Who’s a producer, and who’s a consumer? In the 20th century, the boundary was clear: companies made stuff, and consumers bought it.
But according to Eric von Hippel, a professor at the Massachusetts Institute of Technology, you can miss a lot if you expect those two parties to remain in their established roles in the year 2016. Consumers are designing and manufacturing their own products, from network-connected glucose monitors for diabetics to video game modifications. Often, they solve problems or spot opportunities before a company does.
Von Hippel, an economist who has studied open innovation since the 1980s, explores the phenomenon of consumers as innovators in his just-published book, “Free Innovation” (MIT Press). In a recent conversation in his office overlooking the Charles River in Cambridge, von Hippel pointed out that there are far more consumers innovating today than there are R&D engineers working for companies.
I thought I would start by asking you a little bit about the Nightscout example that you start with in Chapter One, because I think it’s a really nice way to get a handle on the idea of free innovation. Could you talk about that?
It has always traditionally been thought that the producer is the innovator. “What we do as producers is we find a need and we fill it.”
Companies are very much not used to the idea that consumers are innovators. They say, “We’ll study what you want in a toothpaste.” They come to you and they do focus groups, and they say, “Ah, you want rum-flavored toothpaste.” Then they go to the R&D lab and they make it. It would never occur to them that you might have mixed some up already.
We’ve done national surveys, and we know that about five percent of national populations actually innovate for themselves, which is a massive number. It’s much more than all the R&D [employees] put together — [In the UK] it’s over a hundred-fold more.
Could that be either somebody who develops a new recipe for jam and goes to the farmer’s market, or somebody who’s tinkering in their basement on an electric bicycle that they hope to patent?
Or something they hope to not patent, but just use. It could be all of that, but we [focus on] functional novelty, so the jam wouldn’t hack it. It has to do something better than is now done on the market. It has to be a better bike.
With your focus on functional, you would leave out, for instance, people who have their own channels on YouTube, and they are basically an entertainment company unto themselves. They’re producing novel kinds of content that doesn’t exist on any cable channel, or TV network. That wouldn’t necessarily fall into your definition.
No, because what we’re focusing on is innovation. It is true that user-generated content follows a lot of the same patterns, but in fact, what we’re talking about here is just plain the product development function that people assumed [only existed] in corporations.
The example that you were talking about, with Nightscout, is an example of that behavior. The specific story was that children [who suffered from Type 1 diabetes] could not be sent on sleepovers. They had continuous glucose monitors. On your belt, [the monitor] would show what your glucose numbers were, but if the kid was like three, he doesn’t know what to do about that. He’s just running around with this thing on, and the parent occasionally grabs him and takes a glance.
You couldn’t send these kids on sleepovers. It was, and is a really frightening issue, especially at night, because kids can die, and regularly do, because their blood sugar drops too low. Anyway, one person said, “I’m going to create a remote reader, so that my kid’s numbers are transferred to the web, and then to my phone, or watch, or whatever.”
Other people said, “Whoa, I need that, too.” It took off as a movement, and now has thousands of participants, and users, entirely outside of [the realm of commercial medical device] producers.
It’s fascinating, because it has to [happen] outside of producers. In the case of medical care, the FDA can regulate it if commerce is involved. They cannot regulate it if what you do is non-commercial.
Is your belief that the medical device industry didn’t see that opportunity, or saw that opportunity and said, “We’re not sure that there’s enough of a market demand for that to make it worth jumping through all the hoops of FDA approval?”
It’s a mix. In this case, the engineers at the companies didn’t necessarily see the problems. They think, “Adult user, readout, simple.”
Then, as soon as the users began to do it, they saw it as an issue, and they put it through the FDA, because everybody wants it, but it was a follow-on.
I’ve got to tell you a wonderful story, by the way, with respect to that. Over at my condo, I live not far from here [in Cambridge], there are cracks in the basement garage. They have to fill the cracks with waterproof stuff. I passed by there a couple days ago, and I saw these workers. the first thing they do is that they grind out the crack, so that you can have room to shove in the new water-proofing stuff.
What they had was a hand tool, a little grinder, but they had attached a broomstick to it, and they were standing upright, and they were guiding it down the crack. I said, “Why’d you do that?” They said, “Well, it hurts my back when I’m down there on the ground.” I said, “Well, is that commercially available?” They said no, and I said, “Why do you suppose the producer didn’t do it?” The guy said, “It ain’t their backs.”
“It ain’t their backs,” and also so few companies probably do that sort of post-release anthropology about “How do people use our product out there in the real world?”
Exactly. This happens again and again. Shoulders are regularly ruined, because the people who put up drywall on the ceiling have to do [something similar] all day with these power screw guns. A drywall installer created a device that would hold the thing, and it was pneumatic. Same story. Companies were like, “Well, who knew?”
The user does it first, before the company, because he only has to know about his own need. He doesn’t have to know about a market. He doesn’t have to do a market study. He just does it. Then, that starts to spill through the marketplace.
With the broom handle example, and this guy filling cracks in your garage, that’s not necessarily patentable, so any smart person observing that sort of free user innovation could say, “Hey, we should build that into our product.” Are there other ways to do that?
They still might sit there and say, “We don’t know how many people there are out there with that, so we don’t really know unless we go through the effort of a market research study, which we might be too lazy to do, or it might not be high-priority.”
To answer your question, “What are the models for bringing that back to companies?” All of these opportunities, some of them will be of commercial interest, but then the question is, “How does a company find them?”
What the company often does, or is learning to do nowadays, is hosting something of use to these people [who are innovating outside of the organization]. Do you know Valve Corporation? They post Steam Workshop. All these other users are hacking [and modifying video games.] Who knows what’s any good? Valve creates Steam Workshop. They say, “The tool’s here. Come on, you can play.”
The tools are for modifying existing games?
Yes. Here’s some tools. Modify the games. Other people can download it. It’s all free, isn’t this wonderful? Then they can see the levels of activity. They say, “Whoa, this one is a hit.” Because we’re doing something for the people themselves, giving them tools, they aggregate around us.
Then, we can see what they’re doing, and what of that stuff we might want to commercialize. When they look, they will sometimes see, “Hey, we ought to build that into our games.” Other times, they might say, “Look, this is a free complement [to one of our games.] This is cool. We don’t have to commercialize it. People who want it can download it for free, [and] it adds value to our product.”
All this activity, by the users, generates value for those users, but it also diffuses to the companies when commercial value is generated. It’s cool.
We talked about this idea, with the Valve example of producers learning to support free innovators. You say in the book that it’s possible to “channel their work into privately profitable directions.” Are there other examples of how you’ve seen that happening?
Take Lego. They make Lego Mindstorms, a robotics set. They had spent years [developing] it. Three months after its release, a thousand hackers were [buying and improving the set.]
Then Lego said, “OK, we see where these people are. They’re out there. They’re self-organized. It’s many thousands of people now. Some people like robots. Some people like trains. Maybe we can work with those people.”
What they did was exactly what Valve did — “We’ll create a site where you can post your stuff. You can sell stuff on our site. We’ll watch and we’ll see what sells. If we really want to publish it ourselves, we’ll give you one percent.” [That idea has since] been supplanted with a [different approach:] “If 10,000 of you vote for the design, we will build it for you.”
In the 20th century, it seems like the ultimate CEO fantasy was to have this vertically-integrated, insular, high-powered R&D group. Let’s own our own factories. Let’s control it all. What I’ve read of your work and what we’re talking about today makes it feel like in the 21st century, we’re talking about an organization that’s much more permeable to the outside world.
It has to learn to be. The outside world can increasingly do without them. You know about Shapeways? You can go and you can [get your own designs printed by a service bureau.] When they print, they say, “By the way, you want to sell the thing? if so, just put a price on it and we’ll handle everything.” So they become like publishers [of user-developed products].
One of the things we often observe is that at most big companies, there’s so little incentive for anybody to get outside the building. You go to meetings all day, there’s lots of incentive to be in those meetings, but if you talk about going to visit a user group, or a meet-up, or a swap meet, what’s the incentive to be out there, in the outside world?
The really big companies still own huge markets. What they basically do is ignore all those early signals, and [instead] acquire companies. The sequence is that users do it, then companies form from within the communities who can see this thing — [startups that can] be satisfied with a small market.
Right, Apple being an example of that.
Apple in the early days, yeah. Then, eventually, [the large companies] get in there and they’ll say, “This is big enough now. We can acquire a fair-sized company that is doing this, and hopefully it is big enough so we won’t crush it.”
And hopefully it hasn’t gotten too successful where you can’t buy it, like an Amazon or an Apple. Those ones get big enough on their own, and they go public, and that’s it.
You make the observation that plugging into and adopting these free innovations can lower the producer’s, or the company’s, in-house development costs. That got me thinking about, how does this play with the existing R&D, or product development organization?
It’s a prototype, because basically a user makes something for himself. It’s not a producible form. You’ve got to [take it and] you’ve got to clean it up. Manufacturing can do that.
With farming equipment, [you see the same thing.] What you have is a rough prototype that the farmer makes, that works for him. Using agricultural wheels and stuff he has around. Then the company cleans it up, and R&D does that.
Largely, what they are, and what IDEO is, and all these companies is they are largely product engineering companies. IDEO will look at a surgeon, for example, who has said, “You can clean out a wound by pulsing the water jet better than a continuous stream.” IDEO will take that and say, “OK, we can make a pulsar thing,” which is basically what the companies do.
What else should I have asked you about? Because I only had one chapter to read before today, and there are eleven chapters in the book.
What’s happening is you’ve got a grass-roots innovation system that is growing up underneath the company’s visibility, and it’ll substitute for some things the companies do. But where there are economies of scale in production, companies can pick it up, and do something with it.
Everybody, you included, tends to focus on the companies. “What does this mean for the companies?” But you know what? In the end, it’s the people making it for themselves.
If consumers are making something, look at these things.