Innovation is Democratizing:Innovation is Democratizing:What can governments do?What can governments do?

Eric von HippelMIT Sloan School of Management

Phone: (617) 253-7155, Email: Evhippel@mit.edu,http://mit.edu/evhippel/www

Essential DefinitionEssential Definition

‘‘Democratization of InnovationDemocratization of Innovation’’ means that means that usersusers of of products and servicesproducts and services——both firms and individual both firms and individual consumersconsumers——are increasingly able to develop what they are increasingly able to develop what they need for themselves. need for themselves.

–– AnAn innovation is a innovation is a USER innovationUSER innovation when the developer when the developer expects to benefit by USING it;expects to benefit by USING it;

–– An innovation is a An innovation is a MANUFACTURER innovationMANUFACTURER innovation when the when the developer expects to benefit by SELLING it.developer expects to benefit by SELLING it.

# of usersperceiving need

TimeTime

Traditional, Manufacturer-Centered Innovation ParadigmManufacturers identify user needs, develop products at private expense,And profit by protecting and selling what they have developed.

User-Centered (Democratized) Innovation ParadigmLead Users innovate to solve their own needs at private expense - and then freely reveal their innovations

Lead Users innovate here

First manufacturer product appears here

Target Market

A fastA fast--growing international academic growing international academic community specializes in community specializes in research on research on useruser--centeredcentered innovationinnovation

Yun Mi Antorini (Aarhus)Yun Mi Antorini (Aarhus)

Sung Joo Bae (MIT) Sung Joo Bae (MIT)

Carliss Baldwin (HBS)Carliss Baldwin (HBS)

Marcel Bogers (Lausanne)Marcel Bogers (Lausanne)

Harry Demonaco (MGH)Harry Demonaco (MGH)

Emm Fauchart (CNAM)Emm Fauchart (CNAM)

Dominique Foray (Lausanne)Dominique Foray (Lausanne)

Nikolaus Franke (Wien)Nikolaus Franke (Wien)

Johann FJohann Füüller (Innsbruck)ller (Innsbruck)

Stefan Haefliger (ETH Zurich)Stefan Haefliger (ETH Zurich)

Pia Hannukainen (Helsinki)Pia Hannukainen (Helsinki)

Dietmar Harhoff (LMU)Dietmar Harhoff (LMU)

Joachim Henkel (TUM)Joachim Henkel (TUM)

Cornelius Herstatt (TUH)Cornelius Herstatt (TUH)

Christoph Hienerth (CBS)

Lars Bo Jeppesen (CBS)

Per Kristensson (Karlstad)

Karim Lakhani (HBS)

Christopher Lettl (Aarhus)

Christian Luethje (Bern)

Peter Magnusson (Karlstad)

Pavan Mamidi (IIMB)

Philip Mayrhofer (LMU)

Ethan Mollick (MIT)

Pam Morrision (UNSW)

Frank Piller (Aachen)

Marion Pötz (Vienna)

Emanuela Prandelli (Milan)

Reinhard Prügl (Vienna)

Patricia Sandmeier (Sta. Gallen

Celine Schulz (LMU)

Sonali Shah (Illinois)

Martin Schreier (Vienna)

Sheryl Winston-Smith (Minn)

Christoph Steger (Vienna)

Robert Tietz (TUH)

Stefan Thomke (HBS)

Gianmario Verona (Milan)

Georg v. Krogh (ETH Zurich)

Eric v. Hippel (MIT)

Marcus Wagner (TUM)

How we discovered that users develop How we discovered that users develop many major new productsmany major new products

6363444444TotalTotal

6363141411Transmission Electron Transmission Electron MicroscopyMicroscopy

--5511Ultraviolet Ultraviolet SpectrophotometrySpectrophotometry

--141411Nuclear Magnetic Nuclear Magnetic Resonance Resonance SpectrometrySpectrometry

--111111Gas ChromatographyGas Chromatography

Minor Minor ImprovementImprovement

Major Major ImprovementImprovement

First First DeviceDevice

Innovations AffectingInnovations Affecting

First device used in field First device used in field developed and built by:developed and built by:

2222727277%77%TotalTotal

1717444472%72%Transmission Electron Transmission Electron MicroscopyMicroscopy

0066100%100%Ultraviolet Ultraviolet SpectrophotometrySpectrophotometry

33121280%80%Nuclear Magnetic Nuclear Magnetic Resonance Resonance SpectrometrySpectrometry

22101083%83%Gas ChromatographyGas Chromatography

Mfg.Mfg.UserUser% User% UserInnovations AffectingInnovations Affecting

Gammaflow:Gammaflow:A Completely Automated Radioimmunoassay SystemA Completely Automated Radioimmunoassay System

Source: Science Vol 194 October 1976

Examples of Important Examples of Important Consumer Product InnovationsConsumer Product Innovations

Electronic MailElectronic MailDesk Top PublishingDesk Top Publishing

Computer Application Computer Application SoftwareSoftware

WhiteWhite--out Liquidout LiquidOfficeOffice

Chocolate MilkChocolate MilkGraham Cracker CrustGraham Cracker Crust

FoodFood

Sports BraSports BraApparelApparel

Mountain BikeMountain BikeMountain ClimbingMountain Climbing--PitonPiton

Sports EquipmentSports Equipment

ProteinProtein--base Shampoobase ShampooFeminine HygieneFeminine Hygiene

Personal CarePersonal Care

GatoradeGatoradeHealth ProductsHealth Products

ExampleExampleCategoryCategory

# of usersperceiving need

Time

Users can innovate more cheaply here

Manufacturers can innovate more cheaply here

Time

User innovations are usually developed by User innovations are usually developed by ““LeadLeadUsers. Lead user innovationsUsers. Lead user innovations offer:offer:(1) benefits to the innovator (they build what they need)(1) benefits to the innovator (they build what they need)(2)(2) a product feedstock for existing manufacturers a product feedstock for existing manufacturers (3)(3) a a rich sourcerich source of new of new company startcompany start--ups (U/Ms)ups (U/Ms)

TargetMarket

““Lead UsersLead Users”” are users that:are users that:(1) (1) Have needs that Have needs that foreshadow general demandforeshadow general demand in the in the marketplace;marketplace;(2) Expect to (2) Expect to obtain high benefitobtain high benefit from a solution to from a solution to their needs. their needs.

Innovations developed by Innovations developed by lead users have high lead users have high commercial value commercial value –– Morrison Morrison and several other authorsand several other authors

Commercial value of Commercial value of innovations users develop innovations users develop goes up as goes up as ““lead userlead user””characteristics of innovators characteristics of innovators intensify intensify ––Source Franke & vHSource Franke & vH

User’s expectedbenefit

(LU component 1)

highlow

low

User position on

trend

(LU component 2)

high

Legend: Innovating users (with size indicating attractiveness of innovation)Non-innovating users

∅

effect 1:more innovators

∅

effect 2:more attractiveinnovations

Higher innovation benefit expectations drive up innovation likelihood• “Ahead of the trend,” increases innovation attractiveness• When both components are high, a high fraction of users develop

attractive innovations Source: Franke, Schrier and v.H. 2006

3M products based on Lead3M products based on Lead User User ideas produce ideas produce 8X higher sales than center8X higher sales than center--ofof--market marketing market marketing researchresearch

0.800.800.920.920.610.61

6.76.76.76.78.08.0

7.17.17.87.88.88.8

Fit with Business Fit with Business Intellectual property protectionIntellectual property protectionFit with mfr. CapabilitiesFit with mfr. CapabilitiesFit with distribution channelsFit with distribution channels

0.080.089.249.24

7.37.38.48.4

9.69.69.89.8

Strategic ValueStrategic ValueStrategic importanceStrategic importanceFit with Strategic planFit with Strategic plan

0.010.010.000.00

33%33%18m18m

68%68%$146m$146m

Projected ProfitabilityProjected Profitability% market share in year 5% market share in year 5Estimated sales in year 5Estimated sales in year 5

0.010.010.090.09

6.86.85.35.3

9.69.68.38.3

““NewnessNewness”” of Ideaof IdeaNovelty compared to Novelty compared to competitioncompetitionNewness of needs addressedNewness of needs addressed

Sig.Sig.NONNON--LU Ideas LU Ideas (n=42)(n=42)

LU Ideas (n=5)LU Ideas (n=5)

Note: Items measured on 10 pt. Scale, 10=high, 1=low

Users arenUsers aren’’t always the innovatorst always the innovators

4848--15%15%--27%27%58%58%Sports EquipmentSports Equipment161644----92%92%8%8%Plastics AdditivesPlastics Additives55------90%90%10%10%Engineering PlasticsEngineering Plastics

1111------94%94%6%6%Tractor Shovel Tractor Shovel RelatedRelated

1010------10%10%90%90%Pultrusion ProcessPultrusion Process

49496612%12%--21%21%67%67%Semicon & PC Crd Semicon & PC Crd ProcessProcess

1111111717----23%23%77%77%Scientific InstrumentsScientific Instruments

Total Total (N)(N)

NANAOtherOtherSuplrSuplrMfrMfrUserUserInnovations Innovations Samples:Samples:

Information on needs and solutions is often Information on needs and solutions is often ““stickysticky””–– so users and manufacturers tend to draw on so users and manufacturers tend to draw on different different local information when they innovatelocal information when they innovate

Richest NeedRichest Need information is usually found at user sites.information is usually found at user sites.Richest SolutionRichest Solution information is often found at information is often found at manufacturer sites.manufacturer sites.

Solution Information

Need Information

Manufacturer User

User and manufacturer innovations User and manufacturer innovations differdifferUsers tend to develop Users tend to develop Novel Functional CapabilityNovel Functional Capability innovations:innovations:

The first sportsThe first sports--nutrition barnutrition barThe first scientific instrument of a new typeThe first scientific instrument of a new type

Manufacturers tend to develop Manufacturers tend to develop Dimension of Merit Dimension of Merit Improvements:Improvements:A betterA better--tasting sportstasting sports--nutrition barnutrition barImprovements to an existing type of scientific instrumentImprovements to an existing type of scientific instrument

Example – Study of scientific Instrument Innovations

New functional capability 82% user-developed

DOM improvements 87% mfr-developed

Total innovation sample size: n = 64Source Riggs & von Hippel (1994)

Because of information is sticky,each user responds to local needs using local solution information

Few users developed more than one major commercialized innovationNumber of users developing this Number of major innovations

Innovation Type 1 2 3 6 na (n)Scientific Instruments* 28 0 1 0 1 32Scientific Instruments** 20 1 0 1 0 28Process equipment*** 19 1 0 0 8 29Sports equipment**** 7 0 0 0 0 7

* Source, von Hippel 1988, Appendix: GC, TEM, NMR Innovations** Source, Riggs and von Hippel, Esca and AES*** Source, von Hippel 1988, Appendix: Semiconductor and pultrusion process

equipment innovations.**** Source, Shah 2000,

Heterogeneity of user needs and sticky information means that user innovation is widely distributed among users

Industrial products n % innovating

Printed Circuit CAD Urban and vH

136 24.3%Pipe Hanger HardwareHerstatt and vH

74 36%Library IT Systems Morrison, Roberts, vH

102 26%Software security featuresFranke and vH

131 19.1%

Surgical EquipmentLuthje

262 22%Consumer products n % innovating

Outdoor Products Luthje

153 9.8%“Extreme” sports equipment Franke & Shah

197 37.8%Mountain biking equipment Luthje, Herstatt, vH

291 19.2%

Studies show that Many users innovate

WhyWhy do so many users develop products for do so many users develop products for themselves? Because many have themselves? Because many have ““customcustom”” needsneeds

2 meta analyses of market segmentation studies show 2 meta analyses of market segmentation studies show heterogeneity of need is generally high:heterogeneity of need is generally high:

–– 5.5 segments specified on average: 46% within5.5 segments specified on average: 46% within--segment variation remainingsegment variation remaining (Franke and Reisinger, 2003)(Franke and Reisinger, 2003)

–– 3.7 segments specified on average: 54% within3.7 segments specified on average: 54% within--segment variation remaining segment variation remaining (Franke and von Hippel, 2003)(Franke and von Hippel, 2003)

# of usersperceiving need

Time

Users can innovate more cheaply here

Manufacturers can innovate more cheaply here

Time

Users tend to innovate Users tend to innovate collaborativelycollaboratively in in communities and communities and freely revealfreely reveal their innovationstheir innovations

TargetMarket

Free revealing makes economic senseFree revealing makes economic sense

It is typically It is typically not practicalnot practical for for distributed userdistributed user innovators innovators to protect their innovations as intellectual property and to protect their innovations as intellectual property and license them. license them.

GenerallyGenerally useruser--innovatorsinnovators reveal gladly because reveal gladly because freefreerevealing offers private revealing offers private returns:returns:

–– Innovators benefit from Innovators benefit from usingusing their innovationstheir innovations–– Enhanced Enhanced reputation for innovatorsreputation for innovators–– Your innovation Your innovation in the information commons isin the information commons is improved improved

by others (for free)by others (for free)–– Network Network effectseffects benefitsbenefits……

M. Weilguni (Germany)Outlines vacuum problem with

very large databasesProposes “simple” solution

(Bit field in tables)

9/3/2002

S. Daithankar (India)Proposes alternative solution

(Usage,Triggers,Threads)

9/3/2002

M. WeilguniS.D. proposal not practical

for his situation

9/3/2002

R.Taylor (Canada)M.W is mistaken

Provides sample scriptfor S.D proposal

9/3/2002

T. Lane (USA)Acknowledges problemCalls it: “auto vaccum”

Proposes serverimplementation

9/3/2002

S. DaithankarAnnounces intention to cerate solution

Provides details onhis approach - asks for feedback

(Usage,Triggers,Threads)

9/3/2002

T. LaneS.D’s approach will never work(Use Free Space Map(FSM)

in server instead)

9/3/2002

R.TaylorProposes an additional

component to T.L’s ideas(Use DB Analyze)

9/3/2002

T. LaneGood idea! - Interesting

implications for performance

9/3/2002

B.Lind (USA)Proposes new design

(Partial vacuum only - createDirty Space Map?)

9/3/2002

M. WeilguniProposes using “Stats Collector”(already in PG) instead of FSM

Provides URL to showsample output

(Use Stats Collector)

9/3/2002

T. LaneStats Collector approach

is also good(Has questions on details)

9/3/2002

M. O’Connor (USA)Announces intention to

create solutionAnswers T.L’s quesitons

(Stats Collector)

9/3/2002

S. DaithankarAnnounces solution is ready

Based on:Stats Collector and Table Activity

DB AnalyzeClient daemon - not server based(Abandoned previous approach)

9/23/2002

S. DaithankarPosts questions from M.O

on his approach+ his answers

9/24/2002

M. WeilguniFinds issues with S.D’s

implementation

9/24/2002

M. O’ConnorAnnounces new solutionbased on SD submission

Similar to S.D.’s clientdaemon design

Written in C instead of C++(Abandoned previous approach)

11/26/2002

M. O’ConnorSubmits V3 based on

feedback from developers

3/11/2003

M. Neusland (Germany)“I have been using S.D’s code in

Production for months!”

2/11/2003

M. O’ConnorSubmits V2 based on

feedback from developers

2/11/2003

B. Momjian (USA)

Commits code to repository -now official part of PG

3/20/2003

S. DaithankarThanks for doing the work!

11/26/2002

Individual innovations are developed in a distributed wayExample: A total of 23 people contributed to the development of Intelligent Auto-Vacuuming for PostgreSQL – 4 core, 19 “ad hoc” users(Auto Vacuum Voted “Best New Feature” in 7.4 PostGres Release)

Source: Karim Lakhani

User innovation communities cansupplant product development by

manufacturers

EXAMPLE: Zeroprestige.org

“We are interested in furthering kite-powered sport by enabling an 'open source' (shared knowledge and documentation) approach to kite-building and things kite-powered in general.”

“You are encouraged to post and add comments and knowledge to any of the postings.”

- Saul Grifith

This is what kitesurfing equipment looks likeThis is what kitesurfing equipment looks like

Tietz, Morrison and Herstatt have found that many innovations in this field come from users

Users developed and posted their kite designs -often better than designs by kite manufacturers

EXAMPLE: Super high AR mountain board kite“From Sebastian in Argentina.. a super high AR inflatable design for mountain boarding…”

Posted by saul at 05:58 PM

Kite modeling tools Patterns for building kites(Can be sent to sail lofts as CAD files.)

Kite design tools posted by users on Zeroprestige.orgare often better than manufacturers’ internal tools

Aerodynamic modeling tools

RESULT: User Innovation Communities may RESULT: User Innovation Communities may drive kite manufacturers right out of product drive kite manufacturers right out of product design design –– innovation is being innovation is being ““democratizeddemocratized””

HAS BEEN HAS BEEN An industry of manufacturers that develop and An industry of manufacturers that develop and sell kites of their own design. sell kites of their own design. $100mm in equipment sales in 2002 $100mm in equipment sales in 2002 –– growing fast.growing fast.

TODAYTODAY –– some firms are moving to a some firms are moving to a ““build onlybuild only””specialization specialization –– leaving product innovation to the user leaving product innovation to the user community (Firms are starting to download and build user community (Firms are starting to download and build user designs instead of creating their own kite designs.)designs instead of creating their own kite designs.)

358 members from 11 countries

400 cases and 1500 reviews

Involvement with medical device manufacturers andpatent attorneys

This is happening in many fields: International community of leading spine surgeons (lead users in their field)

There are ~ 200 internal R&D people at Lego. There are ~ 200 internal R&D people at Lego. There are There are 20,000+20,000+ AFOLAFOL’’s s –– many innovate. many innovate. More LegoMore Lego--related R&D related R&D outsideoutside Lego than inside?Lego than inside?

Official ILTCO website

News groups

Localusergroups

DK

Israel Chile

US

DearLEGO

FAQ

Off topic

…

Castle clubs/

organizations

ILTCO:International

LEGO Train Club Organization

Space

TrainOrganizations

EJLTC

FGLTC

…

GLUG: The Game-

LEGO Users Group

BrickWars

Starship

Yahoo!Group

Yahoo!Group

Yahoo!Group

EverythingLEGO

Educa-tional

Marketplace

Informa-tional

Robotics

…

……

…

…

…

…

…

…

…

……

500

links

Yahoo!Group

Yahoo!Group

NELUG

Source, Yun Mi Antorini

Companies Companies start outstart out ignoringignoring user communities user communities ––and and then begin to adaptthen begin to adapt –– consider Lego consider Lego MindstormsMindstorms

The brain• Computer “brain” within Lego

brick

Movement• 3 stepper motors

Sensors• Light• Touch• Temperature

Teaching• Kid-friendly, graphical

programming environment• Programs downloaded from

PC via infrared

Price ~ $200Source: Karim Lakhani and BCG team

Mindstorms robot kit

Lego mindstorms user communities grew rapidlyLego mindstorms user communities grew rapidly-- without company involvementwithout company involvement

Robots become widely available

August 1998

800

700

600

500

400

300

200

900

Nov1997

Jun1998

Feb1999

Oct1999

Jun2000

Jan2001

Aug2001

Apr2002

100

Lego robots announced

January 1998

(1) Lego Users Group NETwork. An independent discussion site for Lego enthusiasts Source: Russel Nelson, administrator of lego-robotics (russnelson.com)

Members

Today, LEGO has created links to innovating fans

“Lego Factory”Website links youngFans who wantto share their designs

Top Innovators from “Adult Fans of Lego”participate in LEGO factory Product Development teams

For NXT Mindstorms Robot Product Line:

•Lego adopts key existing AFOL innovations•Lego asks a few AFOL members to join R&D team

Policy Suggestion: Policy Suggestion: SupportSupport for distributedfor distributed user user innovation is meritedinnovation is merited

UserUser--centered innovation centered innovation increases social welfareincreases social welfare

UserUser--centered innovation iscentered innovation is increasingly importantincreasingly important as as computing and communication costs drop.computing and communication costs drop.

DistributedDistributed innovation innovation isis more efficientmore efficient than than concentrated concentrated innovation (the Linusinnovation (the Linus’’ Law effect)Law effect)

How can government policies support How can government policies support distributed userdistributed user--centered innovation?centered innovation?

1.1. Measure it! Measure it! ((71% of Canadian businesses in 1989 modified their 71% of Canadian businesses in 1989 modified their equipment. Probably collectively they spend manyfold more than tequipment. Probably collectively they spend manyfold more than the he equipment manufacturers)equipment manufacturers)

1.1. Support infrastructure development for distributed Support infrastructure development for distributed innovation (Open standards, collaborative tools, etc.)innovation (Open standards, collaborative tools, etc.)

2.2. Support open information communication infrastructure Support open information communication infrastructure ––the roads of the Internet age.the roads of the Internet age. (Spectrum licensing, etc.)(Spectrum licensing, etc.)

3.3. Support users ability to modify what they buy (avoid Support users ability to modify what they buy (avoid DMCADMCA--like laws)like laws)

4.4. Rethink IP: (SupportRethink IP: (Support the rights of the rights of users and others to users and others to build and protect informationbuild and protect information commons.)commons.)

Encourage research on distributed innovationEncourage research on distributed innovationExample: study impact of different IP schemes on Example: study impact of different IP schemes on innovative progressinnovative progress

-- Source: Ned Gulley, MathworksSource: Ned Gulley, Mathworks

Danish Government makes support of Danish Government makes support of ““user user driven innovationdriven innovation”” a national priority (Feb, 2005)a national priority (Feb, 2005)

"Strengthening user"Strengthening user--driven innovation and driven innovation and knowledge diffusion" the Government will develop knowledge diffusion" the Government will develop a particular program for the soa particular program for the so--called usercalled user--driven driven innovation. innovation.

SourceSource: Nye Mal Regerings Grundlag, VK Regeringen II, : Nye Mal Regerings Grundlag, VK Regeringen II, February, February, 20052005

Starting in 2007, the Danish Government will invest Starting in 2007, the Danish Government will invest about 130 Mio Danish Kroner per year into about 130 Mio Danish Kroner per year into supporting usersupporting user--centered innovation research and centered innovation research and projectsprojects

National competitive advantage with user-centered innovation: the DANISH LAB

Leading academics

in user-centered innovation

Eric von Hippel, Yun Mi Antorini,Lars Bo Jeppesen, Christoph Hienerth

Christopher Lettl

Work with

Leading Danish Firms

Lego, Novo Nordisk, DaniscoBang & Olufson, Coloplast

Advanced practices

Danishfirms

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Website

http://mit.edu/evhippel/www/books.htm