Open innovation is not limited to using ideas from competitors and other industries. It can go as far as involving the customer in the creation of the product. In fact, some of the world’s top thinkers in the fields of strategy and innovation believe this trend could represent the next big wave in business.

And, although it still sounds radical, this idea was in fact described in The Third Wave, the classic 1980 work by futurist Alvin Toffler that predicted the rise of the “prosumer economy.” A prosumer is a consumer who plays a key role in producing those things he consumes. The 21st century concept of “co-creation” uses the Internet to turn Toffler’s concept into reality.

One of the assumptions about the Internet was that it would shift the balance of power to consumers, who would take advantage of the wealth of information available on the Web to find the best prices. This assumption became a reality, as customers can now easily use search engines to find more information than was ever available in the history of commerce. Today, people routinely search the Internet for good deals on hotel rooms, airfares, books, music, computer hardware, and software.

But this is only the beginning. Consumers will not only use the Internet to capture value; they will also help create value by becoming actively involved in the creative process for developing products.

According to C.K. Prahalad, who introduced the concept of “core competencies” with Gary Hamel in their book Competing for the Future a decade ago, the trend of co-creation will make an even more profound impact on business strategy over the next 10 years.

This is a natural extension of the “core competencies” concept, which has since expanded to include a company’s suppliers and customers. Three years ago, Prahalad’s article in the Harvard Business Review called “Co-opting Customer Competence” argued that companies must take advantage of their customers’ knowledge, preferences, and skills.

For example, Amazon.com invites customers to share their lists of favorite books, which spur sales to other customers with similar interests. Similarly, Microsoft recruits its customers to test “beta” versions of its software to find the bugs...