Abstract: Coming the era of time-based competition, since the term of "gaining the users, gaining the markets" has been recognized as a consensus, more and more firms tend to employ users to participate into their innovation processes to help them to gain competitive advantage. While users' participation in a firm's innovation will make the loop of value creation and consumption closed which does facilitate a firm to create value more effectively and efficiently, it also makes firms' innovating process much more complex to be handled for the reason that a firm has to open its innovation processes to outside. Then, what on earth is the effect of users' participation in a firm's innovation processes on a firm's innovation?
Theoretically, by taking users as external source of innovation, scholars of user innovation pay more attention to incentives that drive users to innovate or participate in a firm's innovation processes, with ignorance of the effect of user's participation in a firm's innovation processes on a firm's innovation capabilities. Literature of marketing on users or customers' participation in the processes of new product development focuses more on customers' satisfaction or a firm's financial performance or market share than innovation capabilities influenced by user's participation. However, the mechanism of how a firm attracts its users to involve into the processes of innovating and translates the efforts of both the firm and their users make in the processes of innovating into the firm's innovation capabilities has not been explored systematically.
Based on the theories of value co-creation, user innovation and firms' innovation capabilities, using data collected from 202 domestic enterprises, the mechanism of how users' participation in a firm's innovation influences a firm's innovation capabilities is explored. The construction of user-enterprise shared value propositions is explored firstly. Following the logic of "incentives construction empowerment introduction capabilities' development", the mechanism of a firm's innovation capabilities' leveraging is explored from perspective of value co-creation by the user and the enterprise. Findings are got as follows:(1) Social value expectation holding both by user and enterprise facilitates a firm to leverage its innovation capabilities, including incremental and radical innovation capabilities, namely, ambidextrous innovation capabilities. (2) Functional value expectation of uniqueness holding both by user and enterprise could improve a firm's incremental innovation capabilities. (3) Customer empowerment plays a role of mediator between social value expectation and incremental innovation capabilities. Our findings contribute theory of user innovation by identifying conditions of application of theory of user innovation. They also contribute to the theory of value co-creation by operationalizing the construct of shared value proposition in context of firms' innovation.
Finally, our findings may provide firms guidance to design their organizing process and incentives to attract users to take part in innovation processes to leverage their innovation capabilities effectively. Meanwhile, a firm has to be warned not to keep in too close touch with their usual users, because too close relationship between a firm and its users may produce lock-in effect, which may drop a firm in success-trap, especially when the environment changes radically.

Key words: value co-creation, user involvement, incremental innovation capability, radical innovation capability, customer empowerment