Abstract
New practices to benefit from customers’ knowledge have boosted innovation for Xiaomi in smartphones and Tesla in electrical vehicles, but its mechanism cannot be explained by existing theories such as lead users (von Hippel, 1986) or open innovation (Chesbrough, 2003). We develop a new concept of ‘online interactive innovation’ [OII] to examine how this new practice works by comparing 11 Chinese firms. The model is tested on Xiaomi, a company that entered Fortune 500 in only 9 years from its establishment. Multilevel modeling and longitudinal data analyses are used to analyze the panel data from Xiaomi about customer feedback between 2012 and 2018. We find there are positive relationships among the weekly number of customers’ suggestions, replies from Xiaomi’s employees and other customers, functions changes in the operating system, annual patent applications and shipments of smartphones. OII changes innovation significantly by shifting the product diffusion curve to the left, causing growth to accelerate much earlier and more quickly than otherwise. It also helps firms to realize mass-customization, enact fast iteration techniques, enhance users’ experience and trust, reduce costs and improve productivity. OII works well for Xiaomi not only in China but also in other countries such as India.
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