Getting Results From Crowds: Chapter 22 - Crowd Business Models

 

Getting Results From Crowds

The definitive guide to using crowdsourcing to grow your business

Ross Dawson

Steve Bynghall

 

Build your business by tapping one of the most powerful trends in business toda today: y: Crowdsourcing Getting Results From Crowds provides practical, pragmatic, clear guidance on how you can draw on the power of crowds to grow your business. Filled with real-life case studies and useful examples, it gives you everything you need to know to create success in a world where talent can be anywhere.

What business leaders are saying: “Ross Dawson and Steve St eve Bynghall have masterfully delivered a comprehensive and  strateg  str ategicall icallyy pragm pr agmatic atic gui guide de to crow crowdso dsourc urcing. ing. Each chap chapter ter eleg elegant antly ly lays l ays out o ut a key con concept cept  and the then n provid pr ovides es pr acti actical cal advic a dvice. e. This Th is is the must rea read d bible bib le for fo r ef fect fective ive crow c rowdsou dsourcin rcing.” g.”

R “Ray” Wang, Wang, Principal Analyst & CEO, Constellation Research “Ross’s latest book is a fantastic fant astic guide for businesses looking to access skills and drive  innovat  inn ovation ion thr throug ough h crowds cr owdsour ourcing cing.. I highl h ighlyy recom re commen mend d it.”

Peter Williams, Williams, CEO, Deloitte Digital “Ross Dawson, the “crowd king”, provides with Getting Gett ing Results from Crowds a comprehensive comprehen sive  and up to t o date review r eview of how h ow to make ma ke crowds work wo rk for you!” y ou!”

Matt Barrie, Barrie, CEO, Freelancer.com “This is the smartest, most practical overview of crowdsourcing I’ve seen (and I think I’ve  see n the t hem m all).” al l).”

Lukas Biewald, Biewald, CEO, CrowdFlower  “To make the most of the different crowdsourcing options available for your business grab a copy of Getting Results from Crowds — it will pay for itself many times over!”

Mark Harbottle, Harbottle, Founder, 99designs.com

For free chapters, additional resources, and latest insights go to the book website:

www.resultsfromcrowds.com $25.00

214 pages

 

Table of contents i I

II

III

IV 

 V 

 VI

 VII

Introduction

v

FUNDAMENTALS OF CROWDS

1

1 2 3 4

3

Crowds and crowdsourcing The rise of crowdsourcing Crowds and business value When to use crowds

9 13 19

BUILDING RELATIONSHIPS

27

5 6

29

Relationship value Changing organizations

35

USING SERVICE MARKETPLACES

41

7 8

Fundamentals of service marketplaces Specifying

43

9 10 11 12 13

Finding talent Setting frameworks Rewarding Closing out Service marketplace overview

57 69

47

77 83 91

MANAGING PROJECTS

97

14 Project management 15 Structures and roles

99 107

CROWDFUNDING

115

16 17 Using Equity crowdfunding crowdfunding platforms

117 125

USING OTHER PLATFORMS

137

18 19 20 21

139

Using competition platforms Using distributed innovation platforms Using microtask platforms Other ways crowds create value

149 161 171

CROWD BUSINESS MODELS

181

22 Crowd business models 23 Getting results as a service provider

183

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Crowd business models

“

22

Peer production is about more than sitting down and having a nice conversation... It’s about harnessing a new mode of production to take  innovat  inno vation ion and a nd wealt we alth h creat cr eation ion to t o new level levels. s.

Eric Schmidt, Schmidt, Executive Chairman, Google

”

The potential of tapping t apping the power of crowds is rapidly becoming more apparent. While many businesses will see this simply as finding more effective effect ive and efficient ways to perform existing business functions, an increasing proportion of companies will start basing their core business model on crowds. This is leading l eading to a wave of innovation in business, with outstanding opportunities for those that explore and populate this new frontier.

Chapter overview  

There are seven core crowd business models: mo dels: marketplaces, platforms, crowd processes, content and product markets, media and data, crowd services, serv ices, and crowd ventures.

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Each business models relies on a set of specific monetization models, including across transaction fees, subscriptions, subscr iptions, and content and product sales.

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There are a range of success factors for the business models, which can be classed as contributor characteristics, buyer characteristics, and capabilities.

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Even though crowd business models can usually be rapidly r apidly scaled, there remain a number of constraints to that scalability.

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Victors & Spoils: an advertising agency based on crowdsourcing CASE STUDY

When it was launched in October 2009, Victors & Spoils was described  as “the “ the world world’s ’s first fir st creati c reative ve ad agency buil builtt on o n crowdsou cr owdsourcing rcing prin principl ciples”. es”. Founded by three partners including CEO John Winsor, it has built considerable success, including creating campaigns for clients such as Harley-Davidson, Virgin America, GAP, and Levi’s. The company has close to 500 people from 126 countries in its contributor  pool,, all at  pool attra tracted cted thr through ough the firm’s sign signific ificant ant medi media a and a nd onli online ne visi visibili bility. ty. Within this pool, it regularly interacts or works with around 200-300 of them, though none work predominantly for the firm at this stage. The firm has built a reputation reput ation system to make it more efficient to find the best  people for projects. Contributors Contri butors are given points based on factors including includi ng  how far their submissions submissions go in the filtering process and client opinions, while creative directors can also allocate points based on their views of creative talent or collaboration capabilities. One model they use is running an open brief, prepared by Victors & Spoils on the basis of the brief from the client. This is open to contributions from  anyone  any one.. Non None e of th the e sub submis missio sions ns are vis visibl ible e to oth other er con contr tribu ibutor tors. s. In th the e  initial  init ial round, contr contribut ibutions ions are ranked r anked as A, A , B, B , or C. The Th e client cli ent can c an then t hen go go through the submissions and choose the ones they want to pay for and use. However the majority of the client work done uses what Winsor calls the ‘pick  and pay’ model. Here, Victor Victors s & Spoil Spoils s picks pi cks 10-25 10-2 5 people pe ople to contri co ntribute bute to the project, each of whom signs an NDA N DA and is paid a small amount upfront for their submission. From this pool around 4-5 are selected to go into a further round, attracting additional payments. The company collaborates with these winners to further develop their ideas to meet the client’s brief. There are 12 people at the core of Victors & Spoils, including traditional  agency roles of Creative Director and Strategy Director, Director, as well as a Technical Technical Director responsible for the platforms.  A t th  At the e ou ts tset et,, fe fee e le leve vels ls fo forr Vi ct ctor ors s & Sp Spoi oils ls we were re ar arou ound nd a qu quar ar te terr of traditional agency fees, but have risen to half to three-quarters of market  rates. The partners par tners started star ted out with a ‘better, faster, cheaper’ philosophy, phi losophy, but  now believe beli eve that the th e crowdsourced crowdsou rced model of ten provides provi des superior super ior results resu lts to traditional agency models and so merits commensurate fees. In charging clients more, they can pay the crowd more and in turn attract better talent.

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Crowd business models There are many ways that crowds can help businesses achieve their objectives. For example, crowds can be tapped for a wide variety of critical services such as design, software development, advertising campaigns, or o r even product design. However this often simply replaces existing approaches to sourcing suppliers or gets some of the organization’s supporting functions performed per formed in a different way. way. It does not fundamentally change the nature of the company. Increasingly we are seeing entire business models that are fundamentally based on tapping contributions from crowds, where a primar y source of value creation is from the crowd. In other cases companies compa nies are creating value by helping their clients use crowds well. We are early in what will prove to be a long-term rise in the prominence and success of crowd business models. An increasing number of companies will shape themselves t hemselves to create value using crowds. No doubt new crowd business models will emerge to complement the ones we can see today.

A taxonomy of crowd business models Business models define how resources are brought together to create monetizable value. In crowd business models, the resources are primarily based on crowds. There are a limited number of structures in which the work of crowds can b e monetized. In the following pages we provide a framework that shows the seven primary primar y crowd business models that aggregate crowd work to create value, and a description of the monetization and success factors for each of the business models. Some of these crowd business models combine a wide variety of the crowdsourcing crowdsourcing categories described in the Crowdsourcing Landscape shown show n in Chapter 1. For example Marketplaces covers service marketplaces, competition platforms, crowdfunding, and a number of other categories. The underlying business model for each of these categories is fundamentally the same, just applied app lied in a different way. We have also included Non-profit models mo dels in the Crowd Business Models diagram, so this can be fully mapped to the Crowdsourcing Landscape, however we do not cover Non-profit models in the analysis a nalysis in this chapter cha pter..

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Media and data

Crowd business models

Marketplace

Service marketpla marketplaces ces

Platform

Competition markets

Creation of media, content, and data by crowds. Knowledge sharing Data

Matching buyers and sellers of services and financing through mechanisms including bidding and competitions.

Crowdfunding Equity crowdfunding Microtasks Innovation prizes Innovation markets

Servio

Freelancer.com 99Designs InnoCentive Kickstarter  oDesk 

Trend Hunter

Mechanical Turk 

Content Demand Media Quora

Software and processes to run crowd works and crowd projects, for use with internal or external crowds. Crowd platforms Idea management Prediction markets Spigit

We Are Hunted

IdeaScale

IMDb

Consensus Point

Data.com

CROWD BUSINESS MODELS

Napkin Labs Kluster

Crowd services

Services that are delivered fully or partially by crowds. Labor pools Managed crowds Ideas While You Sleep BzzAgent uTest CrowdAdvisor GeniusRocket Victors & Spoils Thinkspeed

Crowd ventures

 Ventures  Ventur es that that are predominantly driven by crowds, including idea selection, development, and commercialization. Crowd ventures MyFootballClub my3P SENSORICA Globumbus

Crowd processes

Content and product market

Services that provide valueadded processes or aggregation to existing crowds or marketplaces.

Sale of content or products that are created, developed, or selected by crowds

Crowd process

Content markets

CrowdFlower Data Discoverers LiveOps Scalable Workforce Smartsheet

Crowd design Threadless RedBubble iStockphoto Quirky Beta Fashion

Non-profit

Citizen engagement

Kiva

Made.com

Contribution

Crowdrise Ushahidi FoldIt OpenIDEO

RYZ

Science

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Examples of crowd business models There are many kinds of business models that draw on value created by crowds. Following are just a few examples that illustrate different aspects of crowd business models. m odels.

Data.com Jigsaw Data Cor p was acquired by Salesforce. Sa lesforce.com com in April Ap ril 2010 for $142 $142 million and is now called Data.com. Its 2 million users pay annual subscription fees to submit, share, and access information on over 30 million business contacts. The crowdsourcing of contact information means that it is continually updated and validated, however Data.com now complements the crowdsourced data with information from Dun & Bradstreet and other vendors using more traditional data gathering and analysis models.

Demand Media Demand Media’s primary business is creating content that is monetized through search advertising. It draws on a stable of thousands of writers and video creators who are usually paid a fixed price per article, ar ticle, using sophisticated algorithms to request the content it believes will generate the highest revenue. It listed on New York Stock Exchange in Januar y 2011 2011 at a valuation of $1.3 $1.3 billion, though its stock price has significantly signifi cantly declined since then.

Giffgaff Giffgaff is a U.K.-based mobile phone service provider within the Telefonica O2 group. It claims “we’re run by our members”, with sales and support significantly performed by its users. Members who answer questions in the community space or generate sales to new users are rewarded with ‘Payback’ points that can be redeemed as cash, airtime credit, or donated to charity.

Kluster Kluster began life as successful iPod accessories company Mophie but then pivoted into a crowdsourcing firm after it experienced at Macworld 2007 the power of asking its customers to contribute to its product development process. It now provides a crowd platform for clients to run their own crowdsourcing initiatives, and has also spun off ventures generated within Kluster,, including the crowdsourced product design company Kluster comp any Quirky, Quirk y, described in Chapter 21.

my3P my3P is an online community created to help youth enterprise. Members earn points or potentially cash for performing tasks t asks in the entrepreneurial process. This includes submitting ideas that earn points p oints if others like them, doing specific tasks, t asks, managing projects, performing due diligence, and so on. The intention is that people get value from their contribution to a wide variety of entrepreneurial ventures. ventures. While my3P is not yet mature it points the way for business models that are entirely created and run by crowds.

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Monetization M    a   r   k   e  t     p  l    a  c    e  

C   o   n    p  r    t   e   C    M    C    r    o  d    n  t    C    o  w    r    e   o  w    r     a   d    o   u    d    i    n   w    c    d    a   d      p   d    P   l   a   t    m  a      a  n  d    r    o  c    s  e  r     v    e  n   e  s   r   k     d    t    t   f     v    u   i    o  r    a  t    e  t    s  e   c  e   r    e  s   m   a   s    s   s  

Transaction fees

Membership fees

Test fees

Licensing

Pay per task

Product sales

 Advertising / Search

Subscription Content sales

Packaged services

Custom services

– High relevance

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Monetization of crowd business models Depending on the type of crowd business model, there are a variety of different approaches to monetization that can be applied. Below are brief descriptions of each of these mechanisms.

Transaction fees

These are especially applicable where crowd platforms are essentially acting as a broker between clients and service providers, in some cases aggregating the work created by the providers. Transaction-based payments can include job posting fees, bidding fees, and commission on payments.

Membership fees Fees may be payable by either or both clients and ser vice providers in order to participate in the platform, service, or value creation model.

Test fees f ees  As tes tests ts are a sig signif nifica icant nt asp aspect ect of how pro provid viders ers are as asses sessed sed by pot potent ential ial cli client ents, s, fee fees s can be charged for taking tests on capabilities ca pabilities such as language abilities or soft ware skills. Tests may be repeated by providers wishing to improve their scores.

Licensing Software such as crowd platforms can be licensed for installations behind corporate firewalls. firewalls. In some cases content including data can be licensed for re-use in a variety of formats.

Pay per task Pricing may be based on particular well-defined tasks or services being performed Pricing per formed for the client. In this case the margin received by the business is dependent on managing provider costs.

Product sales Where products such as clothing, cards, gift items, or other goods are designed by crowds, the primary revenue source can be direct sales of those products.

Advertising Revenue from content-based models can be generated primarily from advertising on the media generated. In some cases search advertising adver tising is the primary primar y revenue source, in which case the content created needs to be generated specifically to maximize ma ximize search visibility and user actions.

Subscription  A regular payment schedule can be established for either cloud-hosted software or for access to high-value content.

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Success factors M    a   r   k   e  t     p  l    a  c    e  

C   o   n    p  r    t   e   C    M    C    r    o  d    n  t    C    o  w    r    e   r    o  w      d    o  w    u   c    a  n   d    i    a   d      p   d    d    P   l   a   t    m  a      a  n  d    r    o  c    s  e  r     v    e  n   e  s   r   k     d    t   f     t    v    u   i    o  r    a  t    e  t    s  e   c  e   r    e  s   m   a   s    s   s  

Contributor breadth

Contributor quality

Buyer breadth

Buyer quality Public reputation measures Internal reputation measures Project management capabilities Project management tools Content monetization model Quality control

Fulfilment

– High relevance

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Content sales Packaged pieces of content such as books or reports can be sold in a variety of formats.

Packaged services  A clearly clear ly defined defi ned servi se rvice ce at a fixed fixe d price pric e can be delivered deli vered by crowds.

Custom services

Bespoke services can be delivere delivered d by crowds, with the company acting as an interface to the end-client through relationship management and quality control. This is significantly more complex than pricing packaged services, ser vices, as fees need to be quoted and negotiated neg otiated for each service, and it is rare to base pricing on labor costs.

Success factors: crowd business models There are a variety of factors essential for success in implementing business models m odels based on crowds.

Network effects The challenge for these models is to develop both sides of these net works simultaneously, unless there is pre-existing pool from an established business. For example, design competition platform 99designs was established out of the existing deep pool of designers on SitePoint.com. SitePoint.com. This meant that with one side of the network net work established, only the client side of the market needed to be developed. Contributor characteristics Clearly crowd business models by their very ver y nature depend on having many contributors. The two primary characteristics are the breadth and quality of the contributors, however not all business models require both.

Contributor breadth In some cases having the largest possible pool of contributors is a fundamental enabler of a crowd business model. This can be attractive to buyers in marketplaces through the diversity of skills available, or in the scalability of access to those resources.

Contributor quality Characteristics of high-quality contributors include domain expertise, exper tise, keeping current in their field, excellent communication, offering creative solutions, and meeting deadlines.

Buyer characteristics Contributors have substantial choices in the crowd ventures in which they participate. They will clearly be attracted to broad, deep pools of clients. However However the quality of the clients is also

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important. In I n the case of crowd services serv ices there is just one client, in which case its characteristics will attract – or not – the best providers.

Buyer breadth In the case of models such as service and content marketplaces, marketplaces, a deep pool of clients is required to generate sufficient business for service ser vice providers.

Buyer quality Clients that attract the most talented providers generally are sophisticated, offer interesting, challenging work, communicate well, have reasonable pay expectations, understand non-financial non -financial rewards, and respect the contributors. Where business models are a re based on crowd service ser vice delivery, a significant part of value creation comes from managing client relationships effectively, and thus attracting high quality and high value buyers. Specific skill sets that support success include defining objectives, pricing, managing expectations, and process communication.

Capabilities There are a variety of capabilities that provide important foundations for crowd business models. Developing and sustaining these will be fundamental fundam ental to success.

Public reputation measures  A key facto factorr in att attractin racting g clients cli ents to marketp ma rketplaces laces is having ha ving relevan relevantt and a nd accurat a ccurate e reputat rep utation ion measures for providers, making it easy to find the most reliable, highest-quality highest-quality providers. Contributors also find it valuable to see accurate reputation measures for the buyers, to maximize the chances of having a good experience.

Internal reputation measures For crowd services and other models mo dels where the providers are not directly visible to end-clients, internal reputation scores that enable the identification of the best providers for particular tasks can provide competitive competit ive advantage. In a broader sense, being able to assess and select the most relevant providers for bounded talent pools is a critical skill. This usually requires effective use of interviews, internal tests, and trials.

Project management capabilities Established project management processes and the ability to run these well is fundamental to any business model that requires service delivery by crowds.

Quality control One of the most important yet challenging capabilities needed for many crowd business models is consistent and cost-effective quality control processes. In some cases these can be delegated to providers or crowds within strict processes to achieve maximum efficiency, however there are limits to this depending on the relevant quality criteria.

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Project management tools Clients often use marketplaces as much for the ability to manage projects and multiple providers easily as for the pool of talent they can access.

Content monetization model While crowds can readily be used to generate content in a variety of formats, effective monetization models are required that link revenue including content sales, advertising, and search advertising with the specific sp ecific content being created.

Fulfilment For crowdsourced content and product markets, for example for articles such as art, ar t, clothes, or merchandise, competence at fulfilment including manufacturing and shipping is critical for success. While some companies outsource much of the fulfilment function, they still need to manage it effectively. Others find there is greater value creation in managing this process themselves, effectively making them crowd-fueled fulfilment companies.

Constraints on scalability The beauty of business models based on crowds is that they are inherently scalable. If well designed, service delivery can be scaled extremely rapidly and broadly, broadly, while there are many ways in which revenue generation can be swiftly swiftl y scaled. However there are a number of potential constraints to scalability, even for crowd-based business models. Here are a few of the potential limits that need to be understood and managed effectively for rapid scaling.

Service delivery Crowd-based service delivery provides massively greater scalability compared to services performed by in-house staff. However there are a range of constraints to doing this effectively.

Quality control In general it is harder to achieve a chieve high quality standards using external providers, p roviders, for a wide range of reasons including commitment, aligned incentives, degree of training, and so on. Increasing training training and the degree of engagement with the company adds costs and slows additing contributors. contributors. Adding layers of quality control is usually essential, but also adds centralized costs. The ability to create structured processes and layers of supervision in such a way that the quality control function can be largely performed externally is a key driver of scalability. It is a challenge that will be central to many ma ny emerging crowd business models.

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Project management  A s la rg er c ro wd s a re b ro u g ht to g et h er in to ov er  As er-a -a rc hi n g b us in e ss p ro c es s es , t h e effectiveness of project management structures can be severely tested. While extremely precise task definition and refined project processes can be scaled scale d significantly, exceptions can rapidly increase. In addition, more creative processes usually cannot be put p ut into overly tight project structures.

Availability Availab ility of talent In some cases for more specialist or highly creative skill sets, even crowds do not appear a ppear to yield a sufficiently deep pool of talent. This is most commonly a result of not being a good enough buyer in terms of rewarding contributors appropriately, including including financially. However even where the business model can ca n support and does flow through to adequate rewards to providers, attracting the right talent in sufficient quantities is not a given.

Revenue generation Clearly the issue of scaling sca ling revenue generation is an issue for every business. b usiness. However some of the challenges can be particularly pointed for a rapidly scaling crowd-based business model.

Defined offerings Highly defined offerings are far easier to deliver using crowds, and can usually be marketed more effectively than customized solutions. Achieving precisely defined offerings, in some cases many distinct offerings of ferings to cater for a diverse market, requires a significant investment.

Evolving revenue sources  As mar markets kets evo evolve, lve, exi existi sting ng of offer fering ings s may los lose e tra tracti ction on and dem demand and for new pro produc ducts ts or services may be recognized. This means that even well-oiled and highly-structured processes for bringing together crowd resources to deliver value to clients need to be continually changed and refined. The process of scaling sca ling can have many turns and forks in the road.

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