We were discussing two scenarios: ordering a half-caf mocha latte at Starbucks versus creating a new Lego kit at LegoFactory. Which one is customization and which is co-creation? They both allow customers to combine pre-made 'parts' into a new creation. Yet the Starbucks customer is creating a concoction for personal enjoyment, while the new customer-created Lego kit is uploaded and made available to other Lego customers for purchase. In the Starbucks example, the customer remains a customer. In the LegoFactory example, the customer becomes the product designer... with no employee agreement... who may want credit for his creation. James mentioned intellectual-property issues with co-creation, and that's precisely the issue that divides co-creation and customization.
So that means that Google's API is actually an example of customization, not co-creation. Developers use Google's API to create tools for their own purposes; to my knowledge, these customer-created tools are not then "cycled back" to be made available to other customers.
OK, perhaps all this is semantic, but customization has been around for a long time. We've always been able to order eggs over-easy instead of scrambled. Co-creation is much deeper... it's about relinquishing control and turning buyers into partners who have a say in what gets produced and made available to everyone else. Which means that they should be rewarded in some way. Obviously this idea of co-creation will make a lot of companies rather uncomfortable.
For more on this subject, visit Trendwatching.com's overview of Customer-Made. It's a good read; thanks to Graham Hill for reminding me of it.