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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