Section 4: Innovation communities and community economics

Collaborative innovation by innovation communities turns out to be the institutional form that may powerfully alter the producer-centered innovation landscape we have known for so long. User communities, it turns out, can outcompete producers with respect to design under many conditions – see the Baldwin et al. paper below. User communities also may also be able to compete with producers with respect to building powerful brands – see the paper with Fueller below.

Hienerth, Christoph, Eric von Hippel, and Morten Berg Jensen (2014) “User community vs. producer innovation development efficiency: A first empirical study,” Research Policy 43 p. 190-201

Abstract:  In this paper we report upon a first empirical exploration of the relative efficiency of innovation devel- opment by product users vs. product producers. In a study of over 50 years of product innovation in the whitewater kayaking field, we find users in aggregate were approximately 3× more efficient at develop- ing important kayaking product innovations than were producers in aggregate. We speculate that this result is driven by what we term “efficiencies of scope” in problem-solving. These can favor an aggre- gation of many user innovators, each spending a little, over fewer producer innovators benefitting from higher economies of scale in product development. We also note that the present study explores only one initial point on what is likely to be a complex efficiency landscape.

von Hippel, Eric. “Innovation by User Communities: Learning from Open-Source Software.” MIT Sloan Management Review 42, no. 4 (Summer 2001): 82.

Abstract: If the open-source software movement is any harbinger of future trends, manufacturing companies need to be concerned not only about what they produce, but also about what their customers might produce without them. This paper identifies the conditions that favor user innovation and explores how circumstances evolve – sometimes to include commercial manufacturers and sometimes not. Aided by the internet to support collaboration and distribution, the power and pervasiveness of such communities could be enormously amplified.

Baldwin, Carliss Y., Christoph Hienerth, and Eric von Hippel. “How User Innovations Become Commercial Products: A Theoretical Investigation and Case Study.” Research Policy 35, no. 9 (2006): 1291–1313. (PDF)

Abstract: In this paper we model the pathways commonly traversed as user innovations are transformed into commercial products. First, one or more users recognize a new set of design possibilities and begin to innovate. They then join into communities, motivated by the increased efficiency of collective innovation. User-manufacturers then emerge, using high-variable/low-capital cost production methods. Finally, as user innovation slows, the market stabilizes enough for high-capital, low-variable cost manufacturing to enter. We test the model against the history of the rodeo kayak industry and find it supported. We discuss implications for “dominant design” theory and for innovation practice.

von Hippel, Eric. “Horizontal Innovation Networks–by and for Users.” Industrial and Corporate Change (May 16, 2007). doi:10.1093/icc/dtm005. (PDF)

Abstract: Innovation development, production, distribution and consumption networks can be built up horizontally–with actors consisting only of innovation users (more precisely, “user/self-manufacturers”). Some open source software projects are examples of such networks, and examples can be found in the case of physical products as well. In this article, we discuss three conditions under which user innovation networks can function entirely independently of manufacturers. We then explore related empirical evidence, and conclude that conditions favorable to horizontal user innovation networks are often present in the economy.

Füller, Johann, Roland Schroll, and Eric von Hippel (2013) “User Generated Brands and their Contribution to the Diffusion of User Innovations.” Research Policy 42, pp. 1197-1209 (SSRN)

Abstract: It has been argued that users can create innovations and also diffuse them peer-to-peer independent of support or involvement by producers: that “user-only” innovation systems can exist. It is known that users can be incented to innovate via benefits from in-house use. But users’ incentives to invest in diffusion are much less clear: benefits that others might obtain from their innovation can be largely or entirely an externality for user innovators.Of course, effective distribution of information products can be done near-costlessly via posting downloadable content – for example, software – on the Internet. However, potential adopters must still learn about the product and trust its qualities. In producer systems, this aspect of diffusion is heavily supported via the creation of trusted brands. It has been shown that brands help to increase awareness, to communicate a product’s benefits, and to reduce perceived risks of adoption.

The development of brands by producers is traditionally seen as a very costly exercise – unlikely to be thought of as worthwhile by users who expect little or no benefits from the diffusion of their innovations to others. In this paper, we explore the creation of a strong and trusted brand by the Apache software community – and find it was created costlessly, as a side effect of normal community functioning. We think the costless creation of strong brands is an option that is generally available to user innovation communities. It supports, we propose, the existence of robust, user-only innovation systems by helping to solve the problem of low-cost diffusion of trusted user-developed innovations.