When do user innovators start firms?

A rich and distinguished body of research has documented the importance of user innovations. For the most part, this literature has found that users innovate but do not commercialize their innovations. Instead, users benefit from using their innovations and allow manufacturers to commercialize innovations with financial value. Yet scholars have recently shown that entrepreneurial activity by users is more widespread than previously believed. We present data and statistics documenting the prevalence, technological impact, and economic impact of user entrepreneurship. Then, to reconcile these divergent empirical findings, we develop a theoretical model that explains when user innovations are commercialized by users, by manufacturers, or not commercialized at all. At the core of our model is the notion that users and manufacturers differ along two critical dimensions: their estimates of the financial returns to entering the product market, and their profit thresholds. Depending upon the magnitude of these differences, we propose alternative commercialization outcomes. This model helps to explain why user entrepreneurs are likely to spawn the creation of altogether new product markets