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Firms and governments are increasingly interested in learning to exploit the value of lead-user innovations for commercial advantage. Improvements to lead-user theory are needed to inform and to guide these efforts. The present study empirically tests and confirms the basic tenets of lead-user theory. It also uncovers some new refinements and related practical applications. Using a sample of users and userinnovators drawn from the extreme sport of kite surfing, an analysis was made of the relationship between the commercial attractiveness of innovations developed by users and the intensity of the lead-user characteristics those users display. A first empirical analysis is provided of the independent effects of its two key component variables. In the empirical study of user modifications to kite-surfing equipment, it was found that both components independently contribute to identifying commercially attractive user innovations. Component 1, the high expected-benefits dimension, predicts innovation likelihood, and component 2, the ahead of the trend dimension, predicts both the commercial attractiveness of a given set of userdeveloped innovations and innovation likelihood due to a newly proposed innovation supply side effect. It was concluded that the component variables in the lead-user definition are indeed independent dimensions, so neither can be dropped without loss of information-an important matter for lead-user theory. It also was found that adding measures of users' local resources can improve the ability of the lead-user construct to identify commercially attractive innovations under some conditions. The findings reported here have practical as well as theoretical import. Product modification and development has been found to be a relatively common user behavior in many fields. Thus, from 10 to nearly 40 percent of users report having modified or developed a product for in-house use in the case of industrial products or for personal use in the case of consumer products in fields sampled to date. As a practical matter, therefore, it is important to find ways to selectively identify the user innovations that manufacturers will find to be the basis for commercially attractive products in the collectivity of user-developed innovations. The implications of these findings for theory as well as for practical applications of the lead-user construct are discussed-that is, how variables used in lead-user studies can profitably be adapted to fit specific study contexts and purposes.

"Informal" know-how trading is the extensive exchange of proprietary know-how by informal networks of process engineers in rival (and non-rival) firms. I have observed such know-how trading networks to be very active in the US steel minimill industry and elsewhere, and they appear to represent a novel form of cooperative R&D.When one examines informal know-how trading in the framework of a "Prisoner's Dilemma", real-world conditions can be specified where this behavior both does and does not make economic sense from the point of view of participating firms. Data available to date on the presence and absence of such trading seem to be roughly in accordance with the predictions of this simple model.Although presently documented only as a firm-level phenomenon involving the trading of proprietary technical know-how, informal know-how trading seems relevant to (and may currently exist in), many other types of situation. Indeed, it may be applicable to any situation in which individuals or organizations are involved in a competition where possession of proprietary know-how represents a form of competitive advantage.

In this paper we assess the economic viability of innovation by producers relative to two

User needs for a given product type can be quite heterogeneous. Segmenting the market and providing solutions for average user needs in each segment is a partial answer that will typically leave many dissatisfied -some seriously so. We hypothesize that providing users with "toolkits for user innovation" to enable them to more easily design customized products for themselves will increase user satisfaction under these conditions. We test this hypothesis via an empirical study of Apache security software -"open source" software that is designed to be modifiable by skilled users. We find that heterogeneity of need is high, and that many Apache users are dissatisfied with standard security functionality on offer. We also find that users creating their own software modifications are significantly more satisfied than are non-innovating users. We conclude by suggesting that the "toolkits for user innovation" approach to enhancing user satisfaction might be generally applicable to markets characterized by heterogeneous user needs.