The sport of rodeo kayaking—the use of specialized kayaks to perform acrobatic tricks and maneuvers in rough white water—began around 1968 when an avid sportsman by the name of Walt Blackader developed techniques for entering waves sideways and backwards. Other kayakers followed Blackader's lead, and the sport of rodeo kayaking quickly emerged from the rapids.
Harvard Business School professor Carliss Baldwin and her colleagues Christoph Hienerth and Eric von Hippel were drawn to the sport as well, but not to get their feet wet. Instead, they realized that both the sport and industry of rodeo kayaking was a wonderful example of how "user innovations" evolve and eventually become commercial products. Hienerth is a professor at Vienna University of Economics and Business Administration, while von Hippel is a professor at MIT Sloan School of Management.
For user innovation to be a force, the cost of creating a new design must be within the reach of a single user.
User innovations occur when customers of a product improve on that product with their own designs. In rodeo kayaking, the early participants built specialized kayaks from fiberglass using hand lay-up techniques; these crafts were especially nimble in rough water. In the early 1970s, other kayakers began asking these "user innovators" to create equipment for them—and the rodeo kayaking industry was born. Since then, rodeo kayaks have gone through several major design iterations, and the sport has become a $100 million business.
Baldwin and her fellow researchers wanted to better understand this path from user innovation to commercial product. What role do user communities play in this process? Are "user-manufacturers" —users who turn their improvements into commercial products—usually industry leaders? How competitive are existing, well-capitalized companies when they compete against user-manufacturers? Although there have been a number of studies on user innovation, little if any work has been done on the commercialization of user innovations, the authors believe.
The research was recently published in the working paper How User Innovations Become Commercial Products: A Theoretical Investigation and Case Study. The authors believe that their research "provides a first opportunity for both user-manufacturers and established manufacturers to think systematically about the dynamics of these types of markets, and to plan their business strategies accordingly."
In this interview, Baldwin discusses the research and its implications for entrepreneurs who would like to become their own user innovators.
Q: What led you to do research in this area?
A: I'm interested in how designs are created and then turned into real things. Many management scholars and economists fall into the habit of thinking that innovation is something that firms uniquely do in order to make money. But Eric von Hippel and his colleagues have shown that many product innovations originate with users. This makes sense when you think about it—users are the direct beneficiaries of better products. And it's users' willingness to pay for better products that makes innovation profitable for firms.
I became interested in user innovation about three years ago, as an alternate (and important) route by which new designs come into being. Talking with other researchers, I learned that there were some theoretical open questions. In the first place, user-innovation communities are pervasive—wherever users innovate, they form communities and share their innovations. Second, user innovators are often, but not always, the first to market with their innovations. Sometimes the early user-manufacturers are displaced by large, well-capitalized companies, but in other cases, they grow up to be industry leaders.
These stable patterns have been observed (with variations) in a wide range in settings. They cried out for a theoretical explanation. So Eric von Hippel, Christoph Hienerth, and I teamed up to see if we could construct a theory to explain the phenomena.
Q: Can you describe in general the pathways user innovations take in your model?
A: The process begins when an individual user opens up a new "design space." He or she does something in a new way that is exciting to other users. Very often, this is a datable event—people tell stories about "the first time Walt did a roll on that river."
Then, if the cost of design is not too high, lots of users will be motivated to "search" in the new design space. They will look for ways to improve on the original innovation.
However, from the users' perspective, designs are what economists call "nonrival" goods. As Thomas Jefferson said, "he who receives an idea from me, receives instruction himself without lessening mine." If I know a better design, I can use it, and you can use it too, without lessening my enjoyment. This nonrival property supports the formation of user-innovation communities, where improvements to the basic innovation are freely shared, tested, and pushed forward. In practice, if someone figures out a really cool new activity or device, a community of co-innovators will form almost instantly.
The emergence of a dominant design will trigger an industry shakeout and consolidation.
In these communities, there are people who want to use the latest and greatest design, but don't want to make it for themselves. These people create demand, of the form, "I want one just like yours." The user innovators are already making their designs for themselves, using low-scale production methods. Thus it's very natural for them to make a few more items for their friends. Then they make a few more for friends of their friends, and charge for them. Thus user-manufacturers are born. Because of their low-scale production methods and connections in the community, they have a competitive advantage when the design space is new and the designs themselves are changing very rapidly.
However, low-scale production methods tend to have high costs. Thus when demand reaches a certain volume and the changes slow down, it makes sense to invest in higher-scale production and distribution methods. Sometimes the user-manufacturers can make this switch, but it can also be an opportunity for established firms to enter the new industry. In the paper we emphasize that capital generally needs to stay in place for some period of time: You don't want to see your investment wiped out by the next new thing to sweep the community. So, in general, entry by established firms must wait for the pace of user innovation to slow down and the design space to be "mined out." We also show that innovative user-manufacturers and mass-market firms can share the market for a long time.
That's the standard pathway. There are many variants, especially in the third and fourth stages. Communities always form, although sometimes they dissolve when competition between manufacturers heats up. But you don't always see user-manufacturers, and in some cases, you don't see a switch to high-scale production methods.
Q: Do user innovations flourish more in some industries than others, or with certain types of products more than others?
A: Definitely. For user innovation to be a force, the cost of creating a new design must be within the reach of a single user, whose reward is solely the improvement of his or her own experience. The cost I'm referring to can take many forms: It can be time and effort, knowledge, or money. But the cost has to be reasonably low, and the perceived psychic reward to the user has to be high enough to justify the cost.
Perceived rewards are high when people are passionate about something. I think this is why we see a lot of user innovation in design spaces related to new sports, like rodeo kayaking and kite surfing. The participants care passionately about their sport, and (because it is new), its design spaces are still largely unexplored.
People can also be passionate about things they use or must deal with every day. You are annoyed and annoyed and annoyed, and one day you do something about it. Eric Raymond, of open source fame, calls this "scratching an itch." (Open source software development started out as a form of user innovation, but it's now morphed into something more complex.)
Q: Why is the rodeo kayak a good illustration of your model?
A: There were three things that made rodeo kayaking an ideal test case for our model. First, it was a new sport, but not brand new, so we had a history of how the sport and the industry developed. Second, my coauthor, Christoph Hienerth, compiled a wonderful database of innovations in both technique and equipment. From the data, we knew that—at least until recently—users (including user-manufacturers) were the primary source of innovation. Third, the underlying technologies—fiberglass hand lay-up and plastic injection molding—differed on key cost and capital dimensions. So we had excellent data, almost a pure case, and natural variation on a critical dimension. One cannot ask for more!
Q: What is the concept of dominant design, and what does your model say about this?
A: A dominant design is a standard architecture for a product system that almost all firms in an industry adhere to. For example, the dominant design in automobiles today has a gasoline engine, four wheels with rubber tires, a steering wheel, a closed body, and automatic transmission. Designers may change the attributes of automobiles, but it's considered very radical to depart from these standards. By the same token, the dominant design of rodeo kayaks (as of about 2000) involves a short, center-buoyant, planing hull made of molded plastic.
Bill Abernathy of HBS and Jim Utterback of MIT defined dominant designs back in the 1970s. They went on to theorize that the nature of innovation and competition changes after a dominant design emerges. Specifically, they said, before a dominant design emerges, there will be lots of product innovation carried out by many small firms. Once the dominant design is established, however, the focus of innovative effort will switch to cost reduction and process improvements. Cost-reducing process innovations benefit large firms most; hence the emergence of a dominant design will trigger an industry shakeout and consolidation.
What we observed in the rodeo kayaking industry (and what our model predicts) is somewhat different. Experimentation with many different kayak designs went on in the user-innovation community for about ten years. Then a really superior, "breakthrough" hull design emerged—the center-buoyant planing hull. As a result, the market for rodeo kayaks expanded greatly. At this point, many new firms entered the market, offering variants of the breakthrough hull. Now, the consensus is that there isn't much more to be done with hull designs—the design space is close to being "mined out." And now companies are switching to high-capital, lower-cost production processes.
Thus, we believe that the emergence of a dominant design may set off a lot of product innovation, hence trigger a lot of entry by small new firms. The switch to cost reduction and process improvement, with attendant consolidation, will occur later, after the possibilities inherent in the new architecture are well understood and the design space is mined out. But "mining out" is not inevitable. Some design spaces—for example, in computers, information technology, and entertainment—seem to have boundless capacity to engender new, fascinating designs.
Q: In your model, there are times of maximum strategic advantage for both user-manufacturers and established manufacturers. Can you describe those opportunities for each group?
A: User-manufacturers are embedded in the user community and use low-capital production and distribution methods. They are at an advantage early on, when the designs are turning over very fast. They can leverage their connections in the community, both to stay abreast of new designs and for marketing purposes. Moreover, their lack of capital is not a problem, because it would be foolish to make a large investment while the underlying designs are still in turmoil.
Established manufacturers initially aren't well connected to the user community, but they have capital and the capabilities to run high-volume production and distribution systems. However, they must earn a return on their investment over time, hence should not make their move until the pace of user innovation slows down. Their opportunities come in the later stages of industry evolution.
Q: What are you working on now?
A: Going back to my original agenda, I'm interested in the many different ways designs are created and made into real things, and how the economy and society supports these transformations. Right now, my colleagues and I are trying to find ways to (1) describe different design architectures; and (2) predict the "richness" of the design spaces created by an architecture.
Really rich design spaces don't get "mined out"—like a magician's hat, new things, including whole new design spaces, keep emerging from them. The computer industry has behaved this way, building design spaces on design spaces. With such mutable designs, the pathways from innovation to commercial product will be different from those described in this paper. So we're trying to figure out what happens in those cases—in particular, what managers can expect in terms of competition and industry evolution in rich design spaces.