LAUSR

ABSTRACT Many firms are developing virtual customer environments (VCEs) that provide customers the opportunity to submit, discuss, and vote for new ideas. Some studies show that VCEs promote the development of incremental improvements in existing products and services (i.e., exploitative innovation). However, other studies find that customers working in VCEs will often suggest radical ideas for brand new products and services (i.e., exploratory innovation). Exploration and exploitation are often incompatible; thus, we address this paradox by investigating whether the design of a firm’s VCE architecture is related to the firm’s exploratory innovation activity and exploitative innovation activity. Using matched data collected from VCEs and managers, we show that two-way information exchange VCE tools facilitate exploratory innovation, and one-way information exchange VCE tools enhance exploitative innovation. We also find that absorptive capacity positively moderates the latter relationship. Our findings have implications for research and practice in VCEs, organizational innovation, and organizational learning.