Lead Users: What We Can Learn

Traditionally, innovation primarily occurs within firms. Once R&D labs develop relevant innovations, the marketing team will go on to sell the products, diffusing them in the market.  This is a specifically linear innovation model, ignoring other particularly important aspects of innovation within the economy.

In 1986 Eric von Hippel introduced the ‘Lead User’ concept. Following von Hippel (1986), lead users must satisfy two criteria; (1) users who face needs of the marketplace months or years before the bulk encounter the same issues; and (2) users who are positioned in a way that allows them to significantly benefit from innovative solutions to those needs. Later studies and natural experiments on lead users suggest that their incorporation into firms can lead to significantly greater innovation and profits for firms[1].

For marketing and management, this is significant. For innovation economics, it is crucial.

By ‘hiring in’ lead users, firms are effectively hiring in a new set of norms, values and heuristics into their institutional structure. They are hiring in users who have a relevant personal experience, and an incentive structure outside of earning profit. These are individuals who are more concerned with the innovation itself, rather than the later bottom line implications.

For the firm, this is fantastic. For society, it is a second-best solution. It takes innovative individuals out of the commons (where they are likely to freely reveal their innovations) into corporate institutions (who are quite often seeking profit through intellectual property law). It is possible that these individuals would not have the capital, finance or technical ability to develop their innovations outside the firm. Yet, they increasingly do[2].

If we can incentivise lead users to collaborate outside of the firm (and releasing their innovations freely) we may reduce the deadweight loss of intellectual property restrictions. While this seems startling with regard to standard neoclassical theory, it is already happening. The increasing prevalence of Hackerspaces[3] and Open Source Software[4] are only the tip of an iceberg that descends deep into institutional structure. This is the innovation commons. It needs more attention.

[1] See Urban and von Hippel (1988) and Lilien et al. (2002)

[2] The internet has continually pushed the boundaries of collaboration – allowing relationships between lead users with common interests. Crowd funding has made finance more accessible. Open source software has enlightened users to the benefits of modularity in communal projects.

[3] See http://hackerspaces.org/wiki/

[4] See http://sourceforge.net/about – SourceForge is a website dedicated to making open source projects successful by facilitating contributors.

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