The Age of the Consumer-Innovator

Research shows that consumers collectively generate massive amounts of product innovation. These findings are a wake-up call for both companies and consumers -- and have significant implications for our understanding of new product development.

It has long been assumed that companies develop new products for consumers, while consumers are passive recipients. However, a multi-decade effort by many researchers has shown that this innovation paradigm is flawed: Consumers themselves are a major source of product innovations.

Recently, this consumers-as-innovators pattern has led to the framing of a new paradigm. Rather than seeing consumers simply as “the market,” as the traditional innovation model has long taught, this new paradigm centers on consumers and other product users. It explains why consumers are very important innovators who often develop products on their own.

A paradigm shift in understanding innovation

What else do we know about consumer innovation beyond the fact that there is a lot of it going on? First, the surveys find that few consumers attempt to protect their innovations from imitators; their innovations are free for the taking. Second, most consumer innovations do not get adopted by fellow consumers and/or by producers of consumer products. Third, a significant number do get adopted by others. Taken together, these findings mean that companies that make consumer products have an unexpected “front end” of free innovation designs to serve as an important feedstock to commercial innovation processes in a wide variety of fields.

This new innovation paradigm in which consumers and other product users play a central role consists of three phases.

Phase 1

Initially, markets for products and services with novel functionality are both small and uncertain. For example, at the start, no one knew whether there would be a profitable market for the first skateboard — or for the first dishwashing machine, for that matter. However, producers don’t like small and uncertain markets. Especially in consumer goods fields, producers know they need to spread their R&D and other innovation costs over a lot of purchasers in order to make a profit. As a consequence, consumers often must pioneer really new products for themselves, because producers cannot yet see evidence for a profitable market. And, indeed, that is the history of both skateboards and dishwashers.

Consumers are not only developing new products but also providing marketing research data to any producer alert enough to collect it and assess it.

Phase 2

As the surveys showed, most of the innovations developed by consumers are of interest to the originating consumer only. But some consumer innovations have greater potential. Since many of the designs are often freely available, other consumers can test their own levels of interest by freely making copies, trying them out and maybe improving the designs as well. The degree to which this viral diffusion to other consumers takes place — whether through communities on the Web or other communities — offers a progressively stronger signal to producers as to which of the new designs and functions will offer the basis for a profitable new commercial product or product line. In other words, consumers are not only developing new products but also providing marketing research data to any producer alert enough to collect it and assess it.

Phase 3

Producer companies begin to decide that the information on the design and function of the new product, and how many might want to buy it, has reached acceptable levels for their risk profiles. For example, only after the popularity of skateboards began to spread among children did companies become interested in manufacturing skateboards commercially. Small producers generally enter first, because they are satisfied with smaller markets. Some of these are new startup companies founded by consumer-innovators themselves. Then larger companies enter, often by acquisition, if the market grows still further. Producers, even if they do not develop the initial ideas and prototypes for functionally novel innovations, also contribute.

Implications of the new innovation paradigm

What are the implications for consumers and producers of this major paradigm shift in our understanding of the innovation process?

Implications for innovating consumers

With respect to Phase 1 of the innovation process we described — initial need awareness, product design, prototyping and use testing — consumers should realize that they are important developers of really novel products and services: It is by no means only companies that, as a well-known General Electric slogan put it, “bring good things to life.”

With respect to Phase 2 of the innovation process — testing the generality of demand and perhaps encouraging imitation — consumers can choose to exert effort to make people aware of their innovation; to assess demand if they wish; and to act upon that information if they wish. Creating platforms for design sharing can ease the effort required by individual users. For example, is a community website that allows anyone to post their designs.

Implications for entrepreneurs

Phase 3 of the innovation process involves decisions to commercialize an innovation if there are sufficient indications of demand. Among the potential producers are the innovating consumers themselves, as well as consumers adopting the initial design, who then decide to produce the design for sale to others. The exciting news for consumer-innovators is that it is getting steadily easier to commercialize an innovation oneself; you need not give up an attractive job or career you already have. Companies can be hired to produce your design in volume, to accept and process customers’ orders and payments and to ship the completed product to the customers for you as well. It is a far cry from the all-consuming entrepreneurial effort that was required to perform these tasks in earlier days. In effect, the way has now been opened for the innovating consumer to be a “casual entrepreneur.”

Companies will have to help their own product developers look at consumer-developed innovations with new eyes — not just as poorly engineered amateurish efforts.

Implications for existing companies

Businesses need to think about how to reorganize their product development systems to efficiently accept and build upon prototypes developed by users. The fundamental question to ask is: “What would need to change around here if we really believed that consumers are actually developing, prototyping, use-testing and market-testing some of what will be our most important and novel new products — without us?”

In addition, companies will have to help their own product developers look at consumer-developed innovations with new eyes — not just as poorly engineered amateurish efforts.

This article is adapted from “The Age of the Consumer-Innovator” by Eric von Hippel, Susumu Ogawa and Jeroen P.J. de Jong, which appeared in the Fall 2011 issue of MIT Sloan Management Review.