InnoCentive: The eBay for Innovation

The company InnoCentive is a pioneer in the emerging field of Open Innovation (OI) and a company that is rightly considered OI’s poster child.  InnoCentive is as an electronic marketplace for ideas, an “ideagora” or an “eBay for innovation” as described by Don Tapscott and Anthony D. Williams in their best-seller book “Wikinomics: How mass collaboration changes everything”.

InnoCentive was launched in 2001 as a spin-off from Eli Lilly, the pharmaceutical company.  InnoCentive acts as an intermediary between organizations with difficult unsolved problems and people (including scientists, engineers, mathematicians and business people) or organizations that attempt to successfully solve the posed problems in order to qualify for a pre-specified financial reward, ranging from $5,000 to $1 million based on the complexity of the problem.  InnoCentive calls these problems “Challenges”, the organizations that post these problems “Seekers”, and the people and organizations that attempt to provide solutions “Solvers”. 

As of February 2010, the InnoCentive community includes more that 200,000 Solvers, the total number of Challenges posted is 1008 and the success rate is 45%. The total number of awards given is 641 and the total amount of dollars awarded is $5.3 million.  Note that the total number of awards (641) when divided by the total number of Challenges (1008) gives 64%, which is higher than the success rate of 45%.  The reason for this discrepancy is that Seekers may choose to give financial awards to multiple Solvers in order to acquire the IP rights to their proposed solutions.

Business Model

InnoCentive adopts the electronic marketplace business model.  Through its Open Innovation Marketplace, InnoCentive seeks to match a global network of Solvers with R&D Challenges faced by a number of Seeker organizations. InnoCentive is able to act as an intermediary in bringing the communities of Seekers and Solvers together by using its solid reputation and credibility.

Seekers post Challenges, along with the associated financial award, on the Open Innovation Marketplace, by paying InnoCentive a fee of $35,000 (this fee is lower if the Seeker buys a bundle of Challenges).  Solvers can view the Challenges and submit solutions to any Challenge without being charged anything. If the Seeker is satisfied with the workability of the solution to a Challenge provided by a Solver, then the Seeker provides this Solver with the pre-specified award in exchange for the acquisition to the IP rights to the winning solution. The Seeker also pays InnoCentive a commission on the amount awarded.  InnoCentive, acting as a facilitator, ensures Intellectual Property protection for both Seekers and Solvers.  Moreover, InnoCentive allows Seekers to post Challenges anonymously to avoid competition related issues.

The Target Market for InnoCentive is organizations (companies, academic institutions, non-profit and governmental organizations) that are facing difficult problems that their internal R&D teams find difficult to solve. Seeker organizations include companies like Proctor & Gamble, SAP, Boeing and DuPont, organizations like NASA and Rockefeller Foundation, as well as academic institutions and governmental organizations. 

The Value Proposition that the business model offers is two-fold:  Firstly, InnoCentive allows Seeker organizations to reduce their R&D budget by tapping into the wisdom and innovative capacity of a network of more than 200,000 Solvers in order to find solutions to their difficult problems (Challenges).  Secondly, InnoCentive gives the opportunity to Solvers to focus on a range of challenging problems of their interest with the hope of receiving a financial reward.

The Revenue Model, as described above, focuses on the community of Seekers: Seekers pay a fee to InnoCentive to post a Challenge on the Open Innovation Marketplace, and also Seekers pay InnoCentive a commission on the amount awarded. 

Another type of transaction that InnoCentive helps facilitate is the transfer of IP rights from a Solver to a Seeker in the case that a Seeker is satisfied with that Seeker’s proposed solution and is ready to provide the pre-specified award.

 The Cost Structure for InnoCentive includes the salaries for its 32 employees (February 2010 figure) and the maintenance cost for the electronic marketplace.

Marketspace

InnoCentive’s Open Innovation Marketplace provides an electronic marketplace for ideas and innovations. As already mentioned, InnoCentive is able to act as an intermediary (and a broker in particular) in this e-marketplace, in bringing the communities of Seekers and Solvers together by using its solid reputation and credibility. 

The Open Innovation Marketplace can be considered as a B2B market and in particular a public e-marketplace.  InnoCentive owns the Open Innovation Marketplace and facilitates the transactional and relational environment between its Marketplace participants, namely the Seekers and the Solvers. The Seekers can be considered the “buyers” of the Open Innovation Marketplace and the Solvers the “sellers”.  Seekers hope to buy the IP rights to innovative solutions to their Challenges, and the Solvers hope that they will be able to sell their proposed solutions of Challenges to Seekers.

The infrastructure to facilitate the operation of the Open Innovation Marketplace includes data networks, hardware and software.  Finally, support services include InnoCentive working with Seeker organizations in helping them define and post their problems as a Challenge on the Open Innovation Marketplace.  InnoCentive also helps Seeker organizations to calculate the appropriate financial reward for a Challenge.

Blog Services

InnoCentive maintains a blog (http://blog.innocentive.com/) entitled “Perspectives on Innovation” that aims to provide the Solvers with a forum to interact with executives from the company. InnoCentive hopes to use the blog to provide the Solvers with more information about the company and the open innovation community at large.  Moreover, InnoCentive hopes to connect with and get valuable feedback from the Solvers that will help it in better serving and ultimately growing its community of Solvers.  For this purpose, InnoCentive has four bloggers, each one with a different area of expertise in the company, to maintain the blog.

InnoCentive also maintains a micro-blogging site (http://twitter.com/InnoCentive) that is used as a Public Relations tool in order to inform people about news of the company, new Challenges posted on the InnoCentive Open Innovation Marketplace, as well as about important posts of the main blog site described above.  InnoCentive also uses the Twitter site to inform its followers about important developments in the Open Innovation community.

The Solver community is one of the most important assets for InnoCentive and that is why it places so much emphasis in understanding their needs and problems.  InnoCentive hopes that through the use of the blogging and microblogging services it will be able to expand its community of Solvers significantly.  This in effect will result in Seeker organizations posting more Challenges on the Open Innovation Marketplace and hence in increasing revenues for InnoCentive.  And maybe ultimately InnoCentive will become the “ebay for innovation"!