Chapter 20

Crowdsourcing as Advanced Business Model Innovation

In This Chapter

Discovering the power of crowdsourcing

Looking at ten things you didn’t know were crowdsourced

Harnessing the power of crowdsourcing to improve your business model

If you've ever posted a video on YouTube, voted for an American Idol, read the Oxford Dictionary, or commented on Yelp.com, you've seen crowdsourcing firsthand. Merriam-Webster defines crowdsourcing as "the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers." Put in simple business terms, crowdsourcing gets many people, from customers and vendors to complete strangers, to contribute to solving a common task.

Typically, these “contributions” from the crowd are free. You can see how getting free anything from the crowd, versus paying employees or vendors, could radically impact your business model. Innovative companies from the Fortune 500 to mom-and-pop shops have used crowdsourcing to speed innovation, keep in touch with customers, create new products, find creative solutions, raise capital, and more.

The concept of crowdsourcing was coined by Jeff Howe in a 2006 Wired Magazine article. Howe puts crowdsourcing into four main categories:

Crowd creation uses the masses to add value to the product. Examples include:

• NASA’s Clickworkers, in which space enthusiasts help categorize crater patterns on Mars

• Open source software such as Linux

• Threadless.com, which allows consumers to propose T-shirt concepts for sale

• iStockphoto, which uses amateur photographers to provide low-cost, high-quality stock images

• The Rally Fighter Car, which was the first crowdsourced “creative commons-like” car. More than 35,000 designs by 2,900 community members from more than 100 countries contributed to the design.

Crowd voting leverages technology to garner input from the masses, and then makes the results available as output. Howe notes the 1/10/89 Rule: One percent of participants will create something valuable, like a well-written review, ten percent will vote and rate, and 89 percent will consume content. Examples of crowd voting include:

• Reality TV voting

• Yelp.com

• Movie rating sites like Fandango

• Digg

Crowd wisdom. This principle attempts to harness collective knowledge of many to solve problems or predict future outcomes. Howe states, “Given the right set of conditions, the crowd will almost always outperform any number of employees — a fact that many companies are increasingly attempting to exploit.” The concept of democracy is centered on the wisdom of the general public to know how to best select leaders. Yahoo! Answers and open innovation leverage the wisdom of the crowd as well.

Crowdfunding cuts out traditional lending institutions as an unnecessary middleman. Borrowers unable to secure funds through traditional sources can use a collection of hundreds of individual lenders to meet their financing needs. Kiva.org uses crowdfunding to make micro-loans to entrepreneurs in developing nations. Kickstarter.com funds a variety of startup projects from movies to inventions to businesses.

In this chapter, I discuss the powerful business model innovation strategy that is crowdsourcing. I explain that it isn’t a fad, and I give you potentially surprising examples of crowdsourcing. I also do my best to convince you that your business model can benefit from crowdsourcing, while making sure you’re aware of the downside.

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Crowdsourcing Is Here to Stay

Ten years ago, a handful of crowdsourcing applications like YouTube, Elance, and American Idol tapped into the power of the crowd. Today thousands and thousands of companies use crowdsourcing to

Create products. Giving consumers “a hand in the brand,” Frito-Lay created the “Do Us a Flavor” contest. This contest, a first in the United States, is already a hit in other countries. Some of the funky flavors suggested include Chili & Chocolate, Caesar Salad, Late Night Kebob, and Cajun Squirrel. These contests have generated more than eight million chip flavor ideas globally. The contest winner receives $1 million.

Vote on new product options. The Frito-Lay contest entrants get vetted by a celebrity panel to a handful of options, and then consumers vote on the winner.

Utilize a real-world ad agency. Global consumer powerhouse Unilever recently decided to fire its ad agency of 16 years, turning to crowdsourcing platform IdeaBounty to create ideas for its next television campaign. Coca-Cola’s Sprite brand ran a contest among film students for its most recent TV spot. This campaign did more than just generate ideas; students submitted finalized commercials ready to air.

Rate products in real time versus a focus group. If you’ve watched a recent political debate, you’ve seen the graph on the bottom of the screen moving like an EKG. Selected voters rate their satisfaction or dissatisfaction of the candidate’s comments in real time. In the old days, audience members were pulled into a room, where they were surveyed or interviewed, and then feedback was interpreted by political gurus.

Create a suggestion box on steroids. Customer comments and suggestions have always been valued by businesses, but most suggestion boxes garnered very few comments. The ease and massive scope of the Internet allows comments and suggestions to be crowdsourced for greater accuracy and volume.

Pull collective wisdom from around the world. One of the tenets of crowdsourcing is that the crowd is almost always right. This premise has been heavily researched and proven true. By leveraging this collective wisdom, companies can more accurately predict the success of new product introductions. Fandango.com posts both moviegoer and critic reviews. Which do you trust more, the collective score of 10,000 moviegoers like you or that of a handful of critics? Most movie patrons trust the collective wisdom of the crowd to better predict the quality of a movie than the opinion of critics.

Break work into manageable pieces. Finnish company Microtask uses crowdsourcing to complete extremely dull tasks that are tough to stomach 40 hours a week. For instance, the company is digitizing the archives of the National Library of Finland by breaking scanned documents up into millions of little pieces. Those pieces are placed within a game called Mole Bridge. Players read the tiny pieces — which are just images of individual words — and type what they say into a window. Players move forward in the game as a result. Microtask combines the data and gets free typing and translation services.

Allow customers to co-create products. CafePress, a popular custom T-shirt and gift site, claims 11 million unique visits per month and more than 250 million different products on its site. T-shirt designers create their own designs and post them for other visitors to purchase. Designers earn a royalty on any sales.

Raise money. Crowdfunding sites like zopa.com and kickstarter.com can raise hundreds of thousands of dollars in days.

Business model architects can’t afford to treat crowdsourcing like a fad. The cheap and easy transfer of data made possible by technology has created this powerful business tactic. It’s here to stay.

Ten Things You May Not Know Were Crowdsourced

Leveraging the power of the crowd is more common than you may think. Here are some everyday examples of crowdsourcing you may not have known about:

The Green Bay Packers have been saved by crowdfunding twice. The team was nearly bankrupt, and no bank or investor would step in. So, in 1923 local merchants raised $5,000 by selling 1,000 shares for $5 apiece to the local community, and in 1935 $15,000 was raised.

Toyota’s logo. In 1935, the company held a contest that received 27,000 design entries from which the logo was chosen.

TomTom GPS units use a user input system called Map Share that allows corrections and additions to the TomTom map. Millions of map corrections have been logged by users, improving the overall experience for all.

Twitter paid around $6 for the crowdsourced bird logo.

Your iPhone is a radar detector. The Cobra iRadar is a radar, laser and speed, and red light camera detection device that communicates with your iPhone through a special app that shows hotspots on a GPS map. Users report police activity into the app, effectively crowdsourcing speed trap detection.

Citibank crowdsources its customer service. Rather than house reps in a large office and source talent locally, thousands of reps from around the world log into a web-based system where calls are bullpenned. Then the calls are distributed to the best available reps based on a rating system that weighs their upsell history, customer satisfaction, average time per call, and so on. Reps are paid based on this scale as well.

Salesforce.com's Jigsaw sells crowdsourced data. Customer A inputs data that isn't currently in the database for consumption by Customer B. This business model differs greatly from that of data providers such as Dun & Bradstreet who build their own databases via phone books, Internet directory mining, and phone calls.

Harley-Davidson’s recent television ad, “No Cages,” was crowdsourced.

McDonald’s recently launched a crowdsourced burger, the Pretzelnator, in Germany.

Google results are effectively crowdsourced. The key ranking factor is PageRank, which takes hundreds of factors into account but primarily weighs hyperlinks from other sites. Where do hyperlinks come from? They come from the mass of Internet users recommending the site to others via a hyperlink.

Your Business Model Can Benefit from Crowdsourcing

Many businesspeople treat crowdsourcing as “something for the other guys.” They don’t fully understand crowdsourcing, so they treat it like a foreign language — something they hear about but don’t understand. The fact is that most businesses can benefit from some form of crowdsourcing. Crowdsourcing has the potential to speed development, generate creative ideas, and lower costs. Crowdsourcing is a potentially disruptive innovation for businesses that can effectively leverage its power. (See Chapter 19 for more on disruptive innovation.)

Crowdsourcing is 1,300 times faster

A crowdsourced product can be created in a fraction of the time of a traditionally created one. Crowdsourcing eliminates layers of bureaucracy, allows vast numbers of participants, and uses transparent information that can’t be rivaled by a single organization.

Since its first printing in 1771, The Encyclopedia Britannica has created more than 65,000 articles in its collection. Since January 2001, Wikipedia has amassed nearly 3.9 million articles. Put another way, the Encyclopedia Britannica has averaged adding 270 articles per year while crowdsourced Wikipedia has added an average of 354,545 annually — or 1,313 times more.

The nature of dark matter stumped astronomers for decades, so NASA created a dark matter competition to crowdsource answers. Martin O’Leary, a British glaciologist from the University of Cambridge, won the contest. His solution was a mathematical model for the tiny distortions in images of the galaxy, thought to be dark matter. NASA, the European Space Agency, and others had been working on the problem for years, but O’Leary found the solution in a week and a half.

Crowdsourcing creates a new meritocracy

In a crowdsourced environment, barriers are reduced and access to resources increased, creating an equal and unbiased playing field. Take, for example, the NASA contest from the previous section. Who knows whether user name Joe5434 is a 12-year-old in Tulsa, Oklahoma or a 62-year-old, out-of-work welder in Wales? It doesn’t matter. Information typically shared only with insiders is available to all, and may the best ideas win — regardless of their source.

Historically, a variety of barriers kept talented players off the field. You couldn't write for a major newspaper without a journalism degree. Today, blogs and news aggregation sites like digg.com allow anyone to publish. The crowd votes with views, comments, and ratings to allow the cream to rise to the top.

Picking winning stocks has long been the sole domain of well-educated and skilled market mavens employed by Wall Street firms. These firms sold their ability to pick winners for billions of dollars via newsletters, commissions, private banking, and fees. Using crowdsourcing, The Motley Fool has disrupted this profitable industry. Using an investor community of 170,000, the Motley Fool’s CAPS rating system lets the crowd vote on stocks from zero to five stars.

The patented CAPS system has been proven accurate. Five-star stocks have performed better than 4-star stocks while zero-star stocks underperformed, supporting the crowd’s prediction. The Motley Fool also ranks its nearly 75,000 members’ individual stock-picking ability. Top stock picker bbmaven isn’t a Wall Street guru; he’s an ordinary guy from Massachusetts. However, bbmaven’s stock-picking record is better than many million-dollar, salaried fund managers, including Mad Money’s Jim Cramer. The Motley Fool has emulated Cramer’s stock picks, and he has an 82.52 score while bbmaven has a score of 99.9.

Reality TV can be seen as a form of crowdsourcing. Previously, only a handful of famous actors in Hollywood could be selected as the star of a new television series. Now, everyday people — like Jersey Shore’s Snooki, Mike Rowe of Dirty Jobs, Deadliest Catch’s crab fishermen, Honey Boo Boo, The Real Housewives’ Bethenny Frankel, and Jon & Kate Plus 8’s Kate Gosselin — can enjoy fame and fortune.

Crowdsourcing can generate superior ideas

Sun Microsystems cofounder Bill Joy famously pointed out, “No matter who you are, most of the smartest people work for someone else.” If only you could access these smart people, right? You can via crowdsourcing.

Canadian gold mining company Goldcorp was building a new plant for the conversion of gold ore and needed to know how much gold was in the ground. The company’s internal geologists couldn’t provide the answer. Founder Rob McEwen stunned the gold mining industry by sharing his company’s proprietary geological data, so people all over the world could do the gold prospecting for him.

The Goldcorp Challenge offered $575,000 to the winner. A team of two Australian firms created a 3D model of the mine and created the winning plan out of thousands of entries. Their plan identified more than 110 sites for exploration, and 50 percent of them were previously unknown to the company. More than 80 percent of these new sites yielded significant gold reserves. Goldcorp made millions from this data.

The Encyclopedia Britannica boasts articles from 110 Noble Prize winners and five U.S. presidents, yet many experts view Wikipedia as a superior source for information. In this case, quantity may beat quality. While the Encyclopedia Britannica boasts more than 4,000 article authors, Wikipedia has more than 750,000 contributors. Your next door neighbor may not be able to outsmart a Nobel Laureate on an IQ test, but I bet he or she knows more about household cleaners or automotive repair.

Many computer professionals prefer the open source Linux operating system to Windows. Linux advocates note that Linux is more stable, has fewer viruses, and doesn’t slow down over time as advantages over Windows. Like Wikipedia, Linux is a free platform that has been upgraded and refined by thousands of programmers.

Crowdsourcing lowers costs

Frito-Lay may be paying $1 million for a new chip flavor (see the earlier section “Crowdsourcing is Here to Stay” for details), but this amount is cheap compared to the alternative. If Frito-Lay created a new chip flavor the old-fashioned way, it could spend tens of millions of dollars and have less of a chance for success. In Table 20-1, I compare the old product development process to crowdsourcing, using the Frito-Lay chip flavor contest as an example.

Table 20-1 Frito-Lay: The Old Product Development Process versus Crowdsourcing

The Old-Fashioned Way	Crowdsourcing
Get a team of scientists, food science experts, and marketers to brainstorm ideas for product flavors. Imagine the cost of these high-talent professionals generating ideas for a few months.	Offer a $1 million “prize” and get millions of flavor ideas for less than the cost to develop them internally plus tons of PR for free.
Make prototype chips and have multiple focus groups evaluate them.	Prototype only a few vetted options.
Take the suggestions of the focus group back to the product creation panel and make adjustments.	The crowd acts as the ongoing focus group, filtering out bad ideas and reinforcing the good ones.
Continue this process until satisfied with the product.	This step not needed.
Market the product to the public and hope they like it.	The contest markets the product, so it needs far less marketing when the product is live.
Repeat the whole process if the product fails.	Chances of market acceptance are much better because consumers created and voted on the product. In addition, allowing consumers input/buy-in for the product vests them in its success.

By crowdsourcing the new flavor, Frito-Lay saves development costs, accelerates development, gains invaluable PR (the contest crashed its Facebook site), gets to pre-market the product effectively, and exponentially increases the odds of the product’s success.

Table 20-2 illustrates additional ways crowdsourcing can lower costs.

Table 20-2 Lowering Cost with Crowdsourcing

Crowdsourcing Option	Lowers Costs By . . .	Examples
Crowd testing	Quickly tapping worldwide resources.	utest.com
Vendor crowdsourcing	Offering access to worldwide resources. Matches supply and demand. Hungry vendors can quickly access projects.	elance.com, 99designs.com, guru.com
Volunteerism	Allowing for free products. Everyone needs a hobby, and crowdsourced creations allow for free products.	Linux
Clever work chunking	Breaking large tedious tasks that would be too expensive or cumbersome to complete into small tasks done by many.	Amazon Turk, Captcha transcription
Surveying	Giving instant feedback from a significant number of users, which leads to better decision-making.	American Idol, Feedbackarmy.com
Co-creation	Removing tasks from the firm, increasing the odds of market acceptance, and increasing customer loyalty. All this is possible when the firm and customer work together to create and customize offerings.	Nike gives customers tools to design their own sneakers
Crowdfunding	Removing the traditional lending institution as middleman. Opens markets to nontraditional lenders as well as marginal loan customers.	zopa.com, kiva.org, kickstarter.com
Users helping users	Providing customer service for free. Why have a customer service staff when the best service can be provided by other customers for free?	Countless Microsoft forums, Yahoo! Answers
Contests	Using the crowd to do it better, faster, and cheaper when internal resources may not be able to solve the problem.	Netflix’s $1 million prize to help improve its collaborative filtering algorithm, Goldcorp Challenge
Open innovation	Accessing some of the brightest minds in the world for moonlighting prices. Companies can do this by sharing formerly sacred data.	Eli Lilly uses the InnoCentive platform to solve complex drug creation problems
User data compiled and fed back to users	Obtaining data more quickly. Cellphone GPS systems submit a user’s current speed, and then combine this data with other users’ speeds to yield a traffic map. This data is more accurate and timely than the old method, a traffic helicopter and radio broadcasting.	GPS traffic applications

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By finding ways to use crowdsourcing in your business model, you can move faster, lower costs, and access new talent. Any of these benefits can create new and meaningful competitive advantage.

Crowdsourcing simply works better sometimes

If you want your business model to perform at its best, you need to be open to the possibility that crowdsourcing may be more than a novel way to do business. In some cases, crowdsourcing exponentially works better than existing methods. Many open innovation projects — like the Goldcorp Challenge or Eli Lilly’s call for drug research innovation — overcome problems not easily solved by the organization.

Many prize-based contests like Frito-Lay's Do Us a Flavor or 99designs' graphics design bring so much additional brainpower to a problem that previously unimagined solutions become real.

In other cases, the crowd can tackle a massive task that’s too big for one company. By digitizing books one Captcha at a time, entire libraries can be quickly transcribed. Facebook is using the crowd to translate the site to various languages. The cost of translating millions of web pages to dozens of languages would prove cost prohibitive and would deny Facebook to users in their native language. Highly accurate traffic data accumulated from thousands of user’s GPS phones furnishes instant, accurate data instead of helicopters observing some traffic jams and missing others.

The crowd can also provide speed. If you discover that your website has a nasty virus at 3 a.m. and want it fixed immediately, good luck rousing your webmaster. Post the project on Elance or Rentacoder, and the problem could be fixed before your webmaster’s alarm clock rings. For tasks that can be crowdsourced, the availability of a large, eager pool of talent can benefit your business. iNews reporters get breaking news to consumers much faster than commercial news outlets. As the democratic movement was taking place in Egypt, Twitter was a superior source of news versus CNN. Five dollar donations texted by millions of cellphone users sped relief for Superstorm Sandy victims compared to a Red Cross telephone campaign or telethon.

Crowd wisdom can exceed individual wisdom in some cases. Motley Fool CAPS readers pick stocks better than many professionals. For many moviegoers, Fandango users rate movies better than professional critics. Knowing when to leverage the wisdom of the crowd can improve your business.

Potential Downsides of Crowdsourcing

Crowdsourcing has many potential benefits. Some potential negative effects of crowdsourcing are also worth mentioning. Consider the following:

Low cost can equal low value. For every $35 Nike logo, hundreds of low-quality logos are created.

Lack of continuity. Many of the crowdsourcing platforms businesses find useful leverage freelance designers. If you use a single ad agency, it may be more expensive, but you get consistent branding and continuity. Using the crowd may be cheaper, but you sacrifice continuity and may have to manage the brand yourself.

Facilitates the “race to the bottom.” Crowdsourcing pundits claim that bidding free-for-alls drive down prices and lower wages for providers.

Option overload. The sheer volume of the crowd can be overwhelming. Having one design firm may not result in the best logo, but you have only five options to consider. Create a logo design contest and you have to choose from hundreds of options. The additional options may not always be worth the additional time needed to manage them.

Difficulty managing the crowd. Starbucks created the crowdsourced platform MyStarbucksIdea to solicit feedback and ideas from customers. However, only 0.05 percent (one out of every 2,000) of the ideas have been implemented. If you ask for ideas and don’t implement them, the crowd may turn angry or view the program as a marketing ploy.

The 1/10/89 rule. Only one percent of the crowd makes meaningful contributions to sites like Yelp, Zagat’s, and Google Places. You may call the other 99 percent complacent. They ate a meal, it was good, and they went home. They have no need to log in and write a review. So who does take time to write reviews? Angry people, that’s who. Ask any business owner the ratio of upset customers who write reviews to happy customers who do. It’s exceptionally lopsided. This trend makes the crowdsourced rating system inherently negatively biased. Some businesses have resorted to phony positive reviews to combat this negative bias. This tactic further destroys the validity of the system.

Crowdsourcing may have some drawbacks, but crowdsourcing has triggered a dramatic shift in the way work is organized, talent is employed, research is conducted, and products are made and marketed. Find a way to leverage it into your business model.