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CROWDSOURCING:
THE DISRUPTIVE BUSINESS MODEL
THAT ENABLES CUSTOMERS TO
INNOVATE FOR YOU.
By: Allwin Agnel
MBA Candidate, Class of 2008
The Wharton School,
University of Pennsylvania
FORD MOTOR COMPANY MBA FELLOWSHIP
MACK CENTER FOR TECHNOLOGICAL INNOVATION
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Acknowledgment
I would like to extend my gratitude to the Ford Fellowship Program at the Mack Center
for Technology Innovation for making this research possible. I am extremely
passionate about the subject and will be eternally thankful to Prof. Schoemaker for
patiently supporting me on this project.
I would like to thank Jeff Howe, the author of the word ‘Crowdsourcing’ for his
contribution to the subject. Further, I owe much to my friend Arjun Kakkar (WG 08)
who spent a lot of time critiquing my work and supporting me throughout the project.
This project would not be where it is, without your support. Thank you.
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INDEX
1. Background.......................................................................................4 2. Objective of the study:.........................................................................5 3. Frameworks utilized ............................................................................6
3a. Frameworks Selected.......................................................................7 a) Using Alliances to Build Competitive Advantage in Emerging Technology ............................................................................................................ 7 b) The Design of New Organizational Forms ..................................................... 8 c) The FLIRT Model.............................................................................................. 9
3b) Relevance of the selected frameworks................................................ 13 4. Case Studies of Crowdsourcing .............................................................. 16
Example # 1 – Threadless Inc. ............................................................... 16 Example # 2 – Digg.com....................................................................... 18
5. The design of a Crowdsourcing company .................................................. 20 5a. Utilizing the knowledge of the crowds ................................................ 20 5b. Organizational Design & Structure ..................................................... 27 5c. The FLIRT Model .......................................................................... 32 5d. Who owns the product? .................................................................. 36 5e. Future of crowdsourcing ................................................................. 38
6. Collaboration, Innovation and Crowdsourcing. ........................................... 39 7. Conclusion...................................................................................... 43 Bibliography: ...................................................................................... 44
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1. Background
Crowdsourcing is a neologism for a business model in which a company or
institution takes a job traditionally performed by a designated agent (usually an
employee) and outsources it to an undefined, generally large group of people in the
form of an open call.1 Crowdsourcing is a business model where their engagements of
the customers with the company are at a much higher level than seen in any
previous business model. The consumer is now the prosumer (the producer and the
consumer) who now has the potential in many cases to be a part of the product
design, manufacturing and even marketing process. 2 This level of consumer
interaction with the firm brings forth several key concerns that need to be discussed
and analyzed to better understand how companies can leverage, analyze and
understand the key challenges put forth due to this new disruptive business model to
the best of their abilities.
Although Crowdsourcing is not a technology, its impact can be seen by looking at the
many startup companies and large old economy companies utilizing the techniques
to harness the ‘wisdom of the crowds’. Conventional business wisdom says that
companies innovate, differentiate and compete by doing certain things right: by
having superior human capital; protecting their intellectual property fiercely;
focusing on customers; thinking globally but acting locally; and by executing well.
But the new business world is rendering each of these principles in-sufficient and in
some cases even completely inappropriate. 3
The crowdsourcing techniques used by some companies can be termed disruptive and
in many ways a more effective use of both people and capital. Companies are slowly
but surely realizing that just having a R&D budget and team just won’t help them
cut in many markets and they have to find various ways to involve the consumer in
development of the product for it to be even more successful.
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Crowdsourcing examples involve companies that are in The Fortune 100 as well as
startups with limited capital, but with the intent to disrupt the market-place. What
makes crowdsourcing so disruptive is the way it expands a company’s ability to be
innovative, customer friendly and create new levels of customer involvement that
has never been seen before.
This kind of a change is not without its challenges – companies are generally not
built to respond to its customers and there is an inherent belief that the lack of
control on the processes might derail the company. While it might be true for some
industries, it can also be seen that it is not the situation for many others. While we
see examples of crowdsourcing in various industries, this study will focus specifically
on consumer facing internet companies. It is here that we are able to see how
disruptive the business model has been and how effectively it has enabled some
companies to leapfrog their competition and bring in levels of consumer interactions
never before imagined.
2. Objective of the study:
We will look at two key aspects that drive successful companies which have a
crowdsourcing model and study them in detail to gain a better understanding of how
they affect a company’s growth and survival. The secondary objective is to create a
deeper understanding of why the companies are ahead in their respective fields and
what it would require for companies to embrace such a disruptive business model.
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3. Frameworks utilized
We look at the evaluation from two key perspectives. The first is from the strategic
perspective and the second from the marketing/implementation perspective.
The first two frameworks will focus on the Strategic aspect of the evaluation and the
third framework will cover the marketing/implementation perspective.
The two key aspects of a crowdsourcing business are
(1) Engaging customers to be a part of the company strategy;
(2) Designing an organization that can support external innovation;
While there are various other aspects that may affect a business, in a crowdsourcing
model, these two are the key dominant factors that set them apart from other
business models. The first two research frameworks have been selected from the
book “Wharton on Managing Emerging Technologies” by Prof. Schoemaker, who is
also the Research Director for The Mack Center for Technological Innovation at The
Wharton School.
Key Aspects Relevant Frameworks
Engaging customers to be a part of Using Alliances to build
the company strategy; competitive advantage in
emerging technologies.
Designing an organization that can The Design of New
support external innovation; Organizational Forms.
FLIRT Framework Marketing &
Implementation Perspective
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3a. Frameworks Selected
a) Using Alliances to Build Competitive Advantage in Emerging Technology
Alliances play a central role in the success of emerging technology businesses and it
offers a way to share resources and spread risk. While building and maintaining
alliances can be extremely tough, there are four key ways of building successful
alliances – (1) Creating knowledge sharing routines; (2) Choosing complementary
partners; (3) Building and managing co-specialized assets; (4) Establishing effective
governance processes.
The strategic objective of the alliance influences the relative importance of each of
these mechanisms as well as the skills that firms need to effective realize the full
potential of their alliances.
In creating knowledge sharing routines, there is a key need to share knowledge
across organizational boundaries. Sharing of know-how becomes a key differentiator
and firms that are good at sharing routinely outperform competitors who are not.
The partners need to have the ability to absorb the information exchange and also
codify processes to ensure regular exchange of knowledge and monitor its effective
usage to ensure maximum utilization of the synergies created by the alliance.
In choosing complementary partners, the firm needs to find partners whose assets
complement them. Once a strategic partner has been identified, the firm also needs
to concentrate on developing organizational complementarity to ensure the strategic
resources are effectively utilized between the firms.
The firms need to build up and manage co-specialized assets and these assets
become increasingly important for the alliance. Some of these assets would help in
creating a better strategy, while some would help in achieving better operational
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efficiency. The alliance would tend to build assets that create more value and
synergy for the alliance than it would for the single firm.
All this is then brought together by establishing effective governance processes.
Financial and contractual methods of achieving better synergies are put out to work
in an alliance. These processes are required to keep the alliance together and also to
create reasonable expectations of what is required to make the alliance a success.
Since partners bring varied assets into the alliance, they require some level of
protection and assurance that their assets will not be misused and the deal is
structured to be gainful for the partners in any eventuality.
b) The Design of New Organizational Forms
Managers have realized the weaknesses of traditional, hierarchical organizational
forms in meeting the new demands of rapid change and uncertainty and they have
begun to develop more dynamic and adaptable organizational structures tailored to
this new environment.
In the book, while there is no explicit framework provided to analyze which is a
better firm structure, there are various examples of what might work in different
situations. However, the important aspect the chapter describes is the distinctive
elements of organizational forms because it encapsulates that organizational form
are unique reconfigurations of six elements –
(1) Organizational Goals;
(2) Strategies;
(3) Authority Relations;
(4) Technologies;
(5) Markets;
(6) Processes.
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Taking these key 6 aspects into consideration, emerging organizational forms has
then been classified into 6 new forms.
(1) Virtual Organizations;
(2) Network Organization;
(3) Spinout Organizations;
(4) Ambidextrous Organizations;
(5) Front-Back Organizations;
(6) Sense-and-Respond Organizations
All the above 6 forms have very unique reasons for them working the way they do
and understanding them is key to be able to assess the suitability of any
organizational form to a firm.
With traditional company hierarchy giving way to a proliferation of organizational
forms, competitive advantage may be increasingly found in creating a form that
works best with emerging technologies in a way that is responsive to consumer
needs.
c) The FLIRT Model
The FLIRT Model has been created by Sami Viitamäki, a marketing major at the
Helsinki School of Economics who is writing his master’s thesis on the subject of
Crowdsourcing. This makes it a very apt model for the purpose of evaluation.
The model consists of five FLIRT elements that need to be considered while evaluating
a crowdsourcing project.
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Figure: The FLIRT Model
Source: http://www.samiviitamaki.com/2007/05/14/the-flirt-model-of-crowdsourcing-tools/
The FLIRT elements are:
• Focus –
Focus is what connects the collaboration effort to the strategy level of the firm. In
the Focus phase, business goals and needs are reflected on the needs and
perceptions of the customer, not forgetting to assess what is doable within the
constraints of organization strategy and culture. 4
• Language
The appropriate language and context to be utilized while reaching out and
communicating with the consumer is important to ensure an appropriate response
from the consumer.
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• Incentives
The appropriate incentive structure should ensure regular participation in the
business by the consumer. Incentives are both intrinsic and external and the
company needs to manage both of them carefully to ensure maximum
participation.
• Rules
The various rules that govern crowdsourcing are the rules of initiation, creation,
and exchange & interaction. These rules are required for any crowdsourcing effort
and should be easy and effective for the community to use.
• Tools
The tools highlight the ways companies enable creation by the users, conversation
by the users and the tools required by the company to ensure meaningful action
in the company.
• Legal and IP
In addition to the five key aspects proposed by Viitamäki, I would like to add one
more variable to the study – The Legal aspects of the Intellectual Property Involved.
This idea is borrowed from a paper by Matthew Helms on Crowdsourcing. 5
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Figure: Focus
Source: http://www.samiviitamaki.com/2007/05/11/the-flirt-model-of-crowdsourcing-focus/
The model stresses continuous and open development through constant
conversation and adjusting, the elements of the model connect to different levels of
decision making, and can thus be, at least initially, thought of as sequential.
The model is constructed and the problems viewed from the viewpoint of a marketer
of goods and/or services wishing to engage its customers, existing or potential, in a
collaborative effort, campaign-style or longer term, on a given field of business. 6
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3b) Relevance of the selected frameworks
(1) Using Alliances to Build Competitive Advantage in Emerging Technologies.
In Crowdsourcing, the critical element of the innovation puzzle is provided by the
consumers. In this framework, a strategic alliance is termed as “a cooperative
relationship between two or more organizations”. In Crowdsourcing, the firm is
usually working co-operatively with people. So the definition needs to be slightly
modified, but the core idea remains the same.
Usually technological alliances are made to battle market uncertainty; uncertainty
on consumer demand and technological development. While Crowdsourcing, the
consumer becomes the pivotal aspect of the business and therefore it is of extreme
importance to manage this strategic relationship with utmost care.
In this framework we see the strategies for successful alliances enumerated and we
notice that they are extremely applicable to Crowdsourcing. The four key strategies
are: (1) Choosing knowledge transfer routines; (2) Choosing complementary partners;
(3) Building and managing co-specialized assets; (4) Establishing effective
governance processes
In Crowdsourcing, each of these key elements of the alliance comes into play for
multiple reasons. There has to be a routine transfer of knowledge between the firm
and the consumer and the firm has to be setup to be able to affect such a transfer.
The consumer is a complementary partner and has to be treated accordingly – both
the firm and the consumer have different needs and it needs to be studied and
treated accordingly. As we look at building and managing co-specialized assets, we
see that in many Crowdsourcing examples like online stock photography or tee-shirt
designs, the consumer is bringing his/her intellectual property to the business – to
share it and to profit from it. Instead of a traditional asset, it is a new challenge to
be able to maintain these assets while working with a regular profit motivated firm.
It is also understandable as to the usage of effective governance processes so as to
ensure the business does not crumble upon the loss of certain consumers.
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As we look at the framework, we realize that not only is it extremely applicable it is
also very relevant to the challenges a firm will face in its adoption of Crowdsourcing.
(2) The Design of New Organizational Forms
Integrating consumers into the business innovation process is not only a tough
strategic problem it also provides additional challenges in terms of organizational
structures. While using Crowdsourcing, companies face additional challenges of
trying to integrate consumers into their business processes in a seamless manner.
As we look at Crowdsourcing through this framework, we realize how relevant this
framework becomes to its study. As an organization, it needs to create an
environment that is tailored for the new challenges and also for integrating the
consumer as a part of the decision making process at the company.
Issues like Authority Relations and Processes cannot be looked at from a traditional
company perspective. The ability to build dynamic links between various elements of
the firm would be critical in the firm’s stability and growth. Reporting structures
may change because of the heavier involvement of consumers and needs to be
accurately captured to create an organization that can support Crowdsourcing.
All the key elements mentioned in the framework are critical to a firm and also help
us understand what it would take for a Crowdsourcing initiative to be successful.
The framework also mentions 6 new types of organizations and it would be
interesting to compare and contrast current companies which are utilizing a
Crowdsourcing model to better understand the underlying dynamics and challenges
that a firm will face in the implementation and understanding of this subject.
These frameworks should enable me to assess and analyze the challenges of
Crowdsourcing and provide insights into solving the potential challenges firms will
face with this new disruptive form of business.
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(3) The FLIRT Model
The FLIRT model has been explicitly built to evaluate crowdsourcing business
models. It has been created to better evaluate the strategic, tactical and technical
aspects of a crowdsourcing business model.
Source: http://www.samiviitamaki.com/2007/05/06/the-flirt-model-of-crowdsourcing-the-
updated-model-and-background/
This model can be used to evaluate a business and understand its key strengths and
weaknesses in different spheres. In using this model to evaluate the companies, we
should get a more accurate way of understanding the key drivers of what makes the
specific crowdsourcing company work. This model helps us fine-tune the
implementation of the various aspects of the firm because of its focus on both the
tactical and the technical aspects of business.
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4. Case Studies of Crowdsourcing
I have chosen two specific startups with each of them focused on the consumer
internet space and having different features and in different stages of growth to
evaluate the concept of crowdsourcing from multiple perspectives. I have chosen to
look at an apparel company called Threadless, Inc which has built a tee-shirt
company based on crowdsourcing principles. It is a privately held company with
estimated revenues of $17 Million 7. The second company we look at is Digg.com,
which has built a news-media company which allows people from across the world to
post news on the site. Digg is a user driven social content website. Everything on
Digg is user-submitted. After you submit content, other people read your submission
and “Digg” what they like best. If your story receives enough Diggs, it’s promoted to
the front page for other visitors to see. 8. Digg is one of the world’s top 100
trafficked sites according to Alexa, a leading traffic monitor. We take two leaders in
their respective fields i.e. apparel and social media to also better understand how
crowdsourcing has the potential to play a disruptive role in varied business and also
to see the power of crowds in helping create businesses where they bring all their
abilities to the table and help build these successful organizations.
Example # 1 – Threadless Inc.
Threadless (www.threadless.com) is a user-designed & submitted tee-shirt web
company. That means that they take users submissions for t-shirt designs, pay the
designers for their work, and sell their t-shirts on the web9. Artists submit potential
T-shirt designs to threadless.com, which receives about 1,000 designs weekly; some
600,000 registered users rate the designs to create the top 100, and from those, a
group of Threadless employees select 20 designs to print. Each week, the company
releases nine shirts, seven new designs and two reprints in limited runs of about
1,500, costing $12 to $25 apiece. 10
Threadless began in 2000 when Jake Nickell and Jacob DeHart met on an online art
forum, where Nickell happened to submit a winning T-shirt design. The two former
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e-commerce Web site builders fashioned that idea into a company that posted
annual sales of $20,000 in 2001 and $6.5 million in 2005. Although the pair no longer
officially discloses the company's sales figures, estimates are reported at $17 million,
with revenues generally at least doubling each year. The company operates 15,000
square feet of warehouse space and produces 80,000 to 90,000 shirts a month,
Kalmikoff said. They opened their first store in Chicago and the next one will likely
will open in Boulder, Colo., where Nickell and Kalmikoff plan to move next year. 11
To achieve this scale, the company has focused itself very well two aspects – working
very closely with their consumers/prosumers and at the same time finding ways to
constantly fuel the interests of members and new buyers. "The main key to our
success has been to let things happen on their own, without a lot of pushing but
instead nurturing new projects or ideas," says chief creative officer Jeffrey
Kalmikoff.
"You can't force a community to happen. It's an organic thing. (If you force it) you'll
either self-destruct your brand, or if you are able to bully some people into
participating, they're fully aware that it's a brand community instead of something
that they'd visit and participate in anyway. So we learned to just let things happen
and sort of nurture it along as it grows." 12
Most of the people who visit Threadless are potential buyers, not designers. To keep
them coming back, the team devised a series of rewards. Upload a photo of yourself
wearing a Threadless T-shirt, for example, and you receive a store credit for $1.50.
Referring a friend who ends up buying a T-shirt is good for $3.
The stream of traffic generated by this viral-marketing engine results in 1,550 T-shirt
sales on a typical day, Kalmikoff says. During a one-day sale this spring, Threadless
sold 35,000 shirts; even better, the site's average number of daily visitors got a long-
term boost. New visitors to the site are encouraged to start blogs, upload photos,
leave flirty comments, and otherwise feed into a growing community that spins off
T-shirt sales almost as a byproduct. Many customers also sign up for the Threadless
newsletter; it's delivered to 370,000 e-mail addresses each week, according to
Kalmikoff, and 75% of recipients actually open it to see what's new on the site.
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"Threadless isn't just offering T-shirts," says Frank Piller, a research associate at MIT
who studies businesses that get customers to help design products. "It's offering an
opportunity to participate in something that's exciting and interesting." 13
To understand Threadless, Inc’s success, we need to take a step back to see what
they have been able to create without being experts in the ‘apparel’ business. From
0 – 17M$ in revenue in 7 years and doubling every year, this company has come a
long way in establishing itself as a major t-shirt apparel company. It has sold
hundreds of thousands of t-shirts and on certain days they have sold up to 35,000 t-
shirts when they have offered a sale pricing. They receive over a 1000 designs every
week for approval and they are a very profitable venture because of their high
margins and miniscule marketing budgets. It is interesting to notice that the
company has utilized the knowledge of the crowds to design a business that has
grown enough to sustain its own growth momentum. It is also of note that this
company does not have any major strength in design or in apparel production. They
have utilized the power of crowdsourcing to create a business model that works so
well for them that they have created a successful business where thousands of
people participate to help the company succeed.
Example # 2 – Digg.com
In the fall of 2004, Kevin Rose came up with the idea for Digg. He found programmer
Owen Byrne through eLance.com and paid him $10/hour to develop the idea. In
addition, Rose paid $99 per month for hosting and $1,200 for the Digg.com domain.
In December of 2004, Kevin launched his creation to the world through a post on his
blog.
In February of 2005, Paris Hilton’s cell phone was hacked. Images and phone
numbers from the phone were posted online and it didn’t take long for a user to post
the link on Digg. The site started to receive an enormous amount of traffic and it
was then, Rose says, he saw “the power of breaking stories before anyone else.”
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Digg has been a force ever since. Acquisition offers have been made, Rose was on
the cover of BusinessWeek and according to Alexa, Digg is in the top 100 most
trafficked sites on the internet. 14
The concept behind Digg is disarmingly simple: when members find stories of
interest - so far, mostly about tech - they recommend the articles to others at the
site. The members get credit for being the first to find stories, which means that you
have 150,000 editors fighting to find the good stuff fast, and that makes Digg a great
source for timely tech news. Once the articles appear on Digg, members click to
check them out, sending huge traffic to each article; this is known as "the Digg
effect". If the articles pass muster, members vote them onto the front page - they
"digg" the stories 15
Digg has over 2 million registered users and serves over 200 million pages in any
given month. Digg has raised 10$ M in funding and has broken even in 2007 with
revenues of $ 3M. 16
Digg’s growth has been blisteringly fast and this has caused many media companies
to take notice. Many newspapers feared Digg at first, but they now see their
relationship with Digg as symbiotic because Digg drives traffic back to the original
URL source. The Wall Street Journal and the New York Times see Digg as a positive
tool, and more and more media sites are populating their sites with Digg buttons.
Over the summer, Digg buttons were being installed at a rate of 100m per month,
and these buttons now get around a billion impressions a month. 17
Digg is now considered a social-media company which has a reach rivaling some of
the large established newspapers and yet they have been able to achieve this with
just over 28 employees and with no one having a media background. Every person
who visits the site has the potential to become an editor and is a part of the process
that enriches everyone’s visit to the site. The prosumers decide their choices and
Digg just has a simple and easy to use method that lists them out in the form of
news.
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In just over 4 years, Digg has grown at a blistering pace without the need for
advertising because it has had tremendous success with the word of mouth reach.
Digg has successfully used crowdsourcing to create a business model that has been
both disruptive and path breaking. It has also found a way to keep the interest going
on for its regular users to come back and submit more news and participate in
building an ever evolving social-media news site.
5. The design of a Crowdsourcing company
5a. Utilizing the knowledge of the crowds
In both the examples, we have seen how consumers come together to ‘complete’ the
product. They are not just in to utilize the product or be a part of the transaction. It
is their existence and interaction that creates the product or service. In such
business models, the primary goal of a company would be to find a way to harness
the knowledge of the crowds in an effective manner. While looking to understand
the key aspects we need to consider while harnessing the knowledge the crowds, we
turn to the framework of “Using Alliances to Build Competitive Advantage in
Emerging Technology” listed in the book – “Wharton on Managing Emerging
Technologies”.
We understand the framework well and then look back to our example companies to
see how they have been able to connect with consumers and have be able to create
an extremely competitive alliance with them. It is this alliance that is the root of the
disruptive business model. Furthermore, we will also look at more companies to
understand how they have been able to create successful alliances with consumers
to create successful businesses.
In understanding the framework and its utility in our research, we define and clarify
the four key strategies with respect to the crowdsourcing world.
(1) Choosing knowledge transfer routines
Inter-organizational learning is critical for the enable that a firm learns from the
other entities it collaborates with. For example, in the scientific instruments
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industry 2/3rds for innovation can be traced back to a customers’ initial suggestion
or ideas. 18
A firm’s ability to remain competitive is also judged by its ability to listen to its
customers and innovate. However, in terms of crowdsourcing, there are two key
challenges. The alliance partners/consumers may need to have enough incentives to
encourage them to share the knowledge. There may be either a formal financial
incentive structured for such knowledge sharing or informal norms of reciprocity.
(2) Choosing complementary partners
In successful companies, complementary partners tend to bring distinctive resources
that when combined with the company’s resources tend to create a stronger
combined resource. In Crowdsourcing, we need to understand that the company
needs to be able to exactly identify and then extract this resource from the people.
The challenge for companies is to be able to create products that require specific
skill-sets from its partners/consumers to enable it to be successful. In a way, it is
about realizing what specific abilities you require from your consumer to enable co-
creation.
3. Building and managing co-specialized assets
Over a period of time, combining both the company and the consumer’s resources,
we will tend to see the creation of a co-asset. Successful alliances need a way to
manage the assets as per the terms agreed upon. On the web, with most of the
front facing consumer companies which utilize crowd sourcing, consumers tend to
believe very truly so that they have been instrumental in the building of the
company and at times would feel jilted if the company mismanages the co-asset.
In rare cases, the company actually provides part ownership of the product, like with
a software development company called Cambrian House which allows idea
generators to have a share in the ‘equity’ of the product. But in other cases, like
that of Threadless and Digg, the consumers believe that they do have a certain
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amount of ownership in the ‘community’ they have helped build. It is imperative
that the company appropriately manages these co-assets to ensure success.
4. Establishing effective governance processes
As with regular business models, alliances are only successful if the partners feel
that there is an effective process that guides both the parties involved. In
Crowdsourcing, the governance becomes a very important issue because there are
many businesses which will utilize the knowledge of a crowd, but not necessarily
make monetary payments for those services.
With good governance, people tend to be more supportive of the company and also
ensure better word-of-mouth publicity for the companies involved. The processes
are also important in helping create an atmosphere of transparency which a
prosumer now looks for in all his transactions.
Threadless, Inc:
a) Choosing knowledge transfer routines;
Threadless is an extreme example of managing knowledge transfer routines within
itself and its consumers. This trend may be viewed in other companies which plan to
drive their businesses using crowdsourcing. There are two keys areas of knowledge
transfer we would need to look at: One is communication within the company and
the second is communication beyond the company with its consumers.
In today’s collaborative economy, the competitive pressures force organizations to
be more focused on the consumer and more attuned to the dynamic marketplace
activities. This means firms are less hierarchical than they used to be and at the
same time work is becoming more team-based and collaborative with less
dependence on geography. 19
Companies like Threadless have a very collaborative workplace with new-age tools
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like wikis, virtual meetings and on-demand software applications. Since the
company is not an apparel manufacturer and outsources all its manufacturing, it is
first and foremost a community management company which has the ability to
harness the wisdom of the crowds and create a unique & fast growing business
opportunity. Threadless uses collaboration suites for project management and their
CEO Jake Nickell mention how it has helped their company keep track of its projects
much effectively that it could before. 20
The knowledge transfer routine from the consumer to the company can be seen as
both unique and effective. In this case, the consumer uploads the designs of tee-
shirts to Threadless and then gets to see his/her design voted in or out of the system
by other users.
This process is a knowledge transfer routine that has to be managed effectively
because at all times the consumer looks for transparency. With Threadless, the
process is very clear and transparent – the consumer knows that his/her effort into
creating the intellectual property of a design goes through a safe process that
ensures that it gets the appropriate attention.
Furthermore, a consumer is always providing insights into his choices and interests
on the Threadless community website which is monitored very closely to understand
the kind of trends that are evolving within the community and in the marketplace in
general. One example of product extension can be seen in the case Threadless
decided to create three new products including one for kids. Threadless’
predominant focus had been on the age group of young individuals in the age group
13-25. But after listening to their customers, they decided to launch the new
products including ones targeted towards kids. It is this level of attention and
listening to consumers that has allowed Threadless to remain on top of their game.
Threadless also realizes that it has achieved its success due to its consumer support
and works very closely with them to ensure that the company’s key success factors
are still catered to.
With a Crowdsourcing business model, the consumer plays the role of the product
creator in many cases and has to be treated appropriately to ensure future support
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and positive word of mouth support. Knowledge transfer systems which have the
ability to capture the customers’ insight in a simple and unobtrusive fashion can be
termed as one of the key success factors in a crowdsourcing business model. Since
Threadless being a web based company; its website is designed to be both easy and
functional. It includes features like blogs and voting systems that enable them to
capture the customer sentiment and insight.
b) Choosing complementary partners
Threadless’ model is designed to appease both the buyer and the designer. The
designers of the tee-shirts are one of the key strategic resources for the firm and its
business model. Threadless by ways of soliciting designs does not have to worry
about maintaining graphics experts on its payroll and currently gets over 140 design
submissions in day 22. By choosing to focus on building an eco-system which supports
its consumers, Threadless has been able to grow 100% in revenues year on year.
c) Building and managing co-specialized assets
While understanding co-assets, the key factors are the contribution of the alliance
partners into the activity. While Threadless has built its company and website
around the needs of the consumer, the final say is of the consumer. The online
community built around the business keeps the designers, purchasers and the owners
together. The designers provide the design and the company showcases them to the
world, the consumer votes on the designs and can also participate in the discussions
with other consumers. All this interaction creates huge amounts of content and this
can be construed to be a co-asset because of the way it has been
created/accumulated.
In its current format, Threadless also allows people to upload pictures of its
customers in tee-shirts in return for discount on purchase of future tee-shirts. There
is a very clear exchange of value built into this system and it works for Threadless by
giving them word of mouth publicity.
25
However, the community co-asset is managed very carefully by listening to the
consumer at all times and working to keep them satisfied while providing them
returns on their time spent at the site.
d) Establishing effective governance processes
The voting process for the designs is a transparent process and allows designers to be
evaluated by other consumers who visit the site. The process has to be effective
because a designer puts in a lot of time trying to create designs and if the process
wasn’t clear or transparent, it would hinder designer support to the company. Clear
community guidelines and strict governance help in creating credibility and increase
the trustworthiness of the business in the eyes of the consumer.
Digg, Inc:
a) Choosing knowledge transfer routines
Like Threadless, Digg too needs very strong knowledge transfer routines – both
within the company and outside. While the internal communication and knowledge
transfer routines are strong as is the case with most of the successful internet
startups, what differentiates Digg is its business model which forces it to have an
extremely strong connection with its consumer. Digg serves close to 5.6 million
unique visitors every month 23 and it has the potential to turn each of these visitors
into a media reporting person from across the globe.
Digg has built a website which allows users from across to world to submit news
articles and then vote on them. As a social media company, Digg has now
readerships which rival established print newspapers and it has been able to create
this by focusing very squarely on empowering the consumer.
26
Digg has created a very simple and intuitive interface for uploading news and a very
simple voting system which allows users to vote on specific news items. The more
votes the news items get, the higher it shows up on Digg’s website.
(b) Choosing complementary partners
The Digg visitor can be categorized as doing three key functions: Adding the news,
voting on news and viewing the news. Digg’s focus is to ensure that the news
addition process is seamless and intuitive and so is the voting to ensure that people
can figure their way around the website very easily. A very clear focus on the
consumer has enabled them to grow at a blistering pace where they have been able
to grow 300% over their traffic levels in 2006.
(c) Building and managing co-specialized assets
While the Digg site is owned by its owners, the consumers feel that they are a part
of the site because they contribute to its growth and existence. Digg has to work
hard to ensure that the consumers’ voice is heard since they are the people who
decide the popularity and usage of the site. In May 2007, a popular news aggregator
Digg.com to its knees as its users flooded the site with posts of a code that could
crack the encryption on HD-DVDs, unlocking the high-definition movies to online
piracy and potentially exposing Digg to legal troubles.
However, when Digg's administrators stepped in Tuesday and removed several posts
containing that once-secret proprietary code, the community mutinied.
The site's founders explained they were responding to cease-and-desist orders on
behalf of the trade group that holds the rights to the HD-DVD code. But Digg users
countered each takedown by posting the code again and again, until articles,
pictures, even song lyrics containing the 32-character data key swamped the site.
27
In the end, Digg submitted to the power of its users and allowed the article to
remain online. This example shows the power of potentially miss-managing an asset
which a consumer might feel he co-owns. In this case, the Digg users felt a sense of
ownership to Digg and forced it to be completely user generated and not editorial
driven. 24
(d) Establishing effective governance processes
Digg’s algorithm for ensuring a story is on top has been debated for a long time,
because it is not transparent. However, it seems to be a reliable indicator for the
top story. The reason Digg hasn’t been transparent about its algorithm is because
there are companies which try to game the voting system to ensure their marketing
messages get on the front page. However, since the Digg system is relatively solid,
people still trust the system to turn up the best news results. Digg has managed its
process and communication with its users very well by means of regular
communication through its blogs and other avenues.
5b. Organizational Design & Structure
Traditional ‘make and sell’ hierarchical companies are giving way to a set of new
company forms. Experimenting managers have generally designed these new forms
to capture success in environments of discontinuous technological change. 25
28
Most traditional organizations tend to look like this:
SalesCustomer Service EngineeringMarketing
CurrentCustomers
ProspectiveCustomers
…
InformationLoss
InformationLoss
SalesCustomer Service EngineeringMarketing
CurrentCustomers
ProspectiveCustomers
…
InformationLoss
InformationLoss
Figure: Traditional Organizational Structure
This structure has been prevalent for decades and has been successful for most
companies. This organization structure needs to be dug deeper into to understand
further interactions with the customer so that we gain a better understanding of how
newer crowdsourcing firms work and the challenges they face as they grow along.
In other forms of organization, customer interaction was usually limited to one part
of the organization which then tended to distribute its knowledge on the customer
and the market to the other divisions. Since customers preferred to interact with a
certain division, that division now started to act like the ‘eyes and ears’ of the
organization and it was through this structure that information was disseminated and
discussed amongst the other departments.
This structure however is prone to many issues, primary of which is the amount of
‘information losses’. When an abundance of customers worked with a specific group,
the entire company then only tended to receive a subset of the information because
of the data loss in communication between different groups.
Looking towards companies that utilize crowdsourcing as a business model, the
consumer interaction is manifold and the companies to be tied in to the customer
29
relentlessly. The companies cannot afford to just have a single point of feedback
assimilation or distribution and the entire organization is tied in to both receive and
relay feedback to the consumer. In companies like Threadless and Digg, all divisions
within the company and keyed in to receive and disseminate information to the
consumers and this is a key factor for their success and survival.
SalesCustomer Service EngineeringMarketing
CurrentCustomers
ProspectiveCustomers
…
Knowledge Sharing System
SalesCustomer Service EngineeringMarketing
CurrentCustomers
ProspectiveCustomers
…
Knowledge Sharing System
Figure: Organizational Structure of a Crowdsourcing Organization
For example, in the case of Threadless, the marketing team, the design team, the
technology team and the strategy team are all keyed into and maintaining dialogues
with their customers. With the proliferation of the internet, good news spread fast –
but bad news spread faster. With crowdsourcing business models, there are too many
consumers involved who hold a high amount of power and can use it against the
company. Mediums like blogs, newsgroups and discussion forums enable consumers
to talk both good and bad about companies and this shifts the power of maintaining
the reputation of the company with consumers.
Companies need to be completely keyed in to both their consumers and work closely
with the other parts of their organization to ensure a clear message and focus. At
Threadless, the CEO, Jake even replies to comments on customer blogs if they need
any clarification. This level of customer attention also flows down into the company
and becomes a part of the company culture.
30
Similarly Digg is structured to listen very carefully to its users and the entire
organization is consumer facing in the sense that every division within the company
listens and responds to its customers. High levels of collaboration within the team
also tend to bring in high levels of innovation which could be arguably true for the
companies we have spoken about.
Understanding new crowdsourcing firms is relatively easy because of the low levels
of staffing within the firms we have evaluated. At Threadless, the organization is
designed to work alongside its consumers to deliver products. The company is flat
structured organization with a strong focus on the community. It has a very strong
focus on satisfying the needs of its consumers i.e. both the buyers and the designers.
Threadless employs around 35 people26 and their annual revenues are close to 20M $.
These low employee figures are possible because of their ability to work closely with
their consumers. Compared to regular news media corporations who sometimes
have staffs in excess of a thousand, Digg has just 55 27 employees and ends up
reaching to as many users as the regular news papers tend to do.
To a major extent these companies tend to a very fluid organizational structure for
two reasons – a) They are constantly growing b) They are unique organizations and
therefore have to create structures that work specifically for them.
In scaling up, these firms have realized the need for new positions or structures and
have worked to put them in place. Threadless has established a critical position at
the company called the ‘Creative Director and Community Leader’ which is led by
Jeffrey Kalmikoff. His primary role is to act both as a liaison between the
community of users and the company and at the same time to find ways to ensure
the firm has ways of tapping the creativity of the tee-designers. His role is also to
ensure that more and more talented people are submitting designs to the firm.
The rest of the company is divided into groups which take of customer support,
technology and order fulfillment. In this respect, Threadless is a very regular looking
company and this is because its organization structure is.
31
The structure of the company is relatively flat and it enables people to find their
niche within the firm and work effectively. Secondly, a part of Threadless’ hiring
process which has worked very well in their favor is their ability to hire from within
their website community of users. People who are impassioned users of Threadless
and have won design contests are offered job positions at the company. This ensures
the quality of the person’s work and his/her interest in the company – both of which
are crucial factors of success in their operations.
The use of technology is all pervasive within the Threadless offices. From utilizing
wikis to share information to using SaaS (Software as a Service) like basecamphq 28 to
ensure better product management – the people are very well connected to each
other and are working collaboratively with each other. This leads to more innovation
and a clearer understanding of the work and this is one of the reasons for
Threadless’ efficiency in releasing new products and services.
At Digg, the company is structured akin to regular companies except for extremely
high levels of collaborative activities within the company and the users of Digg.
Even though they are leaders in their space, Digg tends to regularly seek feedback
from its users to incorporate into its services and to also reach out to its core
community of users. An example of such an event is their ‘town hall’ event wherein
they officers at Digg would do a webcast or meet up with their users across different
cities. 29
While researching the jobs on offer at Digg 30, the positions on offer are very similar
to those of a regular social-media company with positions like interface designers,
programmers and analysts being required. So while Digg does very interesting work
on its business front, the company structure is growing to be more like regular
companies, except its focus on working closely with its community of users. This is
not too unlike Threadless and it is too early to predict their growth into a different
organizational structure.
However, it would be of note to see their evolution over a period of time as they end
up employing hundreds if not thousands of people. Right now, it is clear that most of
32
these companies are lean and its employees can work together with ease. The most
distinct aspect of both the companies is their dogged focus on working closely and
substantially with their consumers. It is almost a fanatical approach to managing
their connections with their consumers and this could be the reason for their
continued success.
The organizational structures of these companies would potentially undergo a lot of
change once hyper growth kicks in and it would arguably be a big challenge to
maintain an organization both flexible and focused enough to still remain a leader in
its space.
Threadless
Design of New Organizational Forms
Alliances for Competitive Advantage
DiggDimension
Optimal
AverageNeeds Improvement
Threadless
Design of New Organizational Forms
Alliances for Competitive Advantage
DiggDimension
Optimal
AverageNeeds Improvement
Figure: Performance in Strategic Dimensions
5c. The FLIRT Model
We will apply the FLIRT model to both the companies, Threadless and Digg to better
understand how their key drivers and how strong they are on the different elements
of the model variables.
Threadless, Inc – We will evaluate the company across the five dimensions of the
model to see how strong they are on each of the dimensions. The FLIRT model was
designed with a lot of attention paid to online consumer internet companies and
33
therefore the companies in this study might just do much better than other
companies will.
Focus - The focus of Threadless is on the new product development and product
design category. The company started as a competition for selecting top tee-shirt
designs and it has remained true to that cause. The business is structured to ensure
the maximum flow of designs to the company.
Language – Threadless understands this aspect extremely well and works towards
ensuring that every user is made a part of the community. It tries to build the
community feeling through various activities like paying people to submit their
photographs wearing Threadless tees. It also hosts competitions which bring people
together and this level of collaboration can only be achieved by using the
appropriate language. Furthermore, they have tweaked their language usage to suit
the particular demographic they are targeting.
Incentives – The incentives are laid out very clear for the designers who create the
products. There is a monetary incentive for every selected design and also there is
an intrinsic motivation for people to do their very best and submit their best designs.
There is a high level of extrinsic motivation like peer recognition, fame and learning
through reciprocity.
Rules – Threadless has very clear rules on when to register, the advantages of
registering and has the ability to utilize these registrations effectively. The rules
within the community as to what ensures a selected design & the remuneration for
designs are clear and certain. The rules are designed to curb non-constructive and
offensive discussions.
Tools – Threadless provides all the tools that its users require to vote on designs,
upload designs and maintain conversations about them. Threadless provides all the
requisite tools of creation, submission and voting to its users in a seamless format to
ensure maximum customer engagement. It also provides community tools like blogs
34
to capture the thoughts of the consumers and providing them a platform to interact
with other consumers.
Legal Aspects/Intellectual Property – Threadless owns the rights to the tee-shirts it
produces, however the submissions can and have violated trademarks or have been
plagiarized designs at times. Threadless tends to immediately discontinue such
designs as soon as it gets informed about such a violation. However there is nothing
much it can do to make sure every submission is not a copyright violation and it puts
in a lot of trust into the hands of the community which designs its tee-shirts. This
however does not take the responsibility away from the company and it may land
into trouble at some time if it allows a famous brand’s plagiarized design into
production.
Digg, Inc – We will evaluate Digg on the key areas of the model and also on Legal
aspects/Intellectual Property area.
Focus – The company’s focus lay on aggregation of content and it has built its model
to ensure that everyone can contribute to Digg news either though the website or
through simple ways like clicking on the ‘add to Digg’ button now found on almost all
news websites. The company tries very hard to ensure that there is a fast and furious
flow of news into the website and then utilizes its voting system to segregate the
content.
Language – Digg does not maintain as much a dialogue as Threadless does but it too
uses a style that focuses on sharing news and being a part of the community.
Incentives – The incentives are again both intrinsic and extrinsic. A lot of people
who contribute the most to Digg tend to consider it a personal challenge to bring the
best news to the public and then see how fast their news reaches the top headlines.
It also provides them with the extrinsic incentive of peer recognition and getting to
learn from others. Digg tracks every submitter’s news and has the statistics which
people can view and this acts as a major incentive to submit the best news.
35
Rules – Digg has clear rules on what kind of news to submit to ensure no legal
complications. However, as we saw in the HD-DVD case, the rules of the site did not
matter and the enraged community took matters into their own hands to decide how
Digg should be handling the issue. The culture and tone of the place overtook the
‘rules’ and this could be an indicative of how future uprisings could happen with Digg
and its users.
Tools – Digg provides its users the news submission and voting system which is the
core of the site offering. There are also options to contact and communicate with
other users and this ensures more social interaction amongst its users and gets
people to know each other.
Legal Aspects/Intellectual Property – Many a times, Digg’s users will submit news
that does not adhere to the terms and conditions of the website and this could hurt
Digg because it could potentially become liable to a lawsuit. After the HD-DVD issue,
it is still unclear as to how Digg can manage its liabilities especially if its users revolt
against Digg and force it to host potentially illegal content.
36
Threadless
Language
Focus
DiggDimension
Incentives
Rules
Tools
Legal and IP
Optimal
AverageNeeds Improvement
Threadless
Language
Focus
DiggDimension
Incentives
Rules
Tools
Legal and IP
Optimal
AverageNeeds Improvement
Figure: Companies judged by FLIRT criteria
5d. Who owns the product?
In a crowdsourcing environment, the line between the ownership of the product by
the company and its consumer blurs. While, in the majority of the case, the
company tends to physically own the products, the consumer is such a key part of
the strategy that without him/her, the business model crumbles. In our examples
of Threadless and Digg, we notice the intense customer support provided to by the
consumers who help create the product and work to make the company what it is.
Among sites with such community focus, the consumer feels an ownership for both
the company and the product and Threadless manages it by paying the tee-shirt
designers if their designs get selected. Also, it pays its consumers for sending
photographs of them wearing the tees. This to a certain extent provides the
consumer with their ‘share’. In case of Digg, it provides social support to its top
37
submitters. It tracks data of all its submitters, their no. of submissions and also the
number of times their story made it to the top. This breeds competition amongst
Digg users who scour the web to find the most interesting news to submit to Digg.
These users are the most valuable property for Digg and it is a challenge for Digg to
not alienate these users because it is because of these users they have a flurry of
news articles, videos on their site 24/7/365.
The top submitters of news articles have a deep sense of attachment to their work
and are also most critical of Digg. During the HD-DVD issue, the submitters
‘mutinied’ and Digg had to step back. Once the control was given over to the users,
it was tough to take it back and the consumers showed who ‘controlled’ the site.
Here, while the users did not have any physical ownership in the company, they had
the ability to influence its decisions and even hold it hostage until the company
decided to go ahead with the policy of allowing them the ability to submit the
stories of their will.
To understand a situation wherein a crowdsourcing company allowed its users to
profit off it – we need to take a look at Cambrian House. Cambrian House is a web-
based community owned business that combines the principles of wisdom of crowds
and peer production to identify and develop sticky software ideas. The company's
stated mission is to discover and commercialize software ideas through the wisdom
and participation of crowds.
Anyone can submit a software idea for the crowd to rate. Other users vote on the
ideas in an attempt to identify those with the most potential. The best ideas are
then selected to be market tested. Contributors whose ideas are selected to be built
receive a share of the profits in the form of royalty points if the idea succeeds in the
marketplace. Individual contributors can also receive royalty points by completing
specific tasks to help develop ideas into products.31
On the other hand, when Innocentive (an Eli Lilly Venture) came into being, their
goal was to put forth problems companies wanted to get solved and then pay the
solvers of the problems prize money for their efforts and time.
38
Although this model does not tend to utilize any of the community building aspects
seen in the other crowd sourcing businesses, it is very clear as to who owns the
intellectual property because Innocentive asks the solvers to sign over the
Intellectual property to the solution to Innocentive for payment to be made. This is
more transactional, but it works well for Innocentive and its users.
5e. Future of crowdsourcing
The disruption caused by the crowdsourcing model has not gone un-noticed by the
general media or by large companies. The model lends itself very well to more than
just generating business and there are multitudes of examples of the utility of
crowdsourcing. One such example is a business school ranking system developed by
PaGaLGuY.com – who developed the Worlds’ 1st Crowd Sourced Business School
ranking system 32. This ranking system was designed to effectively collect voting
information on b-school preference and convert it into a ranking. This methodology
allowed it to collect data from over 5000 people in just two weeks, while regular
print magazines regularly did their rankings based on a sample size of just over 250
people.
As the utility and understanding of crowdsourcing increases, it will see growth from
both the startup scene as well as from large companies. There is a significant
interest from large companies like P&G, Eli Lilly and Amazon who have already
created products that utilize the knowledge of the crowds to create business.
The challenge for most of the large companies is how to structure their companies so
that they can even think about looking at opportunities in the crowdsourcing space.
While newer dot com companies have taken the lead in looking towards
crowdsourcing because they are unencumbered with traditional thinking and also can
build a company from the ground up with the key strategies in mind, it is arguably
tougher for larger established companies to move as swiftly or decisively as the
39
smaller companies. However we do see signs that crowdsourcing can be utilized
even in some of the oldest sectors of the economy.
One of the most successful executions of this plan has been that of GoldCorp, Inc.
Besieged by strikes, lingering debts, and an exceedingly high cost of production,
GoldCorp was in trouble. Frustrated that his in-house geologists couldn't reliably
estimate the value and location of the gold on his property, Rob McEwen, The CEO of
GoldCorp did something unheard of in his industry: He published his geological data
on the Web for all to see and challenged the world to do the prospecting. The
"Goldcorp Challenge" made a total of $575,000 in prize money available to
participants who submitted the best methods and estimates.
Every scrap of information (some 400 megabytes worth) about the 55,000 acre
property was revealed on Goldcorp's Web site. News of the contest spread quickly
around the Internet and more than 1,000 virtual prospectors from 50 countries got
busy crunching the data. The contestants identified 110 targets on the Red Lake
property, more than 80% of which yielded substantial quantities of gold. In fact,
since the challenge was initiated, an astounding 8 million ounces of gold have been
found—worth well over $3 billion. 33
It is this kind of success that attracts other mature industries to look towards
crowdsourcing as a way to solve some of their vexing problems. The stronger the
focus on working to utilize the knowledge of the crowds the more innovative a
company can be.
6. Collaboration, Innovation and Crowdsourcing.
Business models like Crowdsourcing are not possible without extremely high levels of
collaboration and innovation. As both of them are key aspects of crowdsourcing, it
pays to understand how to they come together to complete the making of a
crowdsourcing company.
40
Collaboration and innovation, both are subjects that have vexed organizations over a
period of time because they have constantly tried to achieve high levels of
productivity using the same. The successful crowdsourcing companies have
exhibited both high levels of collaboration and innovation. As we look into what
forms the basis for companies that are successful in achieving high levels of
collaboration and innovation we may find more insights into the working of a firm
which uses crowdsourcing as its business model because without collaboration and
innovation, it is doubtful that a successful crowdsourcing company will exist.
To achieve high levels of collaboration amongst teams and the organization we have
seen that in cases like that of Threadless and Digg, the companies tend to make
heavy use of technology to manage their team work and to collaborate with each
other. These companies tend to utilize collaboration suites that enable them to
work closely with each other, their suppliers and even their customers. This level of
being keyed in helps them maintain a big picture of their activities and also helps
collaborative innovation within the firm.
Many companies now are exploring working with software like wikis and
collaborative suites to ensure better co-ordination amongst their teams. This
accelerated acceptance of collaborative software is helping companies become more
productive than ever. At Dresdner Kleinworth (DKW), a Europe-based investment
bank, employees started utilizing wikis in the IT department to document new
software in an informal pilot.
Soon afterward, wikis began to migrate out of the IT department and into the
broader workplace environment, where teams picked up on them as a way to get
collaborative projects up and running quickly. Within 6 months, the wikis are now
being used by over a quarter of the workforce and lead users have decreased email
volume by 75 percent an cut the company’s meeting times in half. 34
At Xerox, the top management uses wiki to share its vision for the company along
with all its employees. It opened up itself to all its researchers and is hoping to
41
build up more robust technology roadmaps and a much stronger competitive strategy
section as a result of it. 35
Furthermore with today’s new forms of mass collaboration it is possible that
companies may be better off with a more self organized approach to team building 33. Leading examples of mass collaboration and spontaneous team building can be
seen in the case of Wikipedia and Linux. Both of these operations require the help of
thousands of ‘volunteers’ who tend to group themselves very well to get the job
done. Large companies are now experimenting with such structures as they try to
understand how diverse people can come together to manage projects with the
minimum of central control.
Collaborative organizations excel at transferring to other groups the ideas that
emerge from their improvisations. This is difficult because of the limited time
memory on these improvisations. Successful innovative companies tend to use
procedures that select the good improvisations and then spread them throughout the
organization using knowledge management systems. 36
Today companies that make their boundaries porous to external ideas and human
capital outperform companies that rely solely on their internal resources and
capabilities. 37
Companies like Wikipedia, MySpace, Flickr, Second Life, YouTube, Innocentive,
Linux, Human Genome Project, Threadless, and Digg are all examples of companies
that have been able to innovate due to their extreme levels of collaboration. Most of
these companies are the very best at what they do and are global leaders. They got
there by collaborating with people and innovating relentlessly and iteratively.
Companies like Google have consistently opened up their APIs (Application
Interfaces) to unleash innovation from the crowds. Products like Google Maps have
been mashed into various other services created by consumers. Consumers have
created complex programs that enable people to mash rental listings found on
Craigslist with Google Maps to quickly show the map of the location listed on
Craigslist. Google wouldn’t have gone on this path of integrating their services, but
42
by allowing people to collaborate they are harnessing the innovation that happens
because of them.
Large old guard companies like IBM have collaborated with Red Hat to ensure the
development of the Linux Operating system and in return it gets development
support from developers across the world. Lack of collaboration and support led to
the downfall of IBM’s OS2 operating system and it is the distinct collaboration and
support that is turning out Linux to be a big hit for IBM. What is also important is
that IBM gains access to the social capital of the community – by supporting such
collaborative projects it obtains a “license” to operate in the community – a form of
tacit permission to harvest some of the value created in collaboration with the
community members. 38
The future will belong to the Collaborative team within a Collaborative Organization
which constantly innovates. This might require a new kind of business that shares
resources that were previously guarded; believes in the wisdom of the crowds and
behaves like a collaborative entity.
Among the upstart startups, we see shades of this and it is a major reason for their
continued success and growth. However, the larger companies are now ‘getting it’ as
well. There is an increased focus on collaboration both within and beyond the
organization. It has taken the business world years to move from one organization
structure to another and so this is not a simple challenge. The move to a
collaborative organization may take decades, but we already get to see them
reaping the benefits of collaboration, innovation and crowdsourcing
It is without doubt that for a company to be successful in the new economy it needs
to collaborate and innovate. One of the business models that exemplify the highest
levels of collaboration and innovation is Crowdsourcing. The successful
crowdsourcing companies tend to display high levels of collaboration and innovation
which are fostered thru their culture, organization structure and their ability to work
closely with their consumers.
43
The evolution of crowdsourcing firms may have a profound influence on how
corporate structures evolve amongst other companies. The leaders in the
crowdsourcing space have already attracted a lot of attention and continue to do so
because of their market leading positions in different areas of business.
7. Conclusion
Crowdsourcing as a business model has the potential to be extremely disruptive and
effective. We have seen companies that have become market leaders in a few years
and are challenging decade old businesses with their innovative strategy and
business models.
We have studied the crowdsourcing phenomenon utilizing three different
frameworks. Two of them focused on the strategy, while the third focused on the
marketing/implementation aspect of the firms. In our study, we evaluated two
leading crowdsourcing companies in depth to understand their characteristics and
their unique abilities which have enabled them to become leaders in their space in a
short period of time.
There are many recurring themes in our analysis and some of them are:
a) Managing alliances with people
b) Having an organizational structure to support crowdsourcing
c) Having the appropriate incentive structure in place
d) Innovating along with your customers and listening to them carefully.
These four areas are as important to small businesses as they are to large
multinational corporations. Crowdsourcing is in its nascent stage and the amount of
research done on the subject has been minimal. Additional research on causality of
the success of the companies with respect to the above recurring themes may be of
interest to better understand the creation of successful crowdsourcing businesses.
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Bibliography: 1. Howe, Jeff, Contributing Editor at Wired Magazine. <http://crowdsourcing.typepad.com>, He coined the term ‘crowdsourcing’. 2. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.1, pg 1 3. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.1, pg 20 4. Viitamäki, Sami; The FLIRT Model <http://www.samiviitamaki.com/2007/05/11/the-flirt-model-of-crowdsourcing-focus/>; May 11th, 2007. 5. Helm, Matthew; “Crowdsourcing: Harnessing the wisdom of the crowd”, <http://next.eller.arizona.edu/courses/student_papers/Fall%2007%20ENTR-MGMT%20489-589/Papers/MHelms_Matthew_Helms_ENTR589_Crowdsourcing_electronic.pdf > 6. Viitamäki, Sami; The FLIRT Model <http://www.samiviitamaki.com/2007/05/06/the-flirt-model-of-crowdsourcing-the-updated-model-and-background/>; May 6th, 2007. 7. Beth, Wilson, WWD: Women's Wear Daily; 12/27/2008, Vol. 194 Issue 133, p9-9, 1p 8. <http://www.crunchbase.com/company/digg>; Crowd-sourced description of Digg, Inc. 9. <http://www.crunchbase.com/product/threadless-com>; Crowd-sourced Introduction to Threadless, Inc 10. Beth, Wilson, WWD: Women's Wear Daily; 12/27/2008, Vol. 194 Issue 133, p9-9, 1p 11. Ibid 12. Beer, Jeff, Creativity; Oct2007, Vol. 15 Issue 10, p54-54, 1p, 1bw 13. Weingarten, Mark, Business 2.0; Jun2007, Vol. 8 Issue 5, p35-37, 3p, 11c 14. <http://www.crunchbase.com/company/digg>; Crowd-sourced description of Digg, Inc 15. Jarvis, Jeff, Guardian Media Pages, “Can you Digg what is happening to journalism?” Feb 27, 2006; Pg. 8
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16. Graham, Jefferson, USA Today, “Filling a void breeds fast success” October 24, 2007; Pg. 3B 17. Cerf, Vint, Guardian Media Pages; “Crowd surfing: With millions of editors scouring the web in search of the best content, Digg is levelling the media playing field.” Dec 3, 2007 Pg. 6 18. Robert E. Gunther, George S Day and Paul J. H. Schoemaker, Wharton on Emerging Technologies, pg 367 19. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch. 9, pg 246 20. <http://basecamphq.com/customers/threadless>; Video interview of the CEO and Chief Creative Officer of Threadless Inc by Basecamphq for a testimonial. 21. Walker, Rob; NY Times, Mass Appeal, <http://www.nytimes.com/2007/07/08/magazine/08wwln-consumed-t.html>, July 8 2007 22. Beth, Wilson, WWD: Women's Wear Daily; 12/27/2008, Vol. 194 Issue 133, p9-9, 1p 23. Graham, Jefferson; USA TODAY,” Readers want to know what you Digg; Website lets masses pick hot news stories” October 24, 2007; Pg. 3B 24. Gaylord, Chris; Christian Science Monitor, “Digg's online crowd flexes its muscle”, May 4, 2007, Pg. 3 25. Robert E. Gunther, George S Day and Paul J. H. Schoemaker, Wharton on Emerging Technologies, pg 378 26. <http://rackspace.com/whyrackspace/support/customerstories/skinnycorp.php>; Lists the number of employees in the company. 27- Pfauth, Ernst-Yan; “Kevin Rose: Digg will soon start suggesting stories”, <http://thenextweb.org/2008/04/03/kevin-rose-digg-will-soon-start-suggesting-stories/> ; April 3, 2008 28 - <http://basecamphq.com/customers/threadless/>; Testimonial from Threadless for the software – basecamphq. 29. <http://digg.com/townhall> 30. <http://digg.com/jobs> 31. <http://en.wikipedia.org/wiki/Cambrian_House> 32. <http://rankings.pagalguy.com/methodology.html>
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33 Tapscott, Don; and Anthony D Williams; “Innovation in the Age of Mass Collaboration”, Business Week – <http://www.businessweek.com/innovate/content/feb2007/id20070201_774736.htm>; Feb 1, 2007. 34. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.9, pg 253 35. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.9, pg 254 36. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.9, pg 259 37. Sawyer, Keith, Group Genius, Ch. 8, pg 170-71 38. Tapscott, Don and Anthony Williams, Wikinomics, 2006, Ch.3, pg 95
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