Crowdsourcing; why it works

Crowdsourcing has mostly been used by the online service providers, the early adopters.  It could be time for conventional companies to do so.  It can increase productivity, competitiveness, reduce costs, improve capability and used for business development.

This is the second post of three.

Definition of crowdsourcing

Crowdsourcing is a method of economic production from external resources, primarily the public via the internet.  Contrast this to the norm in traditional production of goods and services from internal resources.  The distinction of this external-internal divide is key to understanding an aspect of the economic model of the information age making crowdsourcing possible.  Thus user-generated activity becomes relevant.  And consumers can become a resource.  Data is the new commodity.  Seeding, gathering, assembling, processing this raw data into products and services is what it is about.  Crowdsourcing is one among a slew of information era tools.

But why does it work?

The indirect model

If someone offers free email, why do we want to pay a commercial provider?  If a website offers free video calls, why do we need to pay our telco for our weekly video chats with our kids at university overseas?  If through conversations in an online site our career can be advanced, heck, we may even want to pay for it but hey, it’s free.  So contributing is not really in our mind, we just want the freebies, conveniences and opportunities provided.  But it works; usage is generated, captured, monetised.  This indirect model for monetisation is also the cause of systemic consolidation of the newspaper and other industries to come.

Once free equates to bad service.  With the internet economy, free produces in many cases, better services, better informational products, better software.  Because free now has value (see the post ‘value-of free’ in this blog to understand the conundrum).

To a large extend, crowdsourcing draws on the social nature of humans.  We like to talk, to share, to gossip, to engage and some to speak up.  We like to spend time with friends, being busybodies, make new friends, maintain contact.  We care.  If we are stuck in a traffic jam, we let them know.  Many of us are also community spirited; we like to chip in when we can.  We also have our ego, we like to show off at times, we like our five minutes of fame.  Philanthropy enters our conscience when our life nears self-actualisation and it doesn’t always have to do with money.  Those less moneyed can volunteer.  Social media has become a channel for consumers to do all these easily, more frequently.  Often, it is more effective than telephones or the physical kind.  It is certainly cheaper and it is 24/7.  My daughter in her teens said she has to be active in Facebook constantly otherwise she may miss out on some happenings among her friends.  Some things just have to be done real-time!  Creating a new outlet for social activities has proven lucrative for some entrepreneurs.

In these two cases, we unwittingly feed data into their factories.  In this manner, crowdsourcing is not about making money from the crowd, but off the crowd.  They are the indirect model.

The direct model

And then, unlike the indirect model of conversations, some sites compel us to directly do something such as self-publish through Amazon or raise funds with crowdfunding.  The direct model is usually used for a specific and deliberate goal.  For-profit bloggers deliberately use their posts in a hope of generating income.  Business-to-business sites appeal directly to traders.  They get a cut on transactions.

Business crowd

Which means crowdsourcing is not only about consumers, it is also used for the business crowd.  Alibaba made it easy for trade, for the buyers to reach the sellers.  Its site self-generates by crowds of firms.  eBay started with consumers but businesses now make up a large proportion of its daily trade.  Sutl aggregates local small courier firms into a large virtual one.  These entrepreneurs tend to use the business crowd directly.  As traditional businesses always trail the early movers, I expect more business models using companies as feedstock for their plants.  And so far, I haven’t come across any high profile site that employs an indirect model using crowdsourcing of businesses.  If you are aware of any, please drop me an email.

Hybrid model

Then there are sites like Craiglist (online classified), interesting because they use the indirect model - placement of ads free to attract a crowd – with the exception of job ads which is monetised (direct model) so it uses a hybrid model.

The next concluding post delves deeper to reveal insights into how crowdsourcing is deployed and provide pointers for companies planning to do business over the internet

©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.