“The customer is the company.  Threadless churns out dozens of new items a month – with no advertising, no professional designers, no sales force, and no retail distribution. And it has never produced a flop.”

The above title and quote is from the current Inc. Magazine cover article.  The article profiles Treadless, a $30 million business with 30% profit margins, which is built around a social network where users are central to idea generation, marketing and sales forecasting.  Threadless could be viewed as a poster child for the concept of “user innovation” as defined by MIT’s Eric von Hippel or “crowdsourcing” as coined by Jeff Howe in a June 2006 Wired magazine article about istockphoto (http://www.wired.com/wired/archive/14.06/crowds.html) (For more on Jeff Howe’s views on crowdsourcing, visit his blog and view excerpts from his book at http://crowdsourcing.typepad.com/cs/). 

One element that makes the Treadless story so interesting is the fact that the founders evolved a onetime design contest into powerful business model without comprehending how unique it was at the time.  This is especially interesting given the fact that Treadless is not in the software or electronic media business where “open sourcing” is commonly thought to be leveraged.  The founder was quoted about his successful model as “I think of it as common sense.  Why wouldn’t you want to make the products that people want you to make?”

The Inc. Magazine article integrates a number of thoughts from Eric von Hippel where he envisions a day when firms move away from traditional R&D to where users drive product definition.  He observes that today most businesses employ an iterative process of market research testing and product redefinition which can end up being inefficient.  And, von Hipplel notes that many firms are better at collecting customer input than they are at productively exploiting it.  I’ll suggest that this view of a day where product ideation is driven by “user innovation” is more likely to be applicable for one end of the innovation spectrum than for all types of business innovation. 

Professor Michael Tushman of the Harvard Business School describes an innovation framework with customers on one axis (existing, new) and technology on the other axis (incremental, architectural, competence-destroying/ discontinuities).  Incremental improvements in both product definitions as well as go-to-market models which address existing customers could obviously benefit from the appropriate deployment of “user innovation”.  But, a crowdsourcing approach to product definition could be much less successful in identifying and driving discontinuities within an industry.  We used to view this as the difference between “edge-out” and possibly “reach-out” innovation versus “break-out” innovation.  I will further explore these three types of innovation and how they are best attained in a future post.

If you would like to read more about firms that have effectively used the concept of crowdsourcing (in addition to exploring the Jeff Howe links mentioned above), also take a look at the list of firm on the Wikipedia entry at http://en.wikipedia.org/wiki/Crowdsourcing.