Following is an excerpt of the chapter “What Is Crowdsourcing?” by Texas Enterprise Senior Editor Renee Hopkins, published in A Guide to Open Innovation and Crowdsourcing: Advice from Leading Experts (Kogan Page Publishers, March 2011).
The roots of the crowdsourcing concept lie in a now-famous 2006 Wired story, “The Rise of Crowdsourcing,” by Jeff Howe. The concept and the term became so popular that Howe published a book on the subject in 2008, Crowdsourcing: Why the Power of the Crowd is Driving the Future of Business.
It’s instructive here to cite Howe’s own definitions for crowdsourcing. First, his “white paper definition”:
Crowdsourcing is the act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call.
And second, Howe’s “sound bite” definition for crowdsourcing:
The application of Open Source principles to fields outside of software
Basic though it may be, the second definition is quite critical. Much of the taxonomy Howe developed for crowdsourcing and how it works relate the activity back to the principles of the Open Source software movement, whose proponents create software whose source code is published and made available to the public, enabling anyone to copy, modify, and redistribute the source code without paying royalties or fees.
However, it’s helpful to consider crowdsourcing in a way Jeff Howe does not discuss: as a type of open innovation. The simplest definition of open innovation is “the flow of ideas into and out of an organization.” Crowdsourcing, as well as user-driven innovation and co-creation (both of which Howe has argued are subsets of crowdsourcing) are all simply tools through which open innovation can happen.
Crowdsourcing is not only a tool through which companies can get outside ideas and input them into their technologies and products, however; it is also a tool companies can use to apply novel crowdsourcing techniques to processes such as purchasing and financing that do not specifically result in the creation of an innovation. In other words, crowdsourcing can result in innovation both in the development of new products as well as new processes.
The History of Crowds
Let’s look at the history of the crowdsourcing concept and its predecessors. Even before Jeff Howe’s Wired article was James Surowiecki’s 2004 investigation of how the diversity and aggregation of information among crowds drives better predictions and decision-making in The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations (Doubleday).
Also predating the Wired article, Eric von Hippel of MIT had been writing extensively about user-driven innovation since the mid-1980s, including his influential 2005 book Democratization of Innovation (MIT Press). And in the years before crowdsourcing there were also many companies, particularly consumer goods companies whose innovation projects often originated from their marketing departments rather than from R&D, which had dabbled for years with various “voice of the customer” and customer ideation approaches that were clear forerunners of the “customer co-creation” aspect of crowdsourcing.
The main ingredient missing from both user innovation and early customer co-creation efforts was the notion of the crowd itself. The ability to truly harness any group large enough to be rightly called a crowd did not become widely commonplace until the Internet gained steam in the late 1990s and early 2000s. Not only did the Internet offer a means to reach a crowd, it also offered a means by which to gather crowd input of various kinds and even a platform through which the crowd could perform specific tasks. It just wasn’t clear for quite awhile that there was value to be gained from doing so.
Therefore, with its plethora of Internet-enabled examples run by young tech entrepreneurs who had likely never read Henry Chesbrough, crowdsourcing as described in Jeff Howe’s 2006 Wired article was initially easy for Fortune 500 companies to ignore. The original poster child for crowdsourcing, mentioned in the original Wired article and still an oft-cited example, is the T-shirt company Threadless. The general public (the “crowd”) submits designs at Threadless.com, votes on which designs are created, and then buys them. It was hard to see exactly who Threadless was disrupting and hard to see anything truly innovative about T-shirt designs, no matter how cool they were. So it was easy for corporate innovators to dismiss crowdsourcing as irrelevant.
Crowdsourcing Can Disrupt
But in that very first Wired article was also a bone-chilling tale of classic disruption of the type Clayton Christensen wrote about in The Innovator’s Dilemma (Harvard Business Press, 1997): the story of iStockphoto, a crowdsourced stock photo site that wreaked such havoc in the stock photo industry that that industry’s most established company, Getty Images, finally ended up buying it. Getty CEO Jonathan Klein told Howe, “If someone’s going to cannibalize your business, better it be one of your other businesses.”
Before iStockphoto, agencies that sold rights to use pre-existing (“stock”) photos had been operating for years in much the same fashion as they always had — providing catalogs that detailed and classified the images available, which the agencies licensed from professional photographers who were used to earning what they considered reasonable fees (perhaps $40) for the single use of a single photo that was in itself the leftover byproduct of a photo assignment that had already been paid for. The stock photo industry reacted to the rise of the Internet by migrating their existing operations there — searchable, classified catalogs with watermarked thumbnail images were available online for potential customers to choose among. The Internet originally simply widened the potential audience of the typical stock photo company, and it also widened the potential customer base, as companies began putting up websites and images were needed for these sites.
As described in Crowdsourcing, iStockphoto began as a community of largely amateur photographers who earned credits for photos they added to the community, credits they then spent with photos they used from the community. It was not until the community grew to several thousand that its founder, Bob Livingstone, began to sell the photos, first for 25 cents each and then for $1 each, to cover the costs of server space and to earn a bit of profit. While the incumbent stock photo agencies, particularly Getty, dismissed the disruptor as a purveyor of very low-quality images, the numbers were on iStockphoto’s side. The site had many more photographers and many more images than the standard agency site, and the best of these rose to the top. More importantly, no one who was trying to profit from their work could compete with iStockphoto’s thousands of amateurs, who were happy enough to see their photos get used, and extremely happy to get any money at all, much less a profit that would cover their time and costs.
This may seem fairly straightforward, so why is crowdsourcing so confusing? Says Howe: “Crowdsourcing isn’t a single strategy. It’s an umbrella term for a highly varied group of approaches that share one obvious attribute in common: They all depend on some contribution from the crowd.” As noted earlier, an important consideration, and one place from which much confusion arises, is that not all crowdsourcing leads to the creation of a product or service innovation. Some types of crowdsourcing are simply innovative ways to make decisions or get projects funded.
Crowdsourcing: The Ultimate Open Innovation
In some ways crowdsourcing is the ultimate open innovation — not all the smart people work for you, so if you could harness the many, many smart people who don’t work for you, what a tremendous resource that would be. And crowdsourcing sounds very simple: gather a crowd, get them to do something, reap the financial rewards of the crowd’s work.
Yet nothing could be further from the reality. Crowdsourcing is difficult if done right, and “difficult” may be an understatement. Few of the typical organizational structures and incentive systems a company is accustomed to work well for crowdsourcing, which must be based in community in order to work. Examples abound of companies that have been burned by crowdsourcing. So why do it at all?
Because when done right, crowdsourcing offers an unparalleled benefit — a diversity of thought and experience that simply cannot be obtained any other way than through a crowd with all its diversity. When this benefit can be harnessed in a way that the community itself feels appreciated and rewards its organizers with the best it can offer — its wholehearted participation — the results can be spectacular. Using crowdsourcing to create innovation or using crowdsourcing tools to innovate processes — when wrapped in a business model that properly monetizes its value and capitalizes on its power to disrupt — crowdsourcing can be a critical building block of successful open innovation.