INNOVATION, SOCIAL STRUCTURE & THE CREATION OF NEW INDUSTRIES Sonali K. Shah University of Washington Foster School of Business
[email protected] Cyrus C.M. Mody Rice University Department of History
[email protected] Both authors are equal contributors. ABSTRACT An industry is a set of firms producing products and a market of consumers for those products. Firms and markets are the basic institutions of capitalism, and yet we know little about the emergence of (1) an industry’s initial firms and (2) a product’s initial market. Using comparative, longitudinal data from probe microscopy and three sports, this paper inductively derives a framework for understanding the social and economic processes that lead to the development of new industries seeded by user innovations. We identify four modes of social, economic, and technological development around each product: innovator, community, network exchange, and industry. Each mode describes a distinct social structure through which producers and users interact. Specifically, we distinguish between who produces and who consumes as the social structure evolves from innovator mode (when the producer and the consumer are the same individual) to industry mode (when firms produce and consumers consume). We describe the individual-level motives that trigger each mode and the social structures that underlie them. The four modes form a temporal sequence in some industries; in others a single mode dominates over time or the modes emerge in a variety of sequences. Keywords Industry development, innovation, entrepreneurship, motivation, community-based innovation, user innovation Acknowledgments The Alfred P. Sloan Foundation and National Science Foundation (under Cooperative Agreement No.