Open Innovation From A Practitioner's Perspective

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New metrics from InnoCentive and NineSigma

In two recent stories on NineSigma and InnoCentive, we learned a little more about what kinds of performance numbers they are generating – still quite modest, in my opinion, when you consider the US industrial R&D spending of over $250 billion per year.

Here’s what NineSigma reported in their recent press release:
* $10 million in open innovation contracts between innovation seekers and solution providers,
* dramatic 40 to 50% increase in rate of transactions,
* more than 70 companies have active projects in the pipeline.

InnoCentive, in a recent interview published in Fast Company, said the following:
* global network of 160,000 solvers,
* non-profit challenges have grown to about 20 percent of the InnoCentive portfolio,
* they solve about 40 percent of all posted challenges, closer to 60 percent for non-profits, philanthropies.

Those are very, very modest numbers from both organizations. I also don’t know if the $10 million from NineSigma was for 2008 or cumulative since its founding. Also, if they facilitated $10 million, how much did they actually earn from those deals – 10%, 15%? And while it’s true that both companies have some impressive stories to tell with regards to solution rates, number of solvers, incredible stories about how problems were solved, the sum total of their metrics is very small. This doesn’t mean that open innovation isn’t happening on a much larger scale. Many companies have their own ‘direct-to-market’ strategies that probably funnel a lot of $$ in transactions (I would love to get my hands on that data!).

With regards to other third-party innovation models, I would bet that Threadless and TopCoder, two companies you don’t hear that much about, are some of the largest in terms of revenue.

This also means that there are new opportunities for third party innovation brokers to enter this market. If you did some simple math, assuming that 10% of all R&D spending is external and 10% of that external spend could go through an innovation broker, you would quickly realize the addressable market would be $2.5 billion dollars. Not a bad market at all.

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4 Responses

  1. Greg Symes says:

    Hello

    Also in tough economic times, the outsourcing of R and D has a greater use since you can pay for research needed (ie to solve a production problem or increase a bottom line of a particular product) rather than having in house researchers on a salary achieving non critical tasks.

    Regards

    Greg

  2. /dev/cpu says:

    with 1.2 M in 2005 and 4M in 2008, it is very unlikely they are doing 10M/year, though they MAY be on target to 5M/year in a couple of years.

    ASsuming 10M is their revenue and NOT the total value of contracts

    10M/100 = $100K/contract ……… but 100K/contract is very high fee
    10M/400 = 25K/contract ………… 400 contracts in 4 years sounds low
    10M/1000 = 10K/contract ………. may be

    Any comments or additions ?

  3. […] However, quite a few others have staked a claim to “Open Innovation” as there are more ways to seek openness in R&D. (See e.g. Board of Innovation’s list of Open Innovation and Crowdsourcing platforms.) The most prominent examples of Open Innovation platforms are InnoCentive and NineSigma, both about 15 years old with a history in large corporations, and with a combined annual revenue of about $10m. Both are alike in that they require openness from the client, normally a large corporation, to share its needs. Members of the public access the client’s disclosure and may propose a solution, to obtain a direct financial reward or an on-going relationship with the client. I call this the “open-RFP” (request for proposals) model. Judging by their sales, and guessing what fees they charge, it’s plain that they do not have a great impact on industrial R&D. Of around $1100bn of private-sector R&D spending in the developed world, they serve perhaps 0.001-0.01% of R&D in the US and EU. This has been pointed out before. […]

  4. […] However, quite a few others have staked a claim to “Open Innovation” as there are more ways to seek openness in R&D. (See e.g. Board of Innovation’s list of Open Innovation and Crowdsourcing platforms.) The most prominent examples of Open Innovation platforms are InnoCentive and NineSigma, both about 15 years old with a history in large corporations, and with a combined annual revenue of about $10m. Both are alike in that they require openness from the client, normally a large corporation, to share its needs. Members of the public access the client’s disclosure and may propose a solution, to obtain a direct financial reward or an on-going relationship with the client. I call this the “open-RFP” (request for proposals) model. Judging by their sales, and guessing what fees they charge, it’s plain that they do not have a great impact on industrial R&D. Of around $1100bn of private-sector R&D spending in the developed world, they serve perhaps 0.001-0.01% of R&D in the US and EU. This has been pointed out before. […]

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