What is "Crowd-Sourcing"
a method for using the public, typically via the Internet, to supply creative content (or even funding!), with special applications in information services, research and development, T-shirt designs, stock photos, advertising spots.
Table of Contents
Trust in crowdsourcing and crowdfunding:
Trusting the people
We can all admire the wisdom of crowds, but is the wisdom of the message boards of equal standing? The trouble with travel sites where anyone can post a review is that you don't know the writers' identities or motivations. You can spend hours wading through contradictory reviews in order to form an objective opinion. Is it worth it? read more»
examples:
- istockphoto: iStockphoto is the internet's original member-generated image and design community. Find your inspiration on the world's leading royalty-free stock destination. Search for over 3 million photographs, vector illustrations, video footage and Flash files.
- threadless: crowd designs the t-shirt...overpowers any local design co.
- cincymoms: is this the model for local news? (narrow niche)
- google earth: photos taken by users & uploaded to google earth...creating a visual map of the planet.
- Springwise: Cro wd-managing a band
Crowd Funding
Similar concept to crowdsourcing, but, in crowdfunding, they supply the cash (not just the content). Instead of seeking investment from a Angel investors (or Venture Capital investors), what crowdfunding does is use small investments many individual people, who then vote and apply the "wisdom of crowds" in choosing which investments to make.
"Crowdfunding is a process whereby people with projects or business ideas ask the crowd to donate to the cause in exchange for some sort of reward. Typically the reward has something to do with the businesses or project... example sellaband... and in exchange for donations, would "repay" participants with "free downloads... exclusive CDs, T-shirts, free lunches etc."
Portals for Crowdfunding:
- Kickstarter.com.
- IndieGoGo.
"Kickstarter and IndieGoGo (these are contribution sites – there is no financial return associated when you provide funds) to Prosper and other similar sites (these are Peer to Peer lending sites, where an individual can choose to lend funds to specific businesses) to Profounder (a yet to be launched site from the founder of Kiva that is looking to “crack” the crowdfunding model).
Examples:
- charities
- Brave New Worlds, a Hollywood studio...is financing its movies by soliciting people over the Internet to pay for them before they are made.
- list of examples here: http://crowdfunding.pbwiki.com/
Is Crowdfunding LEGAL?
"Securities laws must be followed whenever promising a financial return on investment to an investor who takes a less-than-active part in generating that return. (Even the use of active investors requires the services of a skilled securities attorney.).... Generally, if one wants to legally avoid securities restrictions in a crowdfunding scenario, financial returns cannot be offered. As a result, most crowdfunding efforts offer limited enticements (e.g., signed copies of a limited edition DVD, dinner with a cast member, etc.)
"Security Act of 1933: According to the 1933 Act, any offer to sell securities must be either registered with the SEC or meet a specifically defined exemption from the Act....essentially a security is any instrument that creates ownership or allows for participation in financial returns qualifies. Basically, if an individual provides growth capital on a basis other than as a gift or donation, it’s deemed to be a security and subject to the Act
Social Investing:
Using the power of the crowd to make investing decisions. See our discussion on social finance websites
Philosophy behind the movement...
Using the power of groups (to make better products/ services)
Sites like Wikipedia tap into the collective knowledge of groups and create products better than individual companies can (think Encyclopedia Britannica, for example). But the concept of group sourcing has applications way beyond simple encyclopedias. For example we see companies tapping the collective knowledge of community to crowd-design clothing lines, pick the winner of American Idol, fund a football team, or even to predict the future.
One of the most interesting impacts of the interconnectivity of people through the internet has been the development of social computing and innovation. As was outlined in a very interesting book (Wikinomics), there has been a fundamental shift in thinking among leading innovators that there is a need to tap into expertise and knowledge outside the confines of the traditional corporate infrastructure. Companies are looking for outside help in developing products and in doing amazing new things. This wisdom of engaging your customers, suppliers, competitors and academia in order to innovate and create new and better products and services is a fundamentally new way of looking at things. But its being wholeheartedly embraced by such corporate heavyweights such as Proctor and Gamble (see "connect and innovate") that its making other business people take notice of the impressive results. Please feel free to add your thoughts and insights into this very interesting trend....
Examples:
have you ever liked a website enough to save it in your "favorites"? Sure you have. But, social bookmarking takes this one step further. Instead of saving the "favorite" on your desktop, you save it to an online site, and then you can always find your favorites no matter where you are. The most famous of all social bookmarking sites is: http://del.icio.us/ . Other interesting companies to watch are: trailfire, and:
is a trend that makes for-profit software companies shake in their boots. The concept is simple...a bunch of computer geeks get together and offer for free what other companies are trying to charge for. and, by the power of the masses, they can offer better software, with more timely updates, and by getting a mass of users, they guarantee market share. But where are the profits, you might ask? How about going public? One of the most-anticipated tech IPOs of the year has been that of open-source database company MySQL. It seemed like they were ready to go public back in the beginning of the year. Now I am hearing chatter from hedge fund circles that the filing may be imminent. Last I checked, nothing has been filed with the SEC yet. Investors, including Benchmark, Index, IVP, Intel, and SAP, have put in more than $39 million to date. mySQL claims a 25 percent share of the database market. It is unclear how compelling its economics are, but if its IPO does well (assuming it ever happens), that would open the door eventually for other open-source startups such as Openads (open-source ad server) and Automattic (which has built a business on top of the open-source blogging platform, Wordpress), among others.
Limitations of Crowdsourcing:
As the idea spreads, its limitations are becoming apparent. Once the initial excitement fades, some firms are realising that crowdsourcing can be more expensive than doing things themselves. Ask the internet crowds for a new product design, for example, and you may find that submissions have also been sent to rival firms, or have been stolen from elsewhere. Checking that submissions do not infringe copyright can be a nightmare; simply designing things in-house can be the cheaper and safer option.
There are other reasons why crowdsourcing and commerce make uneasy bedfellows. Most crowdsourcing projects rely on volunteers, and people are much less willing to volunteer if they feel someone else is profiting from their hard work. Wikipedia's success may have much to do with the fact that it is run by a non-profit organisation. A commercial version of it would probably have to find a way to reward contributors.
And even those companies that do try to share the proceeds from commercial crowdsourcing are not safe.
"A pioneer of for-profit crowdsourcing was Cambrian House, a company based in Calgary that encouraged people to send in ideas for new software products, had the community evaluate them, and then funded the winners. It sounded like a great idea, but the company sold its assets in May and its chief executive acknowledged that its business model had failed. Perhaps it should have crowdsourced the management of the company, too?" - source: economist magazine
In analysis, they were not very well funded, and narrowly focused on software development ideas.
On the other hand, there is another site called "Springwise" that is crowdsourcing ideas from the internet, and seems to be doing quite well. I read their newsletter each month, and they seem to get better and better over time....
Innovative models using the Crowd:
Examples:
- spot.us - Journalism - community funded: the idea is to solicit ideas for investigative articles and the money to pay for the reporting. Spot Us plans to post its articles on its Web site and give them to newspapers that want to publish them. If a newspaper wants exclusive rights to an article, the paper will have to pay for it....read more...http://www.nytimes.com/2008/08/24/weekinreview/24kershaw.html?emc=rss&partner=rssnyt
- Pro Publica, a competitor of Spot.us (above) is a nonprofit group led by Paul Steiger, a former managing editor of The Wall Street Journal, is being bankrolled by several major foundations to pursue investigative projects that it will then offer to newspapers and magazines.
- Howard Dean model for politics...”Those campaigns revolutionized politics by using the power of the Web to raise small sums from vast numbers of people, making average citizens feel a part of the process in a way they had not felt before.
- Advertising: Poptent Lets Brands Crowdsource Advertising On The Cheap
Crowd-sourcing design
An interesting trend is for companies to tap the collective creativity / knowledge of a community to develop products. This is not as crazy as it seems, and is actually resulting in quite profitable companies. Please see our discussion on product development for more discussion...
Crowd-sourcing sales-force:
If crowdsourcing can be used to improve product design, music promotion and sports team management—to name just a few of the examples we've written about—why not the process of finding sales leads? That question is about to be tested through a new site that aims to put the crowds to work as a sort of community sales force.
LeadVine lets users post the types of sales leads they seek along with the referral fee they're willing to pay; the community is then invited to earn that fee by making the desired connections. Fees listed on the site must be at least USD 50, but the range is considerable. One listing, for example, offers a USD 100 referral fee for help in finding companies in need of online chat support. Another offers USD 50,000 for investors to contribute USD 2 million toward an Oregon real-estate development project. Requests are listed by category, and buttons for each allow others to bookmark them, share them via e-mail or make a referral. The resulting transactions are conducted outside the site, but LeadVine facilitates the payment of referral fees via PayPal. Community members can also rate each other on the site to reflect the quality of each transaction.
The company explains: "Every day, people come across information that is useless to them but useful to someone else. Ever know of any friends looking for a new job, looking to add a new room to the house, looking to build a new website, etc.? What did you do with that information? Probably nothing. There are companies willing to pay for that type of information, from recruiters, construction contractors, web developers, etc. LeadVine gives you the ability to make money with information that is at your finger tips."
Now in beta, Kentucky-based LeadVine is currently free for users around the globe. One to watch—and experiment with! (Related: Tapping into the referral economy.)
Contact: www.leadvine.com
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