Sometimes pioneering innovation comes from a company offering a new product or service—a number of examples are featured in this issue (see “The TR50”). But these producers, and those to come, will do their jobs better if they understand a lesson my colleagues and I have learned in our research: users of a technology, whether they’re individuals or companies, are usually the initial developers of important innovations that enable them to do new things and create new markets.
Twitter is one example. Its community of users invented retweets and hashtags, both now core parts of the service. Similarly, major equipment users such as Western Electric, IBM, and Intel initially developed important processing techniques now embodied in equipment sold by Applied Materials. Users excel at this role because they understand their emerging needs better than producers do.
The pattern holds true in emerging as well as developed economies. For example, the idea of banking by cell phone first emerged in the Philippines, Kenya, and other countries poorly served by banks. The service is enabled by wireless carriers, but the innovation originated when users without bank accounts began to buy credits for cell-phone minutes and exchange them between phones to settle financial transactions. From that developed a major business.
Working with Harvard Business School’s Christoph Hienerth and Copenhagen Business School’s Carliss Baldwin, I’ve studied the ways that user-developed innovations become commercial products or services. The process begins when one or more lead users recognize a need for a product that does not yet exist, whether it’s the first skateboard or the first heart-lung machine. Users then experiment to make prototypes of that new product. If they tell producers at this stage, they are typically rebuffed on the justifiable grounds that “there is no market for that.” Only after other users from the community have started to experiment, too, and perhaps even started their own ventures to commercialize those experiments, does the potential of the new market become clearer to everyone. At that point, additional startups and established firms join in.
The transition to digitized and modular design practices, coupled with low-cost Internet-based communication, increasingly allows user innovation to compete with producer innovation in many parts of the economy, all over the world. Open collaborative innovation in software development communities such as Linux is well known today. Similar activity in arenas ranging from sports to medicine to car development is less well known but growing rapidly.
Firms that want to innovate successfully must learn to understand their own role in this innovation ecosystem. Superior knowledge of the pathway from user innovation to commercialization can bring a producer larger profits and the chance to develop technologies that create entirely new markets.
Eric von Hippel is professor of technological innovation at the MIT Sloan School of Management and a professor of engineering systems at MIT.