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.
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, and Eric von Hippel. Costless Creation of Strong Brands by User Communities: Implications for Producer-Owned Brands Sloan Working Paper. Sloan School of Management, Massachusetts Institute of Technology, August 2008. (PDF)
Abstract: Proprietary brands are a major vehicle for producer profits: consumers have been shown willing to pay a considerable "brand premium" for a branded product over an otherwise identical unbranded product. Prior literature has implicitly assumed that only producers develop brands. In this paper, we report that user communities also can and do develop strong proprietary brands capable of commanding significant brand premiums. Communities, we find, create their brands at essentially no cost - a costless side effect of member participation in community activities and relationships. In an empirical study of German and English-speaking outdoor communities, we find that most have created their own community "brands," sometimes involving logos that are applied to products commonly used by community members, etc.. In a detailed study of one community, we find community brands can gain very powerful positive associations within community memberships, and that many members are willing to pay considerable premiums for products bearing the community brand. These findings suggest that producers face a previously-unexamined source of both competition and collaboration with respect to profiting from brands. One interesting possibility is that producer brands may lose significant market share to user community brands under some conditions. Another is that producers may sometimes find it profitable to co-brand with user communities: this form of co-branding created the highest brand premiums we observed in our study.