The Emergence of and Variation in Crowdsourcing Business Models
Author: Kristen Grimmer, University of Kansas
Market Snapshot The financial crisis and economic recession in the last few years was the most severe since the 1930s. Timely government intervention kept the economic contraction from turning into a depression but serious ramifications for the working public developed in spite of the government’s efforts (Elwell, 2013, April 18, p. 1). Companies laid off workers permanently as the production rate slowed down (Levine, 2013, Jan. 24) and unemployment rose from 4.6% in 2007 to 10.1% in October 2009 (Elwell, 2013, April 18, p. 1). Manufacturing, construction, and professional and business services were industries that laid off the most workers. The high unemployment rate meant that professionals with a specific skill set found themselves without a job and unlikely to find another (Levine, 2013, Jan. 24). This professional class of workers contributed to the growing talent surplus, which made landing traditional company employment a highly competitive process. With many looking for work or ways to supplement their income, new thinking about how to make up the financial disparity came into play (Levine, 2013, Jan. 24; Pink, 2001). In the last decade, attitudes about corporate America have shifted in the professional class. Instead of the end-goal being to have the same company job until
2 retirement, professionals have turned to opportunities made possible through the Internet. Digital networking has turned freelancing into a viable primary occupation rather than a secondary job meant to supplement income. The idea of loyalty to oneself has replaced loyalty to a company (Pink, 2001). This entrepreneurial boom, coupled with the growing penetration of the Internet (Hulkower, 2013), has fostered participation in a digital world for the average working professional (Shirky, 2008). The idea of freelancing and growing online communities have allowed for a digital work environment. Although this does not exclude the unskilled individual, it has become possible for highly skilled professionals to connect regularly with other freelancers and companies that want to fill short-term or specific job needs. The trend of companies outsourcing jobs to freelancers is now an industry norm that began with companies looking for ways to be more cost effective. With the recent economic recession, many companies cut positions internally leading to situations where employees were sometimes asked to take on more responsibilities to compensate for the loss of coworkers. Employing freelancers gives companies a way to cut down on costs and to relieve overburdened employees without increasing overhead (Pink, 2001). The trend of outsourcing jobs became known as “crowdsourcing,” first defined by Jeff Howe, editor at Wired Magazine, who stated that “crowdsourcing represents the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the
3 form of an open call…The crucial perquisite is the use of the open call format and the large network of potential laborers,” (Howe, 2006a, p. 1). Crowdsourcing models have significant impact on the way companies perform business-related tasks and more specifically, the way the advertising industry operates. In the past, companies would post a Request for Proposal, which led to advertising agencies competing against one another for the company contract. The crowdsourcing model has morphed into a viable and acceptable alternative to the traditional advertising agency (Williams, 2013). Like most industries, crowdsourcing companies are just as diverse in nature. Different companies use different crowdsourcing models and, depending on client needs, some work better than others. Rise of Crowdsourcing Business Models The crowdsourcing business model simply defined is a process where a company takes a task usually handled by employees and offers it to a group of outsiders, usually a network of people online. (Howe, 2006a; Whitla, 2009). The open call for an assignment may truly be posted to any individual who wishes to undertake the task, such as in the case of Doritos when the company invited the consuming public to submit a commercial idea for the Superbowl (Erickson, 2012). However, the call may also be limited to a network of people assembled by a mediating firm, such as in the case of Boom Ideanet where the firm posts the job to an internal network (FAQs, n.d.). Crowdsourcing is an umbrella term housing several variations of the labor model. The crowdsourcing landscape has been organized into six areas by
4 Crowdsourcing.org which are: crowdfunding, tools, cloud labor, crowd creativity, distributed knowledge, and open innovation (Crowdsourcing Industry Landscape, 2011). Crowdfunding Crowdfunding is used to describe web sites that provide a way for online users, the crowd, to contribute financially to an idea or project they would like to be a part of. Individuals or companies post the idea or initiative they need funding for and members of the crowd have the option to contribute a monetary amount. Some of the most well known crowdfunding sites are: Kickstarter, Indiegogo, Rockethub, FundRazr, GoGetFunding, Crowdfunder (Taylor, 2013). Tools Tools describes a small segment of the crowdsourcing landscape that includes platforms, applications, and online tools that make digital networking, communication, and collaboration easier for online communities. Some of the top crowdsourcing and collaboration tools are: CrowdWorx, BigDoor, CrowdEngineering, Smartsheet, IdeaScale, BrightIdea (Crowdsourcing Industry Landscape, 2011). Cloud Labor A different segment of crowdsourcing is cloud labor. Cloud labor describes a vast online labor pool that is available by request and can fulfill simple or repetitive tasks depending on what is requested (Crowdsourcing.org, 2011). Some of the most popular cloud labor sites are: Amazon Mechanical Turk, Solvate, Trada, vWorker, CrowdFlower (Blattberg, 2012, Jan. 27; How it works, 2013).
5 Distributed Knowledge The crowdsourcing segment labeled as distributed knowledge is defined as sites that assist with the development of information resources from within a specific network of contributors (Crowdsourcing Industry Landscape, 2011). The most popular distribute knowledge sites are: Wikipedia, Digg, Reddit, StumbleUpon, and TomTom (Blattberg, 2012, Feb. 10). Open Innovation Open innovation refers to a segment of the crowdsourcing sites that specialize in users outside of the company or group that assist with the process of generating, developing, and implementing new content. The top open innovation sites are: Napkinlabs, Chaordix, Nokia Beta Labs, InnovationExchange, Innocentive (Crowdsourcing Industry Landscape, 2011). Creative Crowdsourcing – How it works Crowd Creativity The last crowdsourcing model is crowd creativity. It refers to a creative talent network that usually includes only individuals that share a similar set of skills and which produce highly specialized content that focuses on design, original art, media-related content or ideas. The most popular crowd creativity sites are: Victors & Spoils, Zooppa, Boom Ideanet, Genius Rocket, Mass Animation; Fiverr, 99Designs, Fotolia (Crowdsourcing Industry Landscape, 2011). The creative crowdsourcing model is a disrupter for the advertising industry because the model offers products without the traditional agency contract. Crowdsourcing companies attract clients increasingly because they are cost-
6 effective options, even if companies might worry about the quality of the product generated. Crowdsourcing may look like a good idea because crowdsourcing agencies often create more value for their customer with the services provided. This is something traditional advertising agencies aren’t as invested in (Williams, 2013). The value crowdsourcing companies offer clients is not only about price. Longterm client relationships aren’t the focus of the creative crowdsourcing company. Instead, generating ideas quickly and efficiently for clients replaces the traditional advertising agency to company relationship (Boches, 2011). Mediating crowdsourcing creative firms advertise the fact that the company puts as much effort into the client relationship as the client wants. Crowdsourcing creative firms specialize in meeting the client on his or her terms, rather than entering every negotiation as tightly as a wedded couple. Creative crowdsourcing agencies may be highly selective of the members allowed to join the internal network. The mediating firm, which manages the crowdsourcing network, usually vets the “crowd” to form a network of experts who share a skill set. The mediating firm might also act as a middleman between clients and the network. This promotes a smooth work process and adds safeguards to protect both the client and the network (Boom Ideanet, 2013). This also means the network can work with the client as little or as much as the client wants (Boches, 2011). Creative crowdsourcing agencies challenge the traditional advertising agency for business and have shifted attitudes about long-term contracts. Many clients care
7 more about the products gained than fostering a long-term relationship that may or may not prove to be a valuable experience (Boches, 2011; Williams, 2013). Criticisms of Crowdsourcing Crowdsourcing models have faced several criticisms as they have surfaced. One criticism crowdsourcing sites face is the variation on how the “crowd,” or network of people, is defined. Several crowdsourcing companies allow anyone to join the defined crowd. This can lead to work generated by creators with little expertise and a lack of skills for the task assigned (Burns, 2013, Jan. 15). This usually means the client must be selective with the products returned since there may be some below standard work mixed in with the high quality. Another criticism crowdsourcing companies face is competition. Within the “crowd” network, the competition can be fierce to win the prize. This typically means that each individual creator in the network is working against all of the others rather than with anyone. This competition is individual-based rather than agency-versus-agency. Traditional advertising agencies usually compete against each other to win large company contracts through presenting a winning advertising proposal to the company requesting one. Since each agency assigns a team of people to act as a type of brain trust, within the agency there is a large collaborative atmosphere that many crowdsourcing models leave no room for (Burns, 2013, Jan. 15). Free spec work is also a contentious subject for crowdsourcing companies. Some networks claim ownership of all submitted work from members, whether the individual wins or not. For those who lose the competition, the companies keep the
8 spec work without paying anything out. This is a loss of documented creative work for freelancers. Other companies might ask the crowd to submit spec work without a guaranteed payment and then, depending on the client, pick from among the spec work rather than entering into a formal crowdsourcing contract. (FAQs, n.d.; Burns, 2013, Jan. 15). Another problem that exists with the idea of spec work is the devaluing of ideas themselves. Each time a creative person submits an idea to a crowdsourcing site to earn payment for the creative work, the value of that creative work diminishes across the board. This causes friction among creative workers because it has a negative impact on the creative worker earning a fair profit for each effort. Ethical Creative Crowdsourcing Creative crowdsourcing models are the most unique out of all the crowdsourcing models and in fact, can be designed to remedy the criticisms mentioned above. Boom Ideanet is a creative crowdsourcing firm that has a principle goal of operating fairly and ethically. Boom Ideanet operates a network, which includes 100s of members, each of whom were vetted before being activated. Each project brief includes a clear description of the deliverables and the reward structure available. Each project that Boom Ideanet contracts is typically posted to both a subset of assigned network members who are guaranteed minimum compensation and also to the full network, for members who choose to invest in the project without a guarantee. When a member in the assigned group wins, he or she receives additional compensation, outlined up front. Members who participate in the un-guaranteed or “open”
9 category and decide to compete strictly on the basis of their ideas, are offered a higher compensation if they “win,” than those in the assigned group (How Boom Ideanet works, n.d.). Boom Ideanet has put safeguards in place to ensure both members and clients are treated fairly. The firm requires all members and clients to sign a nondisclosure agreement to protect everyone involved in the process. Members also retain the rights to any work that is not chosen by the client. Further, multiple contributors are compensated in each project. It’s not a winner-take-all proposition as with some other models. Boom Ideanet works to bring in genuine marketing challenges and to achieve a balance between competition and compensation. This system gives protection for the creative work generated while presenting original ideas for clients at a cost advantage to clients without taking advantage of the network members (How Boom Ideanet works, n.d.). The crowdsourcing business model can be a viable option for businesses and freelancers. Boom Ideanet makes the crowdsourcing business model an attractive possibility for both members and clients. Clients are assured of high-quality products and network members are protected and compensated fairly for their participation. Boom Ideanet has defined ethical creative crowdsourcing and set a high bar for the crowdsourcing industry. Conclusion Given the rise of crowdsourcing sites and firms via the Internet, it seems that the crowdsourcing business model is here to stay. Furthermore, it is highly likely that crowdsourcing will continue to expand and take its place as a viable resource
10 for both freelancers and companies. It remains to be seen if businesses will shift from the traditional advertising agency model that is currently firmly in place in exchange for crowdsourcing, but all signs point to the fact that crowdsourcing platforms provide an appealing value proposition for everyone involved.
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