Lead users and user innovation networks

Umair recently pointed me to a very interesting paper by Eric von Hippel -'Horizontal innovation networks - by and for users'. I finally got around to reading it and I'll write a post about it soon.

One of my big takeaways from this paper was the idea of lead users – users whose needs significantly anticipate requirements of the broader market well in advance and who create innovation around the existing product to satisfy their unique requirements. This class of users falls outside the traditional technology adoption life cycle taxonomy of Innovators, Early Adopters, Pragmatists and Laggards – in a sense these are Pre-Adopters, adopters in advance of a product. An important distinguishing characteristic of this user group is that they show a propensity to experiment with existing products, tweaking/modding them and often creating new product innovations.

Empirical studies find that innovation by users tends to be concentrated among “lead users” of those products and processes. Lead users are defined as users of a given product or service type that combine two characteristics: (1) lead users expect attractive innovation-related benefits from a solution to their needs and so are motivated to innovate, and (2) lead users experience needs that will become general in a marketplace, but experience them months or years earlier than the majority of the target market (von Hippel 1986). Note that lead users are not the same as early adopters of an innovation. They are typically ahead of the entire adoption curve in that they experience needs before any responsive commercial products exist – and therefore often develop their own solutions.

It is lead users who are behind movements like Linux and open source generally - as has often been noted, OSS developers also tend to be OSS users. von Hippel's point is that the notion of lead users extends beyond just software or high tech products. He finds the same dynamic at work in high-performance windsurfing, for instance.

It pays a firm to cultivate this group as they can serve as a bellwether of trends to come. By creating and tapping into user innovation networks, a firm derives (at least) the following benefits: (1) advance warning of the evolving needs of the broader market, (2) opportunity to leverage innovations stemming from this group and feed them back into the product, (3) ability to leverage this network to maintain competitive lead and stay ahead of the competition.

Creating effective and sticky relationships with this group would entail (1) facilitating the formation and gatherings of communities of such users (through newsgroups, user groups, new product expos), (2) exposing APIs to the product to allow such users to tweak or otherwise customize or modify the product, (3) making early prototypes and alpha versions of future product versions available to these users, (4) maintaining a strong involvement with this community/network to tap into emergent trends as well as innovations, (5) leverage this early warning system as a way to innovate faster than competitors.

Executed well, this strategy can be a powerful source of sustainable competitive advantage through leveraging of exogeneous innovation. Amazon seems to be executing well on such a model through its web services API.