Leave it to The Economist magazine to note the profitable advantages of having customers who want to participate in new product development--it's free.
Well, it can lower the cost of innovation, but only if companies show the proper appreciation of the customers who contribute. GE has a group of customers they call luminaries and they bring them together and encourage them to develop long-lasting relationships with each other. GE is investing in these customers, and although these customers may not be paid in cash for their ideas, GE clearly cares about their success and supports them. (Not a free lunch, although some people know how to eat well and eat cheaply.)
Anyway, I recommend this entire brief article which is actually an interview with MIT's Eric Von Hippel, who has a new book about this topic: Democratizing Innovation.
At the heart of most thinking about innovation is the belief that people expect to be paid for their creative work: hence the need to protect and reward the creation of intellectual property. One really exciting thing about user-led innovation is that customers seem willing to donate their creativity freely, says Mr Von Hippel. This may be because it is their only practical option: patents are costly to get and often provide only weak protection. Some people may value the enhanced reputation and network effects of freely revealing their work more than any money they could make by patenting it. Either way, some firms are starting to believe that there really is such a thing as a free lunch.