Open source innovation is often based on user innovations. In Democratizing Innovation, Eric von Hippel describes innovation from a user perspective rather than a corporate perspective. He suggests that many innovations are actually developed by users, freely shared with other interested users, and sometimes picked up later by a company that eventually turns the idea into a business. For those of us working with open source software, this should sound very familiar. In fact, he uses open source software as an example of innovation throughout this book. Firefox is a great example of this phenomenon (see previous blog entry).
Another good example is Linux. Linus Torvalds started Linux in 1991 with an unassuming newsgroup post that mentioned a new operating system that he was creating and solicited input from others. Linux was created not out of any commercial need or ambition, but to satisify Linus' desire to have a better Unix-like operating system that ran on less expensive (Intel 386) hardware. This was a user innovation that Linus freely revealed to others with a similar interest. As everyone knows, Linux has grown from this unassuming start into a robust operating system used in most corporations. Without Linus' continued contributions combined with contributions from thousands of other interested users, Linux may never have progressed past a hobby operating system started by a college student. Open source community contributions and user innovations provided the momentum necessary for Linux to quickly become an important technology.
I would encourage people to read Democratizing Innovation by Eric von Hippel. For anyone without time to read the entire book, the majority of the open source content is in chapter 7; however, I recommend reading chapter 1 and chapter 2 to get familiar with the concepts first.