I have often thought it would be great to have alternative ways to commercialize ideas outside of the traditional New Product Development (NPD) processes I had to use. After having spent most of my working life in R&D and managing R&D groups in large companies, I recall my disappointment when an idea for a new product was rejected only to have another company successfully develop a similar idea later. Recently new innovation models have been launched on-line that allow new product ideas to be commercialized quickly by anyone with a passion and great idea. I believe these new models for innovation are going to unleash a new wave of innovation and may cause companies to rethink their New Product Development (NPD) processes.
Online social networks have created new and exciting models for inventors to interact with consumers, obtain finance and develop products. New websites and their associated social networks offer the innovator completely new ways to test, fund, develop and market new products within an online community without needing to develop his own company, or have access to traditional venture capitalists, or sell their rights to another company.
The Power of the Crowd… These new methods involve crowdsourcing, crowdfunding and crowdvoting within the context of a social network. Crowdsourcing is the practice of obtaining ideas, direction and content from a large group of people, usually in the form of an online community. Crowdfunding is the practice of getting financial backing from a large group of people, again from an online community. Crowdvoting is a method of getting a large group’s opinion on a certain topic, in this case, about an innovation idea or innovation project.
By using these methods within a social network, it is now possible for an innovator with a good idea, to fund, develop and market a new innovation entirely through crowdsourcing. These new models of innovation enable innovators with almost no resources to commercialize their ideas quickly with a high degree of confidence. Some models allow the innovator to retain 100% ownership whereas others essentially guarantee a royalty stream in perpetuity. I am going to describe two different sites that utilize many of these practices and provide alternative models for innovation of new products. For transparency, I am in no way promoting either site or have any affiliation with either site. They are merely examples of new innovation models utilizing crowdsourcing and social networking techniques.
Quirky… This site  enables innovators to submit an idea for consideration for development and commercialization using Quirky methodology and resources. The site uses its online community to vote on the idea, help modify it, and enhance it; the site/users also develop copy and marketing for it, name it and price it. Quirky retains ownership of any IP in the idea if it moves forward in the process. Even if the idea submitter holds a patent, they must provide Quirky a license for the idea to be considered and if the idea is commercialized they must assign ownership of all IP to Quirky. If an idea is selected, Quirky provides the financing and has a rapid prototyping shop that takes the idea and develops a working prototype so that the manufacturing process can be quickly defined. Quirky has relationships with several third party contract manufacturers to manufacture the product. After the new product has been manufactured, you can buy the products at an online store at the Quirky website or at other affiliated retailers in Quirky’s distribution chain.
In essence, Quirky lets regular people who have smart ideas but who have no experience with patents or marketing to partner with an invention company that manufacturers the product and then splits the profits with them.
Quirky shares 10% of gross revenues of a new product with influencers (people who had a hand in the development of the product). Idea submitters get 40% of the total influencer budget (i.e. 4% of gross revenues). Various other influencers (designers, tagline developers, marketing developers, product enhancers) get smaller pre-defined cuts of the 10% according to a formula Quirky has on its website.
Kickstarter… This site  also uses the practices of crowdsourcing, crowdfunding and crowdvoting to finance, develop and commercialize mainly art projects such movies, music, games, theater, dance etc but also has a technology section.
Kickstarter’s mission is to bring creative projects to life and is different from Quirky in that its members provide the financing for projects and the innovator is responsible for development of the new product or service.
People from the Kickstarter online community who back Kickstarter projects are offered tangible rewards and special experiences in exchange for their financial pledges. Project creators choose a funding deadline and a minimum funding goal and post their project on the Kickstarter website. If the funding goal is not met by the deadline, no funds are collected, and the project does not start. There is no guarantee that people who post projects on Kickstarter will deliver their projects or use the money to implement their projects, or that the completed projects will meet backers’ expectations. Additionally, projects might fail after successful funding because creators underestimate the total costs required or because of the technical difficulties to be overcome.
The innovator/creator retains 100% ownership of the idea, uses the money raised to develop and commercialize the product and Kickstarter takes a 5% fee of the money that has been successfully crowdfunded. Kickstarter states that 75% of submissions are successfully funded. Wikipedia says that the success rate of launched projects is approximately 44%.
Effects on Innovation in Large Companies… As a general rule, late adaptors to new technology lose competitive advantage and struggle to recover. So it’s important to learn from other industries that have been slow to recognize and adapt to the crowdsharing effect – remember the sobering legacy of Napster and the erosion of royalty income to songwriters and performers until iTunes and other products emerged. In the R&D sector we need to explore using crowdsourcing methodologies in our internal New Product Development processes and consider providing additional resources to “mine” and review product concepts generated in the social networking space. Some of these new methodologies could be applied to the NPD processes in companies but I suspect many will be resistant to implementing them.
Many large companies currently seek consumer input for new products during the early development process. Typically this occurs via studies conducted by their Market Research groups. The use of social networks and online communities by companies to expose consumers to new products in development might reduce the cost, time and need for extended Market Research studies. The accuracy of Market Research might also be improved using this methodology as well as provide useful input for better design of the new product.
Rapid prototyping is another area that many large companies have used internally to quickly evaluate if a product concept can be successfully scaled-up from a manufacturing point of view.
Decisions to fund a new project in large companies are often made by Upper Management or by a NPD Portfolio Governance Board using a stage-gated process . Currently this part of the process is managed tightly and internally but there is scope here to learn from the social networking methodology.
Crowdfunding and crowdvoting might also be a way for smaller companies to partially fund the development costs of some projects while getting valuable market research. Customers might be offered discounts on the future new products as a way of getting them to crowdfund a new product. Companies might also consider using social networking methodology to provide incentives to internal and external innovators based on a formula similar to Quirky. Rewards are given for contributors to the development of the new product based on a formula which assigns a numerical score depending on what they exactly contribute…. A certain reward for the idea generator, another for the product designer, another for the tagline etc.
These kinds of cooperative relationships might prove to be formidable competition for larger companies whose size, bureaucracy and ego may relegate them to the late adopters’ category.
Open Innovation… I have talked about the use of open innovation by companies in previous posts [4,5] but this usually involves limited crowdsourcing ideas and product concepts or using expert consumer panels to evaluate product concepts or prototypes followed by traditional new product development processes, either internal or external, and commercialization via traditional company marketing channels.
The new models of innovation discussed above, especially Kickstarter, are really examples of open innovation that circumvents the traditional corporate product development role. In the case of Quirky, all ideas originate outside the company and all subsequent decisions and development are heavily influenced by open innovation concepts but are conducted by Quirky using their process. This does not mean that the traditional R&D model is now redundant. Confidential proprietary projects/products will always create competitive differentiation. Only now there are additional new ways to initiate, develop and sell new products to integrate into existing NPD processes and there is a vast external product development landscape to monitor and new businesses to license, purchase or partner with.
Summary… Crowdsourcing through social networking and open innovation in its many forms are going to be a new paradigm for innovation. Kickstarter and Quirky are examples of new models of innovation that allow anyone with an interest and passion to become involved in innovation. In fact they could be considered as extreme forms of open innovation that apparently are doing well and growing. Crowdsourcing and open innovation that heavily utilize social networking are successful ways to overcome barriers to innovation, not only for the lone innovator without resources but increasingly so for companies with traditional NPD processes.
© Dennis Nelson 2014