establishing a novel value chain on their
own, implying a relatively closed mode of innovation,
or through integrating their technology into an exist-
ing 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 techno-
logy 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 con-
ditions of relatively symmetric bargaining power and
avoiding the contractual hazards of engaging in co-
operation 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 Toc-
cata’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 tech-
nology was, although still expensive, a high-quality
alternative to traditional technology. Even if Audio
Nord in this way earned an image of being a high-
tech innovator, in practice, it remained a supplier-
dominated (Pavitt, 1984) OEM player with no ambi-
tions 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 interac-
tion with the amplifier engineers in order to develop a
HIFI speaker with the unique feature of having inte-
grated 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 com-
plementary 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 proposi-
tions along existing value chains in which the parties
would not become rivals, and in which commercializa-
tion would not pose a threat to the dominant incum-
bents 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 sup-
port the results from Shane’s (2001) study of dimen-
sions of technology regimes favoring firm formation.
Especially, firm formation is more likely when techni-
cal 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 techno-
logy, relatively effective patents and good opportu-
nities 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 seg-
ments. The questions regarding which technical design
approach to follow, which AV products to adapt to
(speakers, DVD receivers, etc.), which market seg-
ments 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 Toc-
cata/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 mod-
ule solutions for high-end markets.
Through the successful launch of Audio Nord’s
TACT Millenium amplifier, Toccata’s Equibit techno-
logy 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 trans-
forming digital amplification into chip-based solutions.
This was clearly outside both the financial and compe-
tence scope of the small company although the chip-
oriented trajectory was obvious since the modulator
part of Toccata’s digital amplifier was described in the
very high speed integrated circuit hardware descrip-
tion language (VHDL) that is broadly used for design
of integrated circuits. In the search for an appropri-
ate 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 Instru-
ments (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 manage-
ment 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 solu-
tions. Partly through these acquisitions, TI had come
to possess key complementary components and knowl-
edge necessary for transferring digital amplification
technology into chip design.6 Furthermore, TI was rec-
ognized 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 sup-
plying 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 seg-
ment, 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 high-
end DVD-receiver market was experiencing nearly
full penetration of digital amplification, while linear
technology still remained cost-competitive in the low-
end mass market.
This story illustrates a small technology
entrepreneur’s wish to radically change its inno-
vation 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 dis-
crete (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 ICE-
power’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 compo-
nents, for integration into Bang & Olufsen’s speakers.
The small size of these modules relative to conven-
tional amplifiers offered Bang & Olufsen much greater
freedom when addressing aesthetic and functional con-
cerns in speaker design. Technical development was
directed at improving the quality features of the ampli-
fier modules based on discrete standard components.
7 Even if TI initially addressed a particular segment of the AV mar-
kets (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 sup-
pliers 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 tar-
geted another high-end audio area, namely professional
audio (e.g. equipment for concerts and sound recording
studios). The company has established market rela-
tions with speaker producers such as Acoustic Reality
and Foster Electric, as well as with semiconductor
companies and large AV OEMS (e.g. supplying ampli-
fier modules for Sony’s subwoofers), to whom ICE-
power either sells standard modules or develops cus-
tomized amplification solutions. ICEpower is currently
the leader in class D modules for the high-end markets.
Since 2002, ICEpower has also developed a chip-
oriented 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 mass-
production, 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 fur-
ther 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 try-
ing 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 semiconduc-
tor 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 com-
panies 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 complemen-
tary 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 complemen-
tary R&D inputs to chip design (including systems-on-
a-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 imply-
ing 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 lever-
aging 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 com-
plementary 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 perspec-
tive. We have studied how differently positioned
 J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549
commercial players in a sectoral system of innova-
tion pursue different innovation strategies to leverage a
technological regime characterized by a rich opportu-
nity 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 spe-
cific 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 tech-
nology, 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 embry-
onic 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 star-
tups), 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 tech-
nical 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 high-
tech startups is twofold. First, they must establish a
deep technology base that can be well-protected from
quick imitation or replication. Secondly, through codi-
fication, documentation and communication they must
make this technology base attractive in the eyes of
one or more complementary players, and try to per-
suade them to engage in cooperative efforts to create
functional solutions and to test market potentials. As
we have witnessed in the case of switched amplifi-
cation technology, small technology-based firms may
start out exploring commercial opportunities in co-
operation with smaller established players with the
complementary assets to commercialize the new
technology in high-end niche markets. In such part-
nerships, 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 cul-
tural 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 commit-
ted 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 coordi-
nation 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 techno-
logical 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 recogni-
tion 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 incen-
tives 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 Inno-
vation 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 pio-
neered the embryonic stage of the technology cycle. In
the amplifier case, two categories of incumbents, differ-
ently 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 com-
panies, TI and STMicroelectronics, have managed to
establish leading positions in the market for chip-based
digital amplification through the use of comprehen-
sive up-front strategies of Open Innovation involving
alliance building or acquisitions. An interesting inher-
ent paradox of a strongly acquisition-based way of
practicing Open Innovation is that the external sources
of technology are fully integrated. Thus, a highly extro-
vert 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 rou-
tinized and standardized, another stage of Open Inno-
vation 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 innova-
tion strategies.
In conclusion, we maintain that in the case of
class D amplification, much of the variation in innova-
tion strategies among different types of firms can be
attributed to their differential point-of-departure posi-
tions within the innovation system and the stage of
the technology cycle in which they initiated innova-
tive 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 dif-
ferent 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 coinci-
dental 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 inno-
vation race, where the starting and finishing lines are,
and what the race is about”.
But in any case, trying to understand the global inno-
vation 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-à-vis complementary partners.
Acknowledgements
We gratefully acknowledge the comments on pre-
vious versions of this paper from Lee Davis, Keld
Laursen, Peter Lotz, Ron Sanchez, Jim Shanahan,
Nils Stieglitz, Daniel Sweeney, John Zysman and
Company name Country Products/servicesa
Small specialized companies
Apogee (1995)b USA Chips/IP
Bang & Olufsen ICEpower (1999)c Denmark Modules/IP
Champion Microelectronics (1999) Taiwan Modules
D2Audio Corporation (2002) USA Modules
JAM Technologies Inc. (1999) USA IP
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 Uni-
versity of Denmark (interviewed 28 October 2003).
• Niels Anderskouv, Vice President of Digital Audio
& Video, Texas Instruments (interviewed 19 Decem-
ber 2003).
• Lars Michael Fenger, Research and Technology
Access Engineer, Bang & Olufsen ICEpower (inter-
viewed 9 September 2003).
• Karsten Nielsen, founder and Chief Technical Offi-
cer, 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
Introduction of Turnover in 2002/2003
first product (US$ million)
1999 5 (11.1)
1999 4 (6.9)
2002 N/A
2002 N/A
2003 0.5
1548 J.F. Christensen et al. / Research Policy 34 (2005) 1533–1549

Appendix B. (Continued )
Company name Country Products/servicesa Introduction of Turnover in 2002/2003
first product (US$ million)
Monolithic Power Systems (1997) USA Chips 2002 12.2(24.2)
Mueta (2001) Netherlands IP – N/A
NeoFidelity Inc. (2000) Korea Chips 2001 N/A
Powerphysics (1998) USA Chips/modules 2000 N/A
Pulsus (1999) Korea Chips/modules 2000 N/A
Toccata Technology (1997–2000)d Denmark IP Early 1998 –
Tripath (1995) USA Chips End of 1998 16.2 (13.9)
Large component incumbents
Analog Devices USA Chip 2003 1.700/2.047
Crystal Semiconductors/Cirrus Logic USA Chips 2003 417/262
Maxim USA Chips 2000 1.025/1.153
Microsemi USA Chips 2000 213/197
Motorola Semiconductor e USA Chips 2000 26.700/4.864
National Semiconductor USA Chips End of 2002 1.494/1.672
STMicroelectronics Switzerland Chips 2002 6.318/7.238
Texas Instruments USA Chips 1999 8.380/9.834
Wolfson Microelectronics UK Chip 2004 34/76
Zetex UK Chips 2000 139/163
Large AV incumbents
Philips Electronics Netherlands Chips 1998 31.820/29.037
Sharp Japan Modules End of 1999 17.179/19.078
Sonyf Japan Modules 2001 57.117/63.264
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 Structural Changes in Industries and Firms. Kluwer Academic

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 His-
tory and Impact of Semiconductor Electronics, second ed. Cam-
bridge 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
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 perspec-
tive on learning and innovation. Administrative Science Quar-
terly 35 (1), 128–152.
Dyer, J.H., Singh, H., 1998. The relational view: cooperative strat-
egy and sources of interorganizational competitive advantage.
Academy of Management Review 23 (4), 660–679.
Edquist, C. (Ed.), 1997. System of Innovation. Frances Pinter, Lon-
don.
Foster, R., 1986. Innovation: The Attacker’s Advantage. Summit
Books, New York.
Gans, J.S., Stern, S., 2003. The product market and the mar-
ket 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. Elec-
tronic Engineering Times, Friday, October 31. http://www.
eetimes.com/showArticle.jhtml?articleID=18309565.
Lundvall, B.-Å., 1992. National Systems of Innovation. Towards A
Theory of Innovations and Interactive Learning. Pinter, London.
Lundvall, B.-Å., Vinding, A.L., 2004. Product innovation and eco-
nomic theory—user–producer interaction and the learning econ-
omy. In: Christensen, J.L., Lundvall, B.-Å. (Eds.), Product
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 Schum-
peter doesn’t. Industrial and Corporate Change 7 (3), 433–
452.
Robertson Stephens Inc., 2001. EMPS Continues to Perform
Admirably—Outsourcing and Diversification Continue to Ben-
efit Industry. Robert Stevens Inc.
Rodman & Renshaw, 2003. Tripath Technology, Media Technol-
ogy, Market Outperform/Speculative Risk. Rodman & Renshaw,
LLC.
Rosenberg, N., 1982. Inside the Black Box: Technology and Eco-
nomics. 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 Amplifi-
cation. Forward Concepts, http://www.fwdconcepts.com/.
Teece, D.J., 1986. Profiting from technological innovation: implica-
tions 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 Quar-
terly 31 (3), 439–465.
UBS Investment Research, 2003. Electronics Manufacturing Ser-
vices. UBS.
von Hippel, E., 1988. The Sources of Innovation. Oxford University
Press, New York.