The first decade of the twenty-first century has seen dramatic advances in Internet technologies. Digital social spaces have emerged as popular Internet applications that are radically changing how firms and consumers of digital content interact. In the first chapter "Research Agenda" I introduce my research and the context within which it is developed. In the second chapter "Digital Consumer Networks and Producer-Consumer Collaboration: Innovation and Product Development in the Video Game Industry", I show how producers may partially open proprietary content to consumers to allow them to co-create derivative products. By re-appropriating these derivatives, the firms are successfully outsourcing parts of their design and development process to consumer networks. Applying economic analysis, I explore the potential benefits and risks of co-creation and derive the optimal combination of copyright enforcement and consumer compensation levels. In the third chapter "Firms and Innovative Digital Consumer Networks: An Analysis of Social Network Structure and Innovation Selection Mechanism", I explore how word of mouth effects are an important indicator of the popularity and economic potential of newly available digital goods. I present three selection mechanisms that firms can employ in order to identify user-generated product innovations that are fit for re-appropriation. The first is based on direct peer-review, the second uses a simple evolutionary game theoretic model, and the third proposes a stochastic epidemiological innovation diffusion model. In the fourth chapter "The Evolution of Innovation in Digital Social Spaces through Mutation, Natural Selection and Reuse of Novel Synthetic Routines", I examine the particular question of how innovations diffuse across digital social space designs and affect change on the industry level. I apply evolutionary theory as a theoretical lens and develop a stochastic process model that allows studying the factors that determine which innovations survive in the market and which do not. Analytical analysis of the proposed process model enables the examination of how organizational strategies affect industry trends and the determination of the conditions under which standardization in the industry is achieved. In the fifth chapter "Strategic Implications" I discuss the risks faced by firms in the digital social space industry that are adopting co-creation approaches. My research suggests that effective management of the collaboration between producers and consumers is key for sustainable co-creation business models. I conclude with the sixth chapter and present directions for future research. [The dissertation citations contained here are published with the permission of ProQuest LLC. Further reproduction is prohibited without permission. Copies of dissertations may be obtained by Telephone (800) 1-800-521-0600. Web page: http://www.proquest.com/en-US/products/dissertations/individuals.shtml.]