INNOVATION AS A SERVICE MARKET SIZE AND SHARE ANALYSIS - GROWTH TRENDS AND FORECASTS (2023 - 2030)

The Global Innovation as a Service Market size was valued at US$ 1.76 Bn in 2023 and is expected to reach US$ 5.27 Bn by 2030, growing at a compound annual growth rate (CAGR) of 17% from 2023 to 2030. Innovation as a service refers to business models where enterprises work with external innovation partners to access on-demand innovation capabilities, resources, and solutions. It helps organizations leverage external capabilities to accelerate innovation, reduce costs and risks, and focus on their core business. The key drivers of the market include increasing Research &Development costs, the need for open innovation, and the demand for accelerated product development cycles.

The innovation as a service market is segmented by component, application, organization size, industry vertical, and Deployment mode and region. By component, the market is segmented into solutions and services. The solutions segment accounted for the largest market share in 2022. Innovation management solutions help streamline idea generation, crowd voting, funding management, portfolio management, and commercialization. The demand for these solutions is driving the growth of the solutions segment.

Innovation as a Service Market Regional Insights

• North America is expected to be the largest market for innovation as a service market during the forecast period, accounting for over 39% of the market share in 2022. The growth of the market in North America is attributed to the high R&D investments, the presence of leading technology companies, and the maturity of the startup ecosystem in the region.
• The Europe market is expected to be the second-largest market for innovation as a service market, accounting for over 29% of the market share in 2022. The growth of the market is attributed to government support for innovation and the increasing adoption of open innovation models in the region.
• The Asia Pacific market is expected to be the fastest-growing market for innovation as a service market, accounting for over 22% of the market share in 2022. The growth of the market in Asia Pacific is attributed to the rising R&D expenditure and rapidly growing startup ecosystems in countries like China, Japan, and India.

Figure 1. Global Innovation as a Service Market Share (%), by Region, 2022

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Analyst View: The innovation as a service market is well positioned for strong growth over the next five years. Key drivers for this market include the growing focus on innovation activities across various industries and the increased outsourcing of these activities. Several companies are now looking outside for Unique and specialized expertise to develop new products and services at a rapid pace. This presents an important opportunity for innovation as a service providers.

Innovation as a Service Market Drivers:

• Increasing Focus on Core Competencies: Companies are increasingly focusing on their core competencies and outsourcing other functions to specialized service providers. Developing innovative products and solutions requires significant investment in R&D, resources, and capabilities. Many companies find it challenging to build all innovation capabilities in-house. Outsourcing innovation services allows them to tap into on-demand expertise, assets, and infrastructure to accelerate innovation. This is enabling companies to focus on their core offerings.
• Need to Accelerate Product Development Cycles: Shortening product development cycles is critical for companies to keep pace with the dynamism of markets today. Reliance solely on internal R&D limits the ability to accelerate innovation. Collaboration with agile startups and research networks via the innovation as a service model allows access to newer technologies and solutions at a faster pace. Companies can leverage collective expertise to ideate, prototype, develop, and launch products faster. 
• Growing Complexity of Technologies and Shorter Technology Cycles: The growing complexity of technologies like AI, ML, blockchain, quantum computing, etc., makes it difficult for companies to build all capabilities in-house and several changes are also increasing with the emergence of new technologies. This requires companies to continuously invest in new capabilities and assets. Innovation as a service provides access to specialized expertise in complex futuristic technologies without significant in-house investments. It also allows companies to keep pace with shorter technology cycles. For example, the emergence of hyper-scale cloud platforms has accelerated the product development lifecycle. Companies are leveraging cloud-based agile innovation models to quickly prototype and test solutions. The growing gap between the complexities of future technologies and internal capabilities will continue to fuel the adoption of external innovation services.
• Cost Optimization and Increased R&D Productivity: Maintaining large internal innovation teams and R&D infrastructure leads to escalating costs and lower productivity. Innovation as a service provides access to on-demand innovation capabilities in a pay-per-use model, thus reducing the costs of innovation. It also provides access to a wider range of expertise and ideas, thus improving R&D productivity. Companies are increasingly embracing these models to optimize their innovation investments and outcomes.

Innovation as a Service Market Opportunities:

• Leveraging Collective Expertise and Collaboration: Innovation requires out-of-the-box thinking and the exchange of diverse perspectives. Companies are increasingly realizing that innovation cannot happen in silos. Partnering with innovation networks, startups, universities, and expert freelancers through open-service models provides access to collective knowledge and creativity. This diversity of expertise and perspectives can open up unseen possibilities to fuel breakthrough innovations.
• In April 2020, HCL Technologies Limited, a multinational information technology company, partnered with IBM, a multinational technology corporation to bring an innovation-as-a-service model to help enterprises accelerate their digital transformation journeys. It combined IBM's enterprise cloud and cognitive solutions with HCL's implementation services.
• Unlocking the Potential of Emerging Technologies: Emerging technologies like AI, ML, AR/VR, 3D printing hold tremendous disruptive potential but also require new expertise and capabilities. While individual companies may struggle to build capabilities, collectively tapping into innovation networks can help accelerate unlocking the potential of these technologies.
• Faster Experimentation and Minimum Viable Products: Innovation requires testing multiple ideas quickly to discover the optimal solutions. However, prolonged internal product development hinders rapid experimentation. Collaboration with startups and expert networks through innovation services allows quick prototyping and testing of minimum viable products.
• Geographic Expansion and New Markets: Expanding into new geographic and product markets requires an understanding of diverse customer needs, regulations, and ecosystems. Building this expertise internally can be resource-intensive and facilitates the creation of global collaboration networks. Companies can form partnerships, joint ventures, or collaborations with local businesses, research institutions, and startups, enhancing their ability to innovate by leveraging a wide range of expertise. In June 2021, Tech Mahindra, an Information Technology Company partnered with Pega, an American software company, to offer innovation-as-a-service solutions to help clients accelerate their digital transformation and deliver enhanced customer experiences.

Innovation as a Service Market Trends:

• Emergence of Startup Innovation Networks: Enterprise partnerships with startups are growing as an important source of innovation. Startups are agile, come up with disruptive ideas, and can prototype rapidly. This innovative approach fosters collaboration and knowledge exchange among startups, established companies, and industry experts, leading to a more dynamic and adaptable innovation ecosystem.
• Focus on Intellectual Property Generation: Companies are increasingly focusing on generating intellectual property (IP) from innovation to gain a competitive edge. Owning the IP for solutions creates differentiation. Innovation as a service is evolving with IP-sharing agreements between enterprises and external partners to co-develop IP-protected solutions. 
• For instance, in June 2023, Wipro, an IT consulting company, announced the launch of the Wipro Industry Innovation Experience for Financial Services, featuring a new suite of banking and financial services solutions built on Microsoft Cloud.
• Leveraging Disruptive Technologies like AI, ML, and Big Data: Technologies like AI, ML, and Big Data are disrupting the innovation process by enabling the analysis of huge amounts of information to generate insights. Enterprises are beginning to adopt these technologies to streamline and enhance innovation. Service providers are also integrating these into their offerings.

Innovation as a Service Market Restraints:

• Cultural Challenges of Embracing Open Innovation: Transitioning from closed internal R&D models to collaborative open innovation requires significant cultural change. Lack of management support, a not-invented-here mindset, and resistance to sharing control can hinder the adoption of external innovation models. Firms may thus end up restricting themselves to traditional models despite the growing benefits of distributed innovation. To tackle this problem, The company need to ensure that leadership is aligned with the principles of open innovation and Establish incentives and recognition programs that reward employees for contributing to open innovation.
• Concerns over Data Security and IP Protection: When working with external partners, enterprises have apprehensions regarding data privacy, IP protection, and losing control over sensitive information. For instance, product design details shared with a startup could be leaked. Lack of robust digital security, IP protection protocols, and quality vetting of partners can heighten such concerns. To solve this problem, the company can implement strong data encryption methods to protect sensitive information. Control access to data and innovation platforms through secure authentication and authorization processes and Establish robust contracts and service level agreements (SLAs) with service providers that clearly define data security and IP protection measures, responsibilities, and liabilities. To solve this problem the organization need to implement strong encryption protocols for data both in transit and at rest. This ensures that sensitive information remains secure and is not vulnerable to unauthorized access.
• Geographic Constraints in Scaling Global Innovation: While emerging technologies help virtual collaboration, geographic distance can still be a hurdle in collaborating seamlessly across different regions. For instance, Asian firms may find it difficult to easily leverage the capabilities of startups in Europe or Latin America. Regulatory issues around cross-border data flows also constrain tapping global expertise.to solve this problem the company need to Establish digital innovation hubs that serve as centralized platforms for idea generation, collaboration, and knowledge sharing. These hubs can connect teams across the globe and provide a centralized repository for innovation-related discussion.

Recent Developments

Key Development

• In 20 August 2022, Infosys, an IT Service Management company launched 'CobaltFX', an enterprise innovation-as-a-service platform to accelerate cloud-powered transformation for businesses. It provides on-demand multi-enterprise collaboration environment for businesses to accelerate innovation.
• In November 2020, TCS, an Information Technology Company launched its Neural Automotive and Industrial Experience (NAIE) platform, an innovation as a service solution targeted at the automotive and industrial manufacturing sectors. It aims to help companies leverage emerging technologies like AI, ML, IoT, etc.

Key Strategic Initiative

• In June 2021, Tech Mahindra, an Information Technology Company partnered with Pega, an American software company, to offer innovation-as-a-service solutions to help clients accelerate their digital transformation and deliver enhanced customer experiences.

Figure 2. Global Innovation as a Service Market Share (%), by Organization Size, 2023

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Top companies in Innovation as a Service Market

• Accenture
• Deloitte
• IBM
• PwC
• Cognizant
• Capgemini
• Ernst & Young Global Limited
• KPMG N.V.
• Wipro
• HCL Technologies Limited
• Infosys Limited
• Tech Mahindra Limited
• TATA Consultancy Services Limited
• Hitachi, Ltd.

Definition: Innovation as a service refers to business models where enterprises leverage capabilities, resources, and solutions from external innovation partners and startups to drive innovation. It provides on-demand access to innovation capabilities like ideation, product development, R&D capabilities, and commercialization support to help companies accelerate innovation in a cost-effective and scalable manner. Companies are increasingly adopting innovation-as-a-service to reduce costs and risks associated with in-house R&D and leverage collective expertise, skills, and assets.