Tuesday, 20 August 2013

Crowdsourcing; towards an internet business model

“Someday someone may trade crowdsourced data on exchanges”

Crowdsourcing is a method that engages external sources, mainly us to contribute resources, mostly effort, voluntarily for a cause.  It is done through the internet.  Data is the common factor.

This is the third post of three.

Data has value

The act of online conversation is crowdsourcing when cultivated and harvested, ditto for use.  The act of online sharing aka Quora is crowdsourcing.  When a website is populated by business data from an external resource like Alibaba rather than created internally the entrepreneur is using crowdsourcing.  They exact economic value from considered activities.  It sounds as if we the consumers and businesses are providing a free service for online companies.  Are we idiots to be used?

It’s obviously win-win.

The principle employed by these web companies is one of giving one’s data in return for access to the site which may be monetised.  It’s really an exchange.  It’s just that we are not paid in the conventional way.

Business model

All these are possible because data is now a commodity.  The firms are simply mining it, using consumers to supply the labour in return for free services.  Sounds simple but the successful ones are better at coercing usage out of us and making sure we return to supply more data to their assembly lines.  Value is extracted processing the data into nuggets of information for sale directly (eg. subscriptions), indirectly (eg. advertisements) or by association to sell physical products or services.  Wikipedia is different.  Volunteers willingly contribute information, appealing to our propensity to share, to our sense of community, not to mention our sense of righteousness (to make corrections).  The latter is crucial as it makes Wikipedia self-correcting and keeps its information fresh, something traditional encyclopaedias can never match.  Similarly LinkedIn is successful because we want to advance our career and we play into the firm’s hand by regularly updating our bio-data keeping their produce fresh, something the traditional headhunters find hard to match.  These two cases of unconventional means of production have transformed industry.

In time, what I call the Web 3 phase when traditional companies wake up to this new way of doing business (rather than just rely on a web presence), capitalizing on social capital and external resources, would be a given.   Like the early movers.  You probably already mentally attached names to the social characteristics transferred online, mentioned in the previous post; our five minutes of fame (YouTube, likes, re-tweets), career (LinkedIn), talk/gossip/share (Facebook, Twitter, Instagram, Foursquare), establish oneself (LinkedIn, Pinterest, blogs), volunteerism (Wikipedia), care (Waze).   This business model obviously works.  We are even exchanging a bit more of our privacy for them. 

Internet business model

So crowdsourcing works and we know the internet facilitated it but how exactly?  Awareness of the mechanics will be useful especially for companies planning to carry out business over the internet.  We will next touch on the underlying characteristics as it were of the internet as they are the foundation to understand internet business models.

The internet effect

We won’t be using the internet so often if not for the low cost and specifically the manner of the access model – pay to connect to the internet – and most other services are then either free or have their prices lowered.  [The post “Reimagining the telco; impact of the internet economy on the telco industry part ¾” in this blog explains the conundrum on how datarisation affects pricing in the internet economy.]   The web played a major role to reach the crowd by turning it from niche use by engineers to something so easy that even grandmothers can.  Then there is the internet effect, characteristics that only the internet can bring to the table.  Besides lowering costs, the internet has vast reach and the connectivity to get to consumers.  A lot of how crowdsourcing works is due to what I call the 0.001% effect.  With this law of large numbers, you only need a very small percentage of the like minded among the huge number of people online to kick something off.  Then the networking effect takes over, at least for those who got the plan right.

Crowdsourcing is also helped along by the ease of getting connected and the speedy and real-time nature of conversations.  Further, websites are accessible anytime and smart phones have untethered access.  The ability to connect anytime anywhere has made it convenient to do so.  All these reduce the friction for online activities.  While attempts in the past to integrate and transport voice, video and text struggled, datarisation over the internet made it a cinch and cheaper.  Multimedia makes content consumer friendly further encouraging interaction and generation.  The process of engineered interaction is a process of extracting data.

Internet culture also plays a role.  It provokes a sense of freedom.  Instead of writing articles for industry magazines or giving talks, LinkedIn provides a platform for you to say something that requires less effort and when you want to.  The egalitarian and open culture means there is no editor to prevent you from your opinion pieces.  So we say more.  But peer pressure does so there is some quality control.

Obviously there are other factors at play but I will stop here.  One way to look at it is that the characteristic of the internet is an enabling agent, a catalyst to bring our social behaviour online thus producing crowdsourced data.

With an economy increasingly information-biased, crowdsourcing and its variants co-create, open platforms, open source are powerful business tools that companies cannot ignore.  Today just about all companies have a website. The next steps toward digitalisation of businesses must consider such internet business models.

Wider impact on the use of crowdsourcing

Beyond business, crowdsourcing or rather its use must have a huge impact on society. 

An example is the numerous libel statements made on social media.  It seems the environment encourages or even provokes sometimes careless statements.  Maybe social media is still new and society has not adjusted. 

Then governments especially in the Middle East were stung by the crowd-generated news of rebellion in the past few years.  But as we know, it is merely the transfer of societal feelings online although many affected politicians blamed it on social media. 

Something more cheerful for governments is the use of the crowd for crime fighting, best demonstrated by the recent Boston marathon bombing when Andrew Kitzenberg took pictures of a commotion in front of his house, tweeted them and within hours one of the perpetrator was caught.  Without the crowd, this would not have happened so quickly.

Another example of crowdsourcing entering wider societal use is WeatherSignal.  It uses data from crowds of smartphones users to provide daily temperature, better than from the weatherman.  As they explained it, “With a mathematical transformation, the average battery temperature across a group of phones gives the outdoor air temperature.”  Instead of data from a limited number of immobile weather stations, the crowds are all over the place as they go about their daily lives.  It is not hard to imagine a near future scenario when we can find out the exact weather conditions in a particular city park before we leave the house.  They have now extended this to read other weather conditions.  And it is not a prediction, it is actual and it is exact.

We won’t dwell any further on this topic but like factories that had a huge impact on the socio-economy so these new-age factories using the crowd will as well.


Crowdsourcing is a powerful tool for business in the information age.  It taps into a new resource, us.  Social activities, volunteerism, self-interest are human traits that have worth when nurtured in the internet economy.   This the new-age factories do by creating online outlets for them.  They are then mined for profit. 

It really boils down to data becoming a commodity in this age of information.  And realisation that this commodity has value which can be monetised, just that it is not done the traditional way.

The question now is how to use crowdsourcing effectively and more significantly, how to maintain the crowd.  Perhaps a future post.

Use the crowd!

©Chen Thet Ngian, internetbusinessmodelasia.blogspot.com (2013).  Unauthorized use and/or duplication of this material without express and written permission from this blog’s author and/or owner is strictly prohibited. Excerpts and links may be used, provided that full and clear credit is given to Chen Thet Ngian and internetbusinessmodelasia.blogspot.com with appropriate and specific direction to the original content.

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