Free Innovation by Consumers-How Producers Can Benefit Consumers' free innovations represent a potentially valuable resource for industrial innovators

Abstract

Consumers develop many valuable products—and reveal their unprotected designs to others—as “free innovations.” (This article offers a brief sketch of the concept and importance of free innovation. My book Free Innovation, released by MIT Press in November 2016, provides much more detail.) These free innovations represent a potentially valuable resource for industrial innovators. Rather than replicating the innovation process already undertaken by these consumer innovators, producers can collect and evaluate consumer designs to identify those with the highest profit potential and apply their R&D dollars to refining these designs. They may also continue to develop products in areas where consumers are not actively innovating, but that are valuable to the business. In other words, to benefit from free innovation, producers must learn to engage in a new division of labor with consumers. There is a massive amount of free innovation in modern economies; studies in six countries show that tens of millions of people in the household sector—consumers—spend tens of billions of dollars each year to develop and improve products to make their own lives better (Table 1). These individuals, who might also be called “consumer innovators,” develop consumer products and services for reasons ranging from personal need to simple enjoyment of the development process to a desire to help others. The market in which these consumer innovators operate is an important innovation segment: consumer products and services account for the largest proportion of GDP in most countries; between 60 and 70 percent of GDP in the United States and other OECD nations is devoted to products and services intended for final consumption (Mataloni 2015 Mataloni, L. S. 2015. OECD 2015 OECD. 2015. National Accounts at a Glance 2015. Paris: OECD Publishing. http://dx.doi.org/10.1787/na_glance-2015-en).