Tapping the Wisdom of the Crowd

October 19, 2007

The term “crowdsourcing” has the ring of a passing fad. But long before Wired contributing editor Jeff Howe put a name to mass Web collaboration in pursuit of economic reward, entrepreneurs and big businesses alike were starting to explore methods to tap the wisdom of the crowds to produce goods and services. “Is it jargon?” says Howe. “The phenomenon itself predates my article—it’s the application of open-source principles to fields outside software. There doesn’t need to be a profit motive, but it is a mode of economic production.”

And the trend is building. Six months ago, BusinessWeek‘s Inside Innovation brought readers the lowdown on crowdsourcing, highlighting several of the more interesting projects (see “Crowdsourcing”). Since then, several new crowdsourcing experiments have emerged. Here are five recent efforts that you should know about:

A Swarm of Angels

Aswarmofangels.com

This British open source film project takes on Hollywood’s traditional business model, aiming to create cult cinema for the digital age. Subscribers—the “angel” investors that “swarm” to create the site’s name—pay roughly $50 (£25) each to join. The site aims to draw 50,000 angels to create a film with a $1.8 million budget. Project founder Matt Hanson has written two separate movie screenplays that will be edited and refined based on feedback from the subscriber community.

Eventually, the community will vote to decide which film will be made. Community members will be paid to handle the production, and once finished, the film will be released free on the Internet under a Creative Commons license. Viewers will be invited to watch it, share it, and remix it. So far Hanson and his crew have 800 investors. Advisers include sci-fi writer Cory Doctorow and musicians The Kleptones. Stay tuned.

CrowdSpirit

Crowdspirit.org

This French startup plans to use crowds to develop and bring to market tangible, inexpensive, electronic devices such as CD players, joysticks for video games, and Web cams. The community will handle all aspects of the product cycle—its design, features, technical specifications, even post-purchase customer support. As with software start-up Cambrian House, community members will submit and vote on product and design ideas. The winners will be funded by community members and they will go on to prototype and beta-test the products.

A core CrowdSpirit team, along with a subset of community members and distributors, will have a final say on decisions. The hope, however, is that the products will be extraordinarily focused on the customer because the ideas are coming directly from the people who will use the products. In development since last September, the site will formally launch at the end of June, 2007.

Marketocracy

Marketocracy.com

Marketocracy’s Web site boldly announces a mutual fund that delivers higher return with less risk. Launched in 2000, Marketocracy aims to gather the collective knowledge of the best investors to create a highly successful mutual fund. Sign-up is free and anyone can run a virtual fund, starting with $1 million. So far, the site has more than 60,000 users. Based on the virtual investments of its 100 most successful members, the site launched the Masters 100 Index in 2001. The fund now has $44 million in assets and has outperformed the S&P 500 Index with an average annual return of 11.4% since inception. Five years in, that’s a decent performance, though not worthy of Warren Buffett.

CafePress

CafePress.com

Barack Obama all but announced his intention to run as a candidate for the 2008 presidential election on Jan. 16 (the official decision will come on Feb. 10), and already CafePress.com is peppered with t-shirts sporting his name and election slogans. This Foster City (Calif.)-based online retailer lets members create, buy, and sell merchandise. Entrepreneurs Fred Durham and Maheesh Jain founded the site in 1999 to let members—the site reports 2.5 million—transform their artwork and ideas into new products and sell them through an online storefront with no up-front costs or inventory to manage.

Members can also personalize their own gifts by adding touches to one of 80 available products. CafePress.com sets a base price on products and takes care of printing, packaging, processing payments, and customer service; sellers decide how much to charge for their products. The site got a big break in 2003 when Phil Collins, Jet Li, and Olympic Gold Medalist Tara Lipinski launched online stores through CafePress.com. Since then it has grown to 800,000 shopkeepers and 36 million products.

Gannett

news-press.com

Among the largest newspaper publishers in the U.S., Gannett has said it plans to change its newsroom to take advantage of crowdsourcing, putting readers to work as watchdogs, whistle-blowers, and investigators. Already last summer, the Fort Myers (Fla.)-based The News-Press (circulation 100,000) invited readers to help investigate ongoing concerns over price hikes in their utility assessments.

The response was hefty. Readers got involved—organizing their own investigations, poring through documents, and connecting to inside sources. As a result of the investigation, the city cut assessment fees by 30%.

Source: BusinessWeek online


Crowdsourcing: Milk the masses for inspiration

October 19, 2007

A Japanese paper fan unfolds across a television screen, mysteriously hiding the white-painted face of a woman. When it folds up, the face reappears, this time with theatrical green eye shadow. Fade to black beneath the slogan: Find color in confidence. L’Oréal Paris. It’s a flashy, high-concept ad that resonates with the consumer. It was created by a consumer.

If produced in-house, this ad could cost L’Oréal $164,200, the going production price for a glossy 30-second TV spot. Instead, the beauty product company turned to Current TV, the cable television station that relies on user-generated content for much of its programming. Current TV has built a social network where viewers can create and upload five-minute media segments, post comments on other viewer-made clips, and vote on which ones should be aired. This spring, Current TV opened the process to ads, posting assignments for people to work on. After making a sponsorship deal with Current TV, L’Oréal paid the ad’s producer, who uses the handle “spicytuna,” $1,000 for her creative endeavors. Do the math.

Companies have been outsourcing to India and China for years. Now they are taking it to another level by using social networks such as MySpace, Second Life, and a multitude of virtual communities to solve their most gnarly business problems. Business model innovation is happening at a lightning clip. First there was outsourcing, then open-sourcing, and now crowdsourcing.

Who’s into crowdsourcing? Getty Images recently paid $50 million for iStockphoto, a Web site where more than 23,000 amateur photographers upload and distribute their stock photographs. Hipster clothing company Threadless.com prints and sells t-shirts designed by people on its Web site. Linden Lab’s 3-D virtual world, Second Life, allows people to create and retain the intellectual property rights on new businesses, brands, and personalities. John Fluevog Boots & Shoes’ Open Source Footwear site invites fans to submit and vote on new shoe designs. Ducati Motor Holding builds fanatical brand loyalty and brings customer insights into designing new motorcycles through Ducati.com.

But in their rush to capitalize on the wisdom of the masses, many companies are making big mistakes. Kraft was lambasted on the Web for not really “getting” web collaboration when it simply posted a digital suggestion box on its Web site. Though Kraft said critics misunderstood their effort, which was part of a larger strategy of open innovation, the danger remains that companies will rush to set up consumer communities without carefully considering what they’re after and how they plan to use it. It is very easy for crowds to generate the lowest common denominator among solutions.

Smart crowdsourcing is about how we winnow the wisdom from the wash, and what we choose to do with it. Here are some key guidelines to follow:

1. BE FOCUSED Vaguely defined problems get vague answers. Current TV is explicit about the goal of its viewer-created ad messages (v-cam’s): to develop new advertising to run online and on the cable network. And it allows companies such as L’Oreal or Sony (SNE ) to mine the v-cams for fresh advertising ideas.

The more infrastructure you build into the creative process, the more success you will have. Current TV has clear rails to support social networkers. It provides a specific focus such as the one for Sony Ericsson’s Walkman Phone: “With a Sony Ericsson Walkman Phone you’re always connected to your music. The question is: where will it take you?” It also provides a Sony Ericsson logo and a smattering of graphics, as well as instructions that include a time limit — up to three minutes — and a deadline — September 8. Current TV also spells out directly in its rules that the network retains the power to reject anything that paints the brand in a negative light.

2. GET YOUR FILTERS RIGHT Crowdsourcing often produces a wealth of ideas, and companies need effective filters to pick the gems. Consider IBM’s (IBM ) innovation jam, a two-part brainstorming session launched in July designed to tap the collective minds of employees, family members, and customers to target potential areas for innovation. CEO Sam Palmisano will put $100 million into promising ideas.

IBM identified four large themes, providing interactive background information on each one, employing moderators to keep conversations focused, and setting a 72-hour time limit for the first session. By the end of it, IBM had collected 37,000 ideas. IBM will use its own crowd to filter the ideas. The company has made transcripts available to the 140,000 people who logged in to the first session and teams will review the posts. In early September, the company will host a second session, where everyone will again log on to the jam session to vote on the ideas with the most potential. Then senior executives will sift through this short list to make recommendations about which should be funded. Palmisano will have a hand in making the final choices.

3. TAP THE RIGHT CROWDS At YouTube and probably within any new social network, only 1% of the users are active content creators. Another 10% interact with the content and change it. The remaining 89% passively observe. Smart companies want to assemble the crowds with the most sophisticated knowledge about their business problems to maximize the impact of the small percentage of idea generators within them. Consider InnoCentive, a social network created by Eli Lilly (LLY ) where companies like Procter & Gamble (PG ) and Boeing (BA ) can pay a steep fee to post the knotty problems they can’t solve internally — like a process for the extraction of trace metal impurities, for example. The idea is that individual problem solvers — retired scientists, obsessive hobbyists, university students — might be able to lend a hand. If they solve the problem, they receive a hefty cash reward.

This network is dependent on a crowd of extremely talented scientists with highly specific skills. To attract them, InnoCentive recruits at universities, where young, smart minds have not yet entered the workforce. To date, the network has signed agreements with 25 Chinese universities, including the prestigious Chinese Academy of Sciences and the National Natural Science Foundation of China. The network also promotes itself at industry events and advertises in trade publications.

Also key, Innocentive’s rewards for solutions are sizable. Crowdsourcing is not cheap. Just as in corporate America, top talent is expensive, and companies will have the most luck when they are willing to pay up for the inventions that lead to potential innovations.

4. BUILD COMMUNITY INTO SOCIAL NETWORKS Cash is key to getting people to participate, but successful crowdsourcing taps into a well of passion about a product that stretches beyond monetary incentives. Cambrian House, a software company founded by Michael Sikorsky, relies entirely on crowdsourcing. Everyone who contributes an idea receives royalty points, which function as equity in the final product and can eventually be cashed in for stock. But Sikorsky has also created glory points, which reward members who collaborate. He says one key element in keeping people engaged long-term is for them to build friendships with other members. It’s not so different from the eBay (EBAY ) model, where buyers and sellers rate each other and offer commentary. These interactions foster trust and keep people active in the community.

Crowdsourcing is a new and nascent business tool for innovation. Used properly, it can generate new ideas, shorten research and development time, cut development costs, and create a direct, emotional connection with customers. Used improperly, it can produce silly or wasteful results. Crowds can be wise, but they can also be stupid.