My perspective of co-creation is rooted in the knowledge-based view of the firm. Firms exist because they can integrate and coordinate specialized knowledge held by individuals into collective, organisational knowledge. In turn, that leads to advantage because with all things being equal, knowledge is difficult to copy, is causally ambiguous and typically, beyond the grasp of rivals. When knowledge is valuable and used appropriately, firms can enjoy sustained competitive advantage. In short, firms are better than markets at integrating and applying valuable knowledge to business activity.
As customers also have knowledge, firms that harness their knowledge through new learning / interaction mechanisms (or "Service") gain advantage. Customers become knowledge-creating actors in the value-creation process for firms and therefore for other customers. Firms that develop and refine Service using their and their customer's knowledge or learning derived from interactions with customers are co-creating value with customers. It is the knowledge / learning mechanisms embodied in the Service between the firm and the customer that defines co-creation. These learning mechanisms give birth to new dynamic capabilities (both for the firm and the customer in that they can create, modify or renew existing resources held by firm/customer) which lead to the evolution of firms and the evolution of value-in-use - or innovation for customers.
Using John Deere, here is an example of knowledge- or learning-based co-creation between firms and customers.
John Deere makes big heavy products. Take the STS Series High Octane Combine (http://www.deere.com/servlet/ProdCatProduct?tM=FR&pNbr=9570SH). Farmers "hire" this product to get the job done of "Harvest a Crop". There are a number of functional outcomes that farmers need to get done when harvesting a crop using this Product and by which they "measure" or judge its value-in-use. These outcomes or activities encompass crop collection, separation, yield management, safety, monitoring, equipment cleaning, residue disposal, grain handling etc. etc. However, the functional job / outcomes the product delivers is only one part of the value-in-use derived by farmers when using a Product. The value-in-use is also derived from the abiility of the farmer to learn how to become more productive, knowledgable and informed when using the product. In other words, to become a better farmer. How? from the Service that John Deere integrates or builds on the Product.
Here's how.... John Deere provides the GreenStar™ Harvest Doc™ system within the Combine. Harvest Doc is a yield mapping system which gathers the yield and moisture information as the farmer uses the combine. The system allows the operator to record yields, moisture, and productivity on the go then store information and download data into their personal computer to create comprehensive yield and moisture maps, along with productivity reports of their fields and operations to better manage inputs and make better management decisions. This is the mechanism that provides knowledge about the farmer's operations to John Deere and also learning for the farmer to improve his/her capability to get the job done better - to derive superior value-in-use. John Deere also offer the Agris agricultural management suite, a system which helps farmers streamline their processes in key functional areas including commodity management, agronomy management, grain processing, accounting & financials, retail sales, and petroleum management.
The Agris and GreenStar Service facilitates novel interactions across a learning network consisting of the Firm (John Deere), a User (Farmer) and other Users (Farmers) with the Product (combine) acting as the platform for the Service to be delivered. Such network interactions require knowledge, attention, cash and capabilities to perform. They contain the mechanisms of co-created value for both John Deere and its customers. Deere needs learning from customers to innovate successfully (customer knowledge); farmers need knowledge from Deere (and from the collective wisdom of other farmers) to derive superior value-in-use.
Finally, what is an Experience? I define it as the sum of the functional and emotional value-in-use derived from the Product and the Service by the customer. This may include improved know-what, know-how, emotions, feelings, judgments, relationships as well as functional performance.