Musings on Entrepreneurship and Innovation
Monday, March 28, 2005Theory in Action: The Innovator's Dilemma and Lead User Innovation
Two of the most visible theories of innovation are The Innovator's Dilemma concept introduced by Clayton Christensen at Harvard and Lead User Innovation championed by Eric Von Hippel at MIT. Recently, I spoke with innovator and entrepreneur James Ryley at FreePatentsOnline.com, who illustrates both theories in action.
To paraphrase Michael Osofsky, the Lead User concept and the Innovator's Dilemma describe different aspects of the innovation process. The Lead User concept explains the source of certain kinds of innovation whereas the Innovator's Dilemma explains the demise of firms that had offered innovative products and services.
A key principle of Christensen's work is that product performance can outstrip market demand:
The pace of technological progress in products frequently exceeds the rate of performance improvements that mainstream customers demand or can absorb. As a consequence, products whose features and functionality closely match market needs today often follow a trajectory of improvement by which they overshoot mainstream market needs tomorrow. And products that seriously underperform today, relative to customer expectations in mainstream markets, may become directly performance-competitive tomorrow...When this happens...the criteria by which customers choose one product over another changes. When the performance of two or more competing product has improved beyond what the market demands, customers can no longer base their choice upon which is the higher performing product. The basis of product choice often evolves from functionality to reliability, then to convenience, and, ultimately, to price...Because established companies are so prone to push for high-performance, high-profit products and markets, they find it very difficult not to overload their first disruptive products with features and functionality.
Furthermore, when products overshoot the market and the basis of product choice changes, Lead Users are very often the source of innovation. This is particularly true in cases where users have ready access to the means of production and distribution - as is increasingly the case in certain sectors of web-based software services.
Consider the case of James Ryley. In a phone conversation I had with James the other day, he told me that he's working on his Ph.D. in molecular biology. However, in the not too distant past, he ran a specialized patent search service that augmented companies' internal capabilities with a network of scientific specialists. In that role, James became familiar with patent database and analysis tools such as Thomson Delphion and Questel-Orbit. These for-profit offerings target institutional users who spend a great deal of their time every day doing patent-related research and want more powerful capabilities than those offered for free by the U.S., European, and Japanese patent offices. Over time, these institutional offerings (as well as others offered by the likes of Thomson Derwent and Patent Cafe) have become increasingly powerful, and can be quite expensive, costing hundreds or thousands of dollars per year in some cases. As a consequence, this class of market leading offering is out of reach of thousands of inventors and other occasional users. The impressive performance offered by a Delphion or Patent Cafe is simply more than many prospective users are willing to pay for, while the cumbersome search capabilities of the patent office sites isn't sufficient. In James' opinion, "Independent inventors shouldn't have to pay $200 per month to do a decent patent search."
In recent years, a number of low cost and free offerings have popped up to fill the void at the low-end of the market. Leading this emergent pack is MicroPatent (which was recently acquired by Thomson, the media giant that also owns Delphion and Derwent). Other contenders include pat2pdf.org, pat2pdf.com, ASITRI Patent, Patent Fetcher, GetthePatent.com, and Patent Hunter. As a group, these offerings satisfy the basic needs of an inventor or business who occasionally needs to do some rudimentary patent research. However, their functionality - particularly in regard to sophisticated search capabilities - falls well short of the needs of frequent or professional users.
James believes that the upcoming version of his recently launched FreePatentsOnline.com site is going to change all that. The current version offers fast basic searches, PDF downloads, and U.S. Patent Office-style field searches. James says that the next version will include an expanded database that will include European patents as well as "the most sophisticated search capabilities ever seen" in this market.
As I understand it, FreePatentsOnline has been built using open source technologies, which has enabled James to offer the current service for free. Consistent with the site's name, and pending experience regarding CPU and bandwidth demand, it is James' current intention to continue to offer the service for free - even with the advanced search capabilities - assuming that revenue from Google ad placements will offset his costs.
If Ryley is able to execute on his vision, it would seem to be a clear case of a Lead User creating a potentially disruptive offering: free, easy to use, patent searches that leverage a search engine that is powerful enough to meet the needs of a large number of mainstream users.
One just might conlcude that Thomson's recent purchase of MicroPatent was not a coincidence. Given Thomson's historical emphasis on high-end, high-margin institutional customers, it will be interesting to see whether MicroPatent will be able to avoid overshooting the mainstream market. If it can't resist the temptation to move upmarket, Thomson might be the latest to fall prey to the Innovator's Dilemma.
