Using the crowd as a part of the business model

Crowdsourcing or mass collaboration has become popular words for using an external group of people as part of the value creation and value capturing process. Organizations have for a long time used groups of external participants for various contests and market research activities, what is new is the scale, speed and cost of conducting such and other activities.

Enabled by computers and the Internet a virtual crowd of people has the ability to access information and easily interact with organizations to help solving problems, contribute with information and ideas, suggest improved or new designs, comment or vote for new ideas, or test new products or services. Organizations at the same time have the ability to occasionally provide and seek for value in different crowds or integrate it as part of their business models.

Who are the people participating?

Using an external group of people as part of the value creation or value capturing process can take many different forms and the crowd may be big or small, and comprise of amateurs working in their spare time or professionals participating as part of their business model. It is often people that in one way or another are related to the organization or its value network such as customers or community stakeholders, but with the use of intermediary platforms, solutions to an organization's problem might come from people in completely different industries and technology areas.

Money is not important

People partake for different reasons in different activities but also for different reasons within the same activities. A common denominator for partakers is the pleasure and satisfaction to be involved and contribute, to solve challenges, especially when participators have a common vision with the organization. One example is when improving a product or service that the participator wants to use, not only providing value but also receiving value. In addition, recognition and status from the organization or other participants, when showing off creativity, problem solving skills or expertise is often argued highly important incentives for voluntary participation. Other non-financial incentives can be learning from doing, learning from others, and access to exclusive prototypes or versions.

Show me the money!

Organizations seeking help in the crowd often combine different non-financial and financial rewards. Getting an award for solving a problem, a cash bonus for generating a winning design, a price cut on the final product, invitation to exclusive events, gift cards or a royalty based on future product sales are common financial rewards for participation. InnoCentive, an intermediary platform connecting companies, academic institutions, public sector and non-profit organizations, rewards solution providers between $5000 and $1000000 for solving problems.

Some examples where organizations use the crowd to create and capture value:

• Understand and stay relevant to customers; test new ideas, products and services, discover emerging market needs and trends in user behavior, test and assess brand perception and appeal of marketing material. Example: Nokia Concept Lounge
• Funding of new ideas; use community to decide investment strategy for mutual funds, provide means for a crowd to make commitments for future products or services. Example: Sellaband
• Find answers to complex problems not solvable internally; research and discovery and access expertise from other industries. Example: Goldcorp
• Innovate faster and more profitable; using the crowd to rank and prioritize new ideas, detect challenges. Example: Spreadshirt
• Improve current products and enhance customer experience; using power users with high demands, basic users with basic needs, non-users with no current needs, using the crowd to openly review products and services, allowing users to customize their products. Example: Lego Factory
• Create the product or service itself; using user generated content as major part of a value proposition in the business model. Example: iStockPhoto
• Market and distribute ideas and products; using social platforms and the fact that participation often creates a sense of ownership. Example: Business Model Generation Book

Questions before using the crowd

• Will the expected output answer key business needs?
• What will be the value proposition towards participants?
• Will the organization be able to motivate and incentivize participation?
• Are the tasks suitable for distributed activities?
• Can the tasks be broken into small chunks?
• Are there adequate resources and capabilities within the organization to manage the process?
• Are there effective filters, such as the crowd itself that can effectively identify what is valuable and what is crap?
• What will be the added costs and risks from the activity?
• What would happen if other actors in the value network or competitors knew about or participated in the activity?
• Will the organization be able to manage the costs and risks?
• Will the business benefits exceed the added costs and risks?
• Should the invitation be open or closed?
• Can anyone participate or should there be criteria of approval?
• What information should be provided and what should be kept secret?
• Should the participants see each other’s ideas or contributions?
• Should it be possible for participants to build on each other’s ideas?
• How should own and participant's intellectual property rights be managed?