Warren Wilson, Research Director at Ovum Summit

BANGALORE, INDIA: Over the past few years, SAP has increasingly committed itself to “co-innovation”, a strategy of systematically enlisting partners and customers in long-term programs that promote collaboration, idea sharing and problem solving. Last week, at its TechEd conference in Las Vegas, SAP took the idea a step further when it announced a partnership with and investment in InnoCentive, a young company whose vision is to become the “eBay of ideas.”

InnoCentive is a leading example of ‘open innovation’

“‘Open innovation’ is a growing business model based on the proposition that companies must look beyond their own organizations for ideas to fuel growth and success. InnoCentive’s approach is to provide a Web-based forum where ‘seekers’ can post challenges, ‘solvers’ take their best shot, and the winner gets a cash reward. InnoCentive helps write the challenges so they are clear and don’t reveal more than the seeker intends.”

“Like an eBay auction, each challenge has an end date, at which point InnoCentive’s experts evaluate the submissions and send the top ones to the client, which decides if any merit the award. If so, InnoCentive helps negotiate an IP agreement that protects both sides and makes sure the solver is properly rewarded. InnoCentive makes money by charging a seeker a posting fee initially, and an additional fee when the award is given.”

“InnoCentive has posted challenges in a variety of fields, including engineering, life sciences, math and chemistry, from both for-profit and not-for-profit organizations. It counts companies like Procter & Gamble and Eli Lilly, and non-profit organizations such as GlobalGiving and The Rockefeller Foundation among its ‘seekers’, and more than 160,000 engineers, scientists, inventors, business people and research organizations in its ‘solver’ community.”

“So far, the seven-year-old company has awarded more than $3 million in prizes and claims a success rate of about 35 percent – not bad, given the nature of the challenges.”

“Categories range from business and entrepreneurship and chemistry to engineering, food science, life sciences, mathematics and physical sciences, and potential rewards can be as high as $1,000,000. That’s the prize being offered by a company called Prize4Life for a biomarker to measure disease progression in ALS, or Lou Gehrig’s Disease. Prize4Life was founded by a group of Harvard Business School students specifically to accelerate ALS research by offering cash prizes as incentives.”

“Most awards are smaller, and are offered by companies that choose to post their challenges anonymously. One such seeker is offering $20,000 for “novel technologies that would enable protein-based fibers to be dyed without a rinsing step.” Another is offering $20,000 for ‘a cost-effective and scalable synthetic method for preparing substituted butadienes.’”

“Among SAP’s three initial challenges, one offers $10,000 for ideas for novel uses of social networking in business applications. Potential solvers had set up more than 324 ‘project rooms’ within three days of the InnoCentive announcement on 9 September. In another, SAP is offering $10,000 for “a method that simplifies unified web service error handling by consuming applications in multi-vendor service-oriented architecture (SOA) environments.” Some 73 project rooms had formed by the week’s end to address this challenge.”

Low-risk investment cements SAP as a thought leader

“Besides a financial boost (amount undisclosed), the SAP alliance gives InnoCentive a stamp of approval from one of the biggest names in the software business, which in turn should give it a leg up on other open innovation ventures, such as NineSigma, Yet2 and YourEncore. But what does SAP get in return?”

“Primarily, visibility and thought leadership. Over the past few years, SAP has created a number of communities of interest among its partners and customers, including the SAP Developer Network, whose membership now totals about 1.3 million – more than double its size two years ago. Members win recognition for the number of queries they answer, and the speed of their responses. Now, with InnoCentive, SAP has added cash incentives to the rewards it offers. It also has a dedicated ‘pavilion’ within InnoCentive’s online marketplace where SAP customers, partners and the company itself can post business challenges. Most important though, SAP has quite publicly aligned itself with an idea – open innovation – that stands to win considerable attention in the coming years.”