Blue Sky 19/09/16 Plenary 3

1. Panel topic: Towards more inclusive science and innovation indicators
Two specific suggestions:
(1) Change the definition of innovation in the Oslo Manual
to enable it to ALSO apply to household sector innovation
and other economic sectors as well.
(2) Measure household sector innovation!
Eric von Hippel
MIT Sloan School of Management
Blue Sky III, Ghent, 2016

2. Market Research and Production
Research Development
Market
Diffusion
The definition of innovation in the 2005 Olso Manual fits the
Schumpeterian innovation paradigm. That paradigm assumes
innovations are developed by producers, and distributed via the
market. (Schumpeter 1934)
PRODUCER INNOVATION AND DIFFUSION PARADIGM
“A common feature of an innovation
is that it must have been
implemented.
A new or improved product
is implemented when it is
introduced on the market…”
(OECD/Eurostat 2005: para. 150)

3. Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
household replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
BUT - Individuals in the household sector also innovate - a lot - and do NOT
“implement” their innovations via the market.
Given the amount of empirical work on household innovation, the time is right for
definitions of innovation in all economic sectors. Not only will this support
international comparison but it will result in better understanding and
measurement of linkages and interactions between the sectors.

4. What do we know about the scale of household sector innovation?What do we know about the scale of household sector innovation?
Tens of millions of consumers spend tens of billions of dollars per yearTens of millions of consumers spend tens of billions of dollars per year
developing innovations in just six countries surveyed to datedeveloping innovations in just six countries surveyed to date
– and > 90% let their designs diffuse for free outside the market– and > 90% let their designs diffuse for free outside the market
National
surveys
U.K. U.S. Japan
% population
innovating
6.1%
(2.9 mil people)
5.2%
(11.7 mil people)
3.7%
(3.9 mil people)
% protecting their
innovations from
imitators
2% 9% 0%
Total household
sector spending
$5.2 billion $20.2 billion $5.8 billion
% of R&D spending
by firms on
consumer products
140% 33% 13%

5. 43% 37% 11% 9%
How can household sector innovators justify spending private
money developing innovations - and then give them away?
Answer: They are self-rewarded (only ~ 10% are entrepreneurs)
(Cluster Analysis: Data from survey of 408 innovating citizens in Finland, aged 18-65)
National surveys U.K. U.S. Japan
Few protect via IP 2% 9% 0%
(Data from de Jong and von Hippel 2016)

6. But - it is not just a matter of getting more accurate counts -
• Innovation in the household sector interacts
with producer innovation - and it is important
to have a common terminology that applies
across sectors.

7. Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
user replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
Definition of free household sector innovation
(1) Innovations are developed at private cost by individuals during their unpaid leisure
time – no one pays them to do it.
(2) Design information is unprotected by the developer – potentially acquirable by
anyone “for free.”
Important consequence: Free Innovation is transaction-free.
What are the consequences of not counting free innovations -
beyond amount? Free innovators invisibly supply designs to
producers
This reduces producer R&D costs - making producer R&D look a lot more
productive than it actually is
The effect can be HUGE: In a study of whitewater kayaking innovation,
adopting user designs saved producers 3.2X of their entire development budgets
(Hienerth, von Hippel and Jensen 2015)

8. Free Medical Apps Priced Medical apps Total
49 % free 51% paid N = 1010
Average rating per
app (1-5 stars)
3.71 stars ** 3.46 stars 3,58 stars
first to introduce a
new feature
(diabetes)
54% 46%
Average annual
downloads per app
36,389
(Median: 5,993)
5,290
(Median 1,050)
Notes: ** p = 0.001
In 2016, there are about 70,000 medical Smartphone apps available in the
Apple App Store.
Of the top 1000 in the Apple App Store by downloads: 49% are given away for
free, and 51% are sold at some price (average 5.56 USD).
Over half of the apps pioneering novel features are first diffused for free.
Under the present definition, they are not innovations until a firm markets
them - and then that firm is credited as the innovator.
Source: Goeldner and Herstatt (2016)
In practice, the “on the market” requirement creates confusion

9. Serious innovations are also first introduced for free.
First artificial pancreas in everyday use – design developed by Type 1
diabetes patients and distributed for free.
Dana Lewis who has type 1 diabetes, and her
husband, Scott Leibrand, formed a group to
develop and diffuse this important medical
innovation ”for free”
The free innovation improves
clinical outcomes
#DIYPS @DanaMLewis

10. Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
user replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
Definition of free household sector innovation
(1) Innovations are developed at private cost by individuals during their unpaid leisure
time – no one pays them to do it.
(2) Design information is unprotected by the developer – potentially acquirable by
anyone “for free.”
Important consequence: Free Innovation is transaction-free.
Free innovations invisibly complement producer products
They increase consumer value – and increase producer profits at the
same time
RIDING TECHNIQUES
RIDING HARDWARE

11. Further interactions between the two paradigms:
Free innovations can compete with producer products
and increase social welfare
Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
user replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
Definition of free household sector innovation
(1) Innovations are developed at private cost by individuals during their unpaid leisure
time – no one pays them to do it.
(2) Design information is unprotected by the developer – potentially acquirable by
anyone “for free.”
Important consequence: Free Innovation is transaction-free.
Apache OS
web server software
(On 38% of websites (2015)
Microsoft commercial
Web server software
(On 28% of websites (2015)

12. Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
user replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
Definition of free household sector innovation
(1) Innovations are developed at private cost by individuals during their unpaid leisure
time – no one pays them to do it.
(2) Design information is unprotected by the developer – potentially acquirable by
anyone “for free.”
Important consequence: Free Innovation is transaction-free.
New interaction strategies are developed: A division of innovation
development labor between producers and users makes sense –
producers are learning to supply customers with tools to do even
more innovation development
Game a producer sells
Free toolkit to help players innovate

13. Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
household replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
What are the consequences of excluding free household sector
innovations because they are not “on the market”?
Sector interactions become invisible, and distortions are
introduced to producer sector measures as we have seen.

14. (1) Adjust Oslo Manual definition of innovation
Current definition: An innovation is the implementation of a new or
significantly improved product (good or service), or process… (OECD/Eurostat
2005: para. 146)
A common feature of an innovation is that it must have been implemented.
A new or improved product
is implemented when it is introduced on the market…
(OECD/Eurostat 2005: para. 150)
Suggested change:
A new or improved product
is implemented when it is made available to potential users…
(Fred Gault, Science and Public Policy (2012)

15. (2) Initiate regular social surveys of household sector
innovation
John Gawalt at NSF says I can convey to BlueSky his group’s
“sincere interest in improving our understanding of household
innovation, to include the collection of high-quality data.”
–Colleagues and I have now tested and refined a household innovation
survey in 7 countries, and offer it freely to all.
–NSF experts have vetted the survey and find it to be of good technical
quality – Implementable.
–Social surveys are needed - not enough to add questions to CIS.

16. New book coming in Dec
focused on household
sector innovation.
- eBook freely
downloadable

17. Free user innovators systematically act earlier than producers
- and tend to develop the innovations that are functionally novel
Market
research
Market
Diffusion for
profit
Self-rewarded Collaborative evaluation/ Peer-to-peer
user replication/improvement free diffusion
developers
PRODUCER INNOVATION PARADIGM
FREE INNOVATION PARADIGM
R&D Production
Innovation
support
Innovation
designs
Definition of free household sector innovation
(1) Innovations are developed at private cost by individuals during their unpaid leisure
time – no one pays them to do it.
(2) Design information is unprotected by the developer – potentially acquirable by
anyone “for free.”
Important consequence: Free Innovation is transaction-free.