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 billion in 2023 and is expected to reach US$ 5.27 billion by 2030, grow 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 R&D costs, need for open innovation, and demand for accelerated product development cycles.

The Innovation as a Service Market is segmented by component, application, organization size, industry vertical, 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, presence of leading technology companies, and 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 in is attributed to government support for innovation and 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 ecosystem in countries like China, Japan, and India.

Figure 1. Global Innovation as a Service Market Share (%), by Region, 2023

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. Recent examples of companies leveraging external innovation services include BMW partnering with TCS to build a digital platform for vehicle data analytics, Adobe leveraging Infosys' AI capabilities, and Goldman Sachs adopting Wipro's FluidEDGE platform. As the focus on core competencies rises, the demand for innovation as a service models can be expected to increase.
• 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 innovation as a service models allows access to newer technologies and solutions at a faster pace. Companies can leverage collective expertise to ideate, prototype, develop, and launch products faster. For instance, the automobile industry is increasingly leveraging innovation networks like TCS' NAIE platform to accelerate the development of connected, autonomous vehicles. Consumer electronics firms are collaborating with external partners to accelerate building products with emerging capabilities like AI, ML, AR/VR. The pressing need for faster innovation will continue to drive the demand for outsourced innovation services.
• 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. The pace of change is also increasing with new technologies emerging frequently. 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 hyperscale 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 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 Recent examples include Unilever adopting innovation-as-a-service models to increase R&D productivity by 30% and GSK leveraging innovation services to optimize its R&D expenditure. The growing pressure to optimize innovation costs and improve productivity will further drive adoption of outsourced innovation services. 

Innovation as a Service Market Opportunities:

• Leveraging Collective Expertise and Collaboration: Innovation requires out-of-the-box thinking and 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. For instance, BMW and Boehringer Ingelheim collaborating with service providers like Smart Space and Hyve to access collective innovation capabilities across their networks. Such collectively created solutions can be more effective in addressing complex challenges. The opportunity to leverage collective intelligence on-demand will be a key driver.
• 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. For example, the rapid evolution of AI is enabling new possibilities across industries. Companies can leverage collective expertise to co-develop AI-powered solutions through open innovation services rather than solely rely on in-house capabilities. The opportunity to harness the combined potential of external networks to turn emerging technologies into practical innovations will be a key attraction.
• 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. Companies such as 3M, Danone are leveraging platforms like L Marks and Mindtribe to accelerate building and testing prototypes. The opportunity to fail fast, gather user feedback and rapidly experiment will drive adoption of outsourced innovation services.
• Geographic Expansion and New Markets: Expanding into new geographic and product markets requires understanding of diverse customer needs, regulations, and ecosystems. Building this expertise internally can be resource-intensive. Leveraging externally acquired knowledge through innovation services provides accelerated pathways to tap into new markets. For instance, the Africa Innovation Centre established by Bosch provides a plug-and-play ecosystem to build context-specific innovations. Such globally accessible collaborative networks significantly reduce the time, costs, and risks of geographic expansions and entering new markets or segments.

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. According to a Deloitte survey, more than 79% of large firms are planning to increase their focus on startups. Specialized innovation-as-a-service providers are curating networks of startups and facilitating access for enterprises. For example, players like Edison Partners, Innovatemap, and Innomind are building global startup networks across different technology domains. The trend of leveraging specialized startup ecosystems through on-demand partnerships will accelerate.
• Evolution of Platform Business Models: Companies are moving towards building open, intelligent platforms that bring together diverse participants to foster innovation. Instead of siloed approaches, enterprises are creating ecosystems for co-innovation. For instance, BMW launched the Open Innovation Platform to facilitate collaboration across automakers, suppliers, startups, and developers. Such platforms are evolving as digital hubs for collective ideation, developing technology solutions, and rapid experimentation through virtual collaboration. The platform model for collectively driving innovation will become more mainstream.
• Focus on Intellectual Property Generation: Companies are increasingly focusing on generating intellectual property (IP) from innovation to gain 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 example, Wipro's FluidEDGE platform promises creation of IPs for enterprises through its innovation models. Players like EY are also emphasizing on co-creation of patents. Such IP-focused, open yet protected models of collective innovation will gain prominence.
• Leveraging Disruptive Technologies like AI, ML, and Big Data: Technologies like AI, ML and Big Data are disrupting the innovation process by enabling 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. For instance, TCS' Neural Automotive and Industrial Experience platform uses AI to accelerate product development for the auto industry. The application of emerging technologies to reshape innovation services delivery will be a key trend, adding intelligence to the innovation process.

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, not-invented-here mindset, and resistance to share control can hinder adoption of external innovation models. Firms may thus end up restricting themselves to traditional models despite the growing benefits of distributed innovation. While some leading companies like P&G have driven cultural change to adopt open innovation, it remains a key challenge for many. The cultural hurdles to shared innovation need focused efforts for the true potential to be realized.
• 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. Addressing these through reliable platforms, blockchain-enabled IP sharing networks, and robust legal contracts will be essential to build trust. Data security and IP protection concerns need to be resolved for greater comfort with external innovation partnerships.
• 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 capabilities of startups in Europe or Latin America. Regulatory issues around cross-border data flows also constraint tapping global expertise. Service providers need robust frameworks facilitating geographic arbitrage by virtually bringing together capabilities across regions and handling regulatory nuances. Scaling distributed co-innovation globally in a seamless manner remains a key restraint.

Recent Developments

New product launches

• In March 2022, Infosys 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 January 2021, Wipro launched its innovation-as-a-service offering called FluidEDGE to help organizations accelerate their digital innovation journey. It combines human-centered design, agile methodology, and next-gen technologies.
• In November 2020, TCS 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.

Acquisition and partnerships

• In September 2022, TCS acquired seeing Machines, a driver and operator monitoring technology company, for $42 million to augment its innovation capabilities in automotive safety systems.
• In June 2021, Tech Mahindra partnered with Pega to offer innovation-as-a-service solutions to help clients accelerate their digital transformation and deliver enhanced customer experiences.
• In April 2020, HCL Technologies partnered with IBM 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.

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

Top companies in Innovation as a Service Market

• Accenture
• Deloitte
• IBM
• PwC
• Cognizant
• Capgemini
• EY (Ernst & Young)
• KPMG
• Wipro
• HCL Technologies
• Infosys
• Tech Mahindra
• Tata Consultancy Services (TCS)
• Hitachi Consulting
• InnoCentive

*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.

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