As socio-technical processes related to digital innovation are increasingly connected and distributed across geographical, organisational, and temporal boundaries, the methods we use to study them must be adapted to accommodate the greater detail and scope of the phenomenon. Specifically, there is a need to operationalise methods for generating inductive theory of distributed digital innovation from digital trace data. An emerging stream of IS research on computationally intensive inductive theorising lays the groundwork for such methods. This paper builds on this foundation to develop a hands-on approach to operationalising grounded theorizing in computational analysis of digital trace data. The paper first conceptualises trace data of digital innovation as a new research context before articulating an approach to operationalising grounded theory in computational analysis of digital innovation. The application of the grounded computational analysis approach is then briefly illustrated in the context of digital trace data from an online social network before possible directions for further research are laid out.