You may have already heard of the crowdsourcing business model, nowadays used successfully already by several companies (even by the “giants” of the market). Your company or startup may be the next to join the list.
If you want to fully grasp the advantages this solution offers and avoid making mistakes, you need to know precisely what crowdsourcing is and how it works. You are in the right place.
Crowdsourcing meaning: what it is and how it works
The term crowdsourcing first appeared in 2006, when Jeff Howe, a professor of Journalism at Northeastern University and editor of Wired, first introduced the word with the meaning of the act by which a company outsources a task or function (previously performed internally by in-house employees) to a broad network of people.
During this act, in more concrete terms, a large number of individuals (the English term “crowd” means “crowd”) actively participate in the innovation processes of the crowdsourcing initiator, who in this way can gain access to a wider range of information and knowledge.
A more comprehensive definition of crowdsourcing has come from professors at the Catholic and Polytechnic University of Valencia, Enrique Estellés and Fernando González: the term indicates an online participatory activity in which a company proposes, through an open and flexible announcement, the free and voluntary accomplishment of a specific task.
Remember that this transaction-through which the group contributes labor, money, knowledge and/or experience-always assumes that there is a benefit to both parties.
The platform as enabler: community, rules and incentives
The functioning of the crowdsourcing business model involves the existence of a platform that acts as an enabler, connecting the crowdsourcer (the one who proposes the initiative) with a large community of individuals called upon to perform a task and setting the rules of this “exchange.” In some cases, for example, incentives, not necessarily financial, are provided to encourage participation.
These platforms, in essence, turn the community into an invaluable resource for the organization, which in this way can delegate a particular task, but also gather new ideas and expertise or find funding.
Types of crowdsourcing
As previously announced, there is no single type of crowdsourcing. Let us get to know together the main business models that fall into this category.
Idea generation and crowd voting
Idea generation is the process of creating and gathering new ideas for the purpose of solving a problem or fostering innovation.
Crowd voting, on the other hand, is a technique through which a community is asked to select and vote on the best ideas generated by others.
Crowdsourced data and open source software.
Another type of crowdsourcing is where the community participates in the organization’s goal by offering data to be collected, analyzed and classified.
The open source business model shares the collaborative approach that puts the “wisdom of the crowd” at the center, but it differs in one respect from traditional crowdsourcing: the latter stipulates that the result of the work always remains the property of the organization, which provides for rewarding the author of the winning idea.
Crowdfunding: when the “crowd” participates with money, not work
Crowdfunding differs from crowdsourcing in its objective: not ideas and expertise are collected, but money, which is useful to support and incentivize the project.
Crowdsourcing business model: key elements
The crowdsourcing-based business model has some key recurring elements.
Value proposition and crowdsourcing actors
The value proposition, in the context of the crowdsourcing business model, should be considered both on the crowdsourcer side and on the participant side: in the former case, it refers to the possibility of access to a vast repertoire of skills and ideas while, from the perspective of those taking part in the initiative, it is to be understood as the opportunity to contribute personally to the success of a project deemed interesting (in some cases even receiving a reward) and to be part of an active community.
Up to this point we have talked about crowdsourcers by referring only to companies; this is the case in most cases, but you should be aware that individuals or public organizations (such as the European Union, for example) can also be promoting a crowdsourcing initiative.
Crowd-sourced side, there is no one-size-fits-all standard regarding the characteristics and skills of the people who make up the crowd: these, in fact, vary depending on the initiative in which they are called to take part.
You should know, however, that those who participate in crowdsourcing as a crowd rarely do so as their main employment: more frequently they are hobbyists and amateurs. Participants can be “simple” users or consumers of certain products, but also organized communities (offline or online), even on a global scale.
Revenue streams: platform fees, advertising, licensing
Revenue streams in a crowdsourcing platform ecosystem can come from multiple sources.
For example, organizations may earn a commission on each transaction completed within the platform (or provide membership or subscription fees).
Advertising is another important source of revenue: platforms, in fact, can host advertisements within them.
Data and content obtained through crowdsourcing can also be made available to other companies, who pay a license fee to have access to and use this material.
Process: break down activities, moderate, validate quality
The process by which companies can delegate complex activities to a community of people requires breaking down activities into smaller tasks that are easy for the community to manage.
There is another aspect to consider for the process to work properly: even if everything revolves around delegating certain tasks to others, some form of organizational control and moderation cannot be missing. Indeed, the larger the communities and the more individuals have to interact with each other, the greater will have to be the rules governing internal relations.
Not only that, it is also necessary to Implement mechanisms to evaluate and ensure the quality of contributions offered by the community.
Benefits and risks of crowdsourcing
Now that you know how crowdsourcing works, it is important that you also know that it certainly has some indisputable benefits, but it also has risks.
Benefits: speed, reduced costs, access to rare skills
The main benefits of a crowdsourcing business model are related, first of all, to the possibility of quickly generating useful ideas to gain a competitive advantage. In addition, this particular business model also gives the opportunity to access rare expertise that, with more traditional models, perhaps would not be possible to tap (or, at least, would be more complicated).
There is an additional reason for crowdsourcing: it reduces costs because the need to hire specialized staff or maintain a large group of employees is eliminated.
Risks: quality, intellectual property, crowd bias
The most obvious risk associated with choosing to rely on crowdsourcing is related to the limited control that can be maintained over the entire process. This could also lead to a quality problem.
Perhaps you have already heard of the “wisdom of crowds” theory, which is based on the idea that averaging the decisions of a diverse group of people will generally turn out to be more accurate or effective than decisions made by a single expert. Or, in the words of Ken Blanchard:
“None of us is as smart as all of us.”
Not always, however, the aggregation of people can be considered truly “wise.” There are, in fact, specific conditions that the crowd must have (from diversity of opinion to independence, through aggregation and decentralization modes).
Another limitation of crowdsourcing concerns intellectual property: in such a process involving many different people, it can be complicated to define intellectual property rights, with the result that companies can find themselves embroiled in unpleasant legal disputes.
Real-world examples and use cases
Some practical examples of crowdsourcing will help you better understand what we are talking about.
Mobility and real-time maps
In the area of mobility, Waze is a classic example of a crowdsourcing business model in that it incorporates user-generated reports and content to enhance real-time maps with accurate and up-to-date information about traffic, road hazards, or speed cameras.
Design and co-creation
Threadless allows artists to submit their T-shirt designs so the community can vote for their favorites. The winning designs are then made and sold right through the platform.
Community knowledge and challenge prize
Wikipedia is a community knowledge project based on the work of a large community of volunteers who collaboratively create, edit and update content.
Netflix has also used crowdsourcing. It did so, more specifically, with the Netflix Prize project, a challenge that, in 2006, invited experts to improve the content recommendation algorithm on the platform, offering a million-dollar prize.
Crowdworking: on-demand work and micro-activities.
A special mention when it comes to crowdsourcing deserves what is known as crowdworking: this is a work model that brings together companies and freelance workers called to perform specific, deadline-driven tasks remotely and without a traditional dependency relationship.
Typical fields: testing, transcription, data labeling.
There are some particular professional fields that best lend themselves to crowdworking: these are those involving transcription and translation, but also scientific research and software development, data labeling, and, in recent times, artificial intelligence.
The issue of crowdworkers’ rights
The spread of crowdworking has raised some questions related to the protections provided to workers. Generally, crowdworkers are framed as self-employed and are not entitled to any particular protections against the employer. In some cases, they also lack access to insurance-type coverage.
Another “regulatory” issue is related to the need for special licenses to provide services in this particular mode. In addition to those who make crowdworking their sole (or main) source of income, there are, in fact, those who resort to it to supplement their salaries or others who do it to earn something while studying.
How to set up a crowdsourcing project
To set up a crowdsourcing project successfully, you need to follow some very specific steps.
Define project and goals, choose the right platform
The first step is to establish the goal you want to achieve and, based on that, identify the type of crowdsourcing that best suits your needs and the platform that can best help you achieve your goal.
Incentives: economic, reputational, gamification
Offering appropriate rewards is, often, what makes the difference to the success of crowdsourcing. As we have already mentioned, the proposed incentive does not necessarily have to be economic in nature. There are, in fact, also reputational incentives that can satisfy, for example, the desire to contribute directly to the success of a product or the desire to feel part of a community.
In this regard, remember that gamification (the application of typical game elements in generally non-game contexts in order to increase interest and participation) can be a valuable aid if you need to increase engagement around your crowdsourcing project.
Provide clear instructions
A prerequisite for a crowdsourcing project to achieve success is to provide clear instructions to all participants, both regarding the tasks to be performed and the guidelines and rules they must follow.
Metrics: useful contributions, time to completion, NPS of the crowd
Measure, measure, measure: the mantra is always the same. The advice, first and foremost, is to evaluate and ensure the quality of the contributions made by participants. There are several ways to do this, ranging from automated checks to peer review.
Another variable to consider, in addition to the quality of contributions, is the time taken to complete the assigned tasks.
There is, then, one indicator in particular that you need to monitor: it is the Net Promoter Score of the crowd. This score indicates the degree of satisfaction and loyalty of the project participants, and measuring it puts you safe from unpleasant surprises.
Conclusion: crowdsourcing and scalability.
A final aspect to consider when discussing the crowdsourcing business model is that of its scalability.
Indeed, this model can be scaled up to involve a large number of contributors, but its flexibility also allows the scope of initiatives to be contracted in response to any downsizing in demand.
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