Here is an excerpt from an article written by Joshua Gans for the Harvard Business Review blog. To read the complete article, check out the wealth of free resources, and sign up for a subscription to HBR email alerts, please click here.

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One of the great facts of a quarter of a century of scholarship from MIT Professor Eric von Hippel and his co-authors is that a vast number of useful innovations come not from some scientist and engineer tinkering in a lab, but people who would best be described as users solving their own problems. Examples abound from scientific instruments [pdf] to mountain bikes [pdf]. In some cases, the innovations were the work of lone innovators while for others local communities together produced advances.

Of course, established firms know that users can be useful when it comes to product design. It has been long established that firms will engage with customers and potential customers to assess needs. Commonly, firms will now conduct pre-market beta testing of products. But the idea that the users themselves are the source of key ideas is still treated as a novelty.

Von Hippel realized early on that to make the most out of these innovations, it was important to make information flows more, well, fluid. While users could generate great innovations, disseminating those innovations to other users and to manufacturers was another matter.

It’s even more complicated than that, because information between users and manufacturers is not the only flow of information. Conceivably, a new product idea could be an amalgam of ideas and suggestions from a wide number of people. In firms, meetings and other interactions serve this function. For users, communities can do the trick. But what about other perspectives that might contribute pieces of innovative ideas? Is there a market for components of ideas?

This is a question dear to my own research heart.

I have always been interested in how ideas match with other assets

(marketing, distribution, and regulatory) that can bring them to market. Even for that case, there is lots of trade but communication flows are often two-way and not what you might see from larger markets. Creating markets for ideas is challenging.

Part of the reason is making sure the innovators can safely get a solid return. But when it comes to idea components, the challenges are even greater. Scott Adams nicely articulates the issues here, and imagines a future where such a market exists.

In my imagined future, you start by making a home video of yourself pitching your idea, just as you would to an investor. You upload your video, along with a detailed description of your idea, to a web site where other entrepreneurs around the world are doing the same thing. But instead of simply soliciting funding, you solicit an entire team, based on whatever skills your business requires. The key to making this work is that no one quits his existing job, or provides funding, until all of the resources for the idea are lined up. The main function of the system is making sure everyone’s conditions for participation have been met before any risks are taken.

Enter Quirky. Quirky’s mission is to crowd-source innovation and product design. They create consumer products by first setting up a competition for solicited but fairly rudimentary product ideas. People evaluate these and some are selected to obtain further refinement. Individuals suggest different features, designs and then even the product name and marketing slogans. Then, if enough people look like they actually want to buy the product, Quirky manufactures and sells it. All along the way, people earn “influence points.” It is not just coming up with the initial idea that wins you points — offering other idea components and playing an active role in voting for different suggestions also contribute — and depending on how many points you have, you may be entitled to a share of the earnings.

Now this is one of those ideas that can sound good in theory but be hard to pull off. For starters, enough people have to believe in what Quirky can do to actually contribute. The good news here is that Quirky appear to have got passed that initial concern and have launched real and interesting products.

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To read the complete article, please click here.

Joshua Gans is an economics professor at Melbourne Business School and a visiting researcher at Microsoft Research (New England). All views here are his own.