Leaders today are making decisions concerning how best to use technology to enhance their products, to increase their customer base, and to reduce cost. One consideration is that of crowdsourcing as a means of increasing the leader’s strategic options. Crowdsourcing is a way of taking tasks or projects performed by internal employees or assigning new tasks and outsourcing them to a crowd of non-employees (Ford, Richard, & Ciuchta, 2015). The quandary some IT leaders face is whether the use of non-employees for information systems development will compromise their competitive advantage. Although the use of crowdsourcing is gaining popularity, the leader must consider both the advantages and disadvantages of selecting this option.To prepare for this Discussion, read this week’s case study titled “Crowdsourcing: A New Way of Employing Non-Employees?” You will assess a leader’s consideration for crowdsourcing in this case. You will determine whether crowdsourcing requires the same strategic approach as that of traditional outsourcing or offshoring, or whether an entirely new strategic approach is necessary.By Day 3Post an analysis of the use of crowdsourcing as a strategic business approach based on the case study “Crowdsourcing: A New Way of Employing Non-Employees?” In your analysis, answer the following questions:Should a leader considering using crowdsourcing employ the same strategic approach as that of the traditional outsourcing or offshoring? Explain your rationale.What ethical issues must be considered? What are the critical factors in making the decision to use crowdsourcing? What are the risks associated with using both employees and non-employees?What cultural barriers exist related to your chosen option, particularly for IT development? Can these barriers be overcome? If so, how?Be sure to support your work with a minimum of two specific citations from this week’s Learning Resources and one or more additional scholarly sources.
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CMR601
Crowdsourcing-Based
Business Models:
HOW TO CREATE
VALUE
AND
CAPTURE
Thomas Kohler
Technology has transformed individuals from mere consumers of products to empowered participants in value
co-creation. While numerous firms experiment with involving a crowd in value creation, few companies turn
crowdsourcing projects into thriving platforms with a powerful business model. To address this challenge, this
article analyzes successful platforms to identify patterns of effective crowdsourcing-based business models. The
results provide guidance for managers who need to create new (or adapt existing) business models.
(Keywords: Crowdsourcing, Open Innovation, Business Model Innovation, Co-Creation, Platforms)
T
he emergence of crowdsourcing-based business models is driven by
technology, active users, and the move towards open innovation.1
Crowd-based businesses enable organizations to harness the collective
energy and creativity of a large number of contributors. Through different crowdsourcing processes, companies reach out to a large, unknown population
by inviting users to create value. They capture a share of the value created as profit
and, depending on the platform model, share revenue with the crowd. This business model innovation represents a fundamental shift in the way business is done.
Today, users not only contribute ideas and input to product development,2 but they
also share goods, services, space, and money to deliver solutions that traditionally
have been performed strictly by the companies themselves.
A number of prominent new ventures have made crowdsourcing the backbone of their business models. By successfully capitalizing on the participation and
collaboration of the crowd, these businesses are rapidly transforming industries.
They empower users to leverage their creativity (Zooppa’s community creates
advertisements for leading brands), share their skills (Threadless’s community submits designs), or use their product domain knowledge (Innocentives’s community
tackles challenges). Existing companies are under pressure to reinvent their business models as company borders are dissolving and the value creation process is
changing from linear to networked, from top-down to bottom-up, from centralized
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2016 to August 2017.
Crowdsourcing-Based Business Models: How to Create and Capture Value
to decentralized, and from closed to open.3 Lego,
for instance, is transforming consumers into active
participants in an effort to innovate beyond their
traditional mass-market model. They now help
users design their own Lego sets online and
through their retail stores. Successful crowdsourcing-based business models are
powerful and hard to replicate because of their inherent community dynamics.
However, creating a thriving business built upon the crowd is difficult. The goal
for any crowdsourcing platform is to engage a crowd that has both the willingness
and capability to engage in value creation. We have applied a qualitative research
design to investigate the value creation and the value capture process of over 30
crowdsourcing platforms, and we have examined the building blocks of effective
crowdsourcing-based business models. The findings are applicable to innovators
of entirely new business models and to managers who need to reinvent or complement their existing business models. The experiences of today’s thriving platforms
can help startups and established businesses work out the kinks that come with any
new business model.
Thomas Kohler is an Associate Professor of
Marketing at Hawaii Pacific University and a
visiting scholar at UC Berkeley and the
University of Innsbruck.
Crowdsourcing-Based Business Models
In essence, a business model explains the process of how a company creates
and captures value;4 it represents the architecture of the value creation, delivery,
and capture mechanisms an enterprise employs;5 and it helps us understand how
the firm is embedded in and interacts with its surrounding ecosystem.6 For Amit
and Zott,7 a business model is a bundle of specific activities (activity system) to satisfy the perceived needs of the market, along with specifying who conducts which
activities and how these activities are linked together. They suggest that changing
the governance of the activity system is one driver of business model innovation.
Businesses built upon a crowd are novel, particularly because they change the
governance of who performs the activities that satisfy the needs of the market.
Crowdsourcing-based business models consist of three elements. First, companies building their business upon the crowd need to adopt an open business model.8
Opening up certain processes and resources to external creators can transform a product into an interactive platform. This makes a significantly greater set of resources
available to the company and allows it to share ideas and technologies with others.
Second, crowdsourcing platforms leverage technology to exploit social networks, peerto-peer technologies, user-generated content, and mobile connectivity to invite users
to participate in value creation activities. The internet’s high degree of openness and
connectivity as well as the immense reach and the richness of information have stimulated many new participatory methods of how value can be created and consumed.9
Third, these business models transfer value-creating activities to a crowd. By taking on
certain activities, crowd members co-create value with the platform provider or by
interacting with other groups of users. As the platform leader,10 the company facilitates interactions and exchanges along the entire process of value creation.
The possible constellations of crowdsourcing-based business models go
beyond the dyadic interactions between corporations and individuals that are
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2016 to August 2017.
Crowdsourcing-Based Business Models: How to Create and Capture Value
typical for co-creation or user innovation projects. Categorizing by who-sells-towhom, Boudreau and Lakhani propose three types of platform business models
for external innovators: integrator, product, and two-sided platform. For each
model the company takes a unique position within the value network that links
creators and consumers.11
§ In the integrator platform model, the platform takes contributions from the
crowd and sells them to consumers. The platform owner has a relatively
high degree of control and is able to shape developments by owning the
relationships with the end customers.
§ With the product platform model, creators build on top of a technology or a
basic product and then sell the resulting products to customers. In this case,
the creators directly transact with end customers. The platform owner contracts with the creators or influences control through the technical design
of the core technology. A company pursuing this model seeks to establish
its technologies as the basis for a platform of innovation. In this inside-out
open innovation, a company utilizes external paths to market.12 Successful
product platforms create innovation ecosystems where the platform benefits
from any value-crating member of the ecosystem.13
§ On two-sided or multisided platforms, creators and customers interact directly.
The two sides can overlap when the producers are also consumers.
The Potential of Crowdsourcing Value Creation
According to Teece: “A good business model yields value propositions that
are compelling to customers; achieves advantageous cost and risk structures; and
enables significant value capture by the business that generates and delivers products and services.”14 We discuss the strength of using crowdsourcing to generate
good business models along these characteristics.
Company-centric business models often fail to systematically and continuously meet changing user needs. Crowdsourcing-based business models are
increasingly considered to be the answer to fast-changing user needs, shorter
product life cycles, and an increasingly competitive climate.15 Turning users into
creators gives the company insights into what customers really want and hence
offers a compelling value proposition. Rather than developing products behind
closed doors that might fail to meet the needs of the market, crowdsourcing often
relies on input throughout the product development process to align needs and
offers.16 Thanks to the interdependencies among business model actors, thriving
platforms grow rapidly because of network effects. More creators will attract more
consumers, which in turn attract more creators. These dynamics increase incentives for business model participants to stay and transact within the platform.
Crowdsourcing firms depend both on internal assets as well as the resources
that the crowd contributes. By getting users to create value for the company for free
or for a small fee, the company’s cost structure can be substantially better than
those of their competitors. Reducing fixed costs such as salaried employees often
translates into higher operating margins. By leveraging users’ resources, platforms
are able to get complementary skills and assets as well as broaden their talent pool.
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Crowdsourcing-Based Business Models: How to Create and Capture Value
This in turn results in higher productivity for companies. Collaborating with a great
number of contributors can reduce the time it takes to get new offerings to market
or to solve problems. Consider the example of the Quirky community. Since its
launch in 2009, it has created almost 400 products. This is unlikely to be matched
by companies that rely solely on closed internal development. Quirky crowdsources
the entire product development process and coordinates activities from collecting
initial ideas to naming the product. Then, it manufactures and distributes the products online and through retail partners.
Many crowdsourcing models are structured in ways that improve risk structures.17 The integrator platform often employs collective customer commitment
where users are asked for their vote or commitment before the product is manufactured.18 Threadless employs this strategy. Unlike a traditional t-shirt manufacturer
that employs designers to come up with new products, Threadless is built upon a
creative and passionate art community of 120,000 designers who compete for
designs that will be produced by the company. The crowd is also involved in evaluating the quality of submissions and helping to market the products. Two-sided
marketplaces share the risks of delivering products and services with external
parties. Airbnb is a good example. It became the largest hotel chain without owning
a single hotel (and the associated risks).
The success stories of companies embracing crowdsourcing-based business
models illustrate their effectiveness in enabling significant value capture. Lego
Ideas, for instance, is highly profitable by sourcing the product ideas from the
community and then selling them through their mass-market channels. Every
product co-created by this community has sold out. Many two-sided platforms
also successfully restructured value capture. The iPhone App Store, for instance,
operates as a marketplace that takes a cut from each transaction, which goes to
the bottom line.
Crowdsourcing platforms that manage to build a thriving crowd as a resource
are hard to imitate by competitors. Replicating the technology for a platform is a
considerably smaller challenge compared to replicating its community of creators.
The Challenge of Designing Crowdsourcing-Based Business Models
Many companies setting out to exploit the affordances of the internet to establish a crowd-driven business struggle to build and scale their platforms. Consider
three illustrative examples of companies who failed to deploy a business model based
on crowdsourcing. CrowdSpirit,19 the former collaborative platform that enabled
communities to design innovative products, is one example that failed to deploy a
business model based on crowdsourcing. In 2007, it was praised as one of the most
promising startups at a TechCrunch conference. However, in 2013 the venture
folded and the founder admitted: “Hopefully, the concept of asking a community
to crowdsource products was fine and did work fine, but our business model was
totally wrong.” Another failure is Myoo Create, a company that employed crowdsourcing contests to tackle environmental and societal challenges. The hope that
users are driven to use their skills to help and are not motivated by prizes did not
materialize. After less than two years, Myoo Create disappeared.20 As the case of
Genius Crowds exemplifies, an initial traction with crowdsourcing projects often
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2016 to August 2017.
Crowdsourcing-Based Business Models: How to Create and Capture Value
does not translate into a thriving platform that is needed to repeat the successes. The
platform strived to help individuals bring their ideas to market, was able to build a
committed crowd of 5,000 active users, and partnered with companies such as Mattel
to run contests. However, after three years, they closed down after announcing that
they had to reevaluate their business model.21
Why do many companies struggle to create an effective business model built
upon the crowd? Why do most crowdsourcing platforms never take off? Why are
they difficult to sustain and scale? One explanation is that crowdsourcing platforms
coordinate an astonishingly complex array of human actions that require a different
set of skills. Considering the shifts that occur when moving from a traditional business models to one that is built upon crowdsourcing, some key challenges include:
§ Role of the Customers: From Passive Consumers to Empowered Co-Creators—Embrace
customers as co-creation partners rather than as consumers at the end of
the value chain requires new business models. Organizers need to provide
the appropriate structure and incentives to motivate users to participate in
value co-creation.22
§ Role of the Company: From Selling Products to Enabling Interactions—Crowdsourcing
allows the radical alteration of the long-standing role of companies as the producers. Instead of hierarchical and centralized decisions, crowdsourcing leads
to distributed input, decision making, and ownership. Success is less a function
of traditional product design than system engineering. Competition shifts from
value delivered by the product to value creation enabled by the platform. The
challenge for business strategy is how to enable interactions and orchestrate the
company’s and the crowd’s activities.
§ Value Creation: From Linear to Networked—Crowdsourcing has created a new
logic of value creation.23 While traditional business models work in a sequential fashion, with the company as the creator of value and customers as the
consumer of value, today everyone can create and contribute to value creation. Crowdsourcing-based business models are networked and call for different strategies and activities to enable value creation. If companies aim to build
a crowdsourcing platform with traditional strategies, they are setting themselves up for failure.
§ Value Capture: From Centralized to Distributed—Companies opening up their
business models to follow a more collaborative approach are challenged with
issues related to value capture.24 Before the advent of crowdsourcing, value
was mostly captured by transferring ownership to consumers through a sales
transaction or charging customers for a service. Since the value is created in
interactions and not transferred in a one-way transaction, the power is shared
between the company and the crowd. This calls for new models of value
capture to account for the contribution of value-creating participants.
Description of the Research
We focused on the business model and its components as our unit of analysis. To start our qualitative empiric study, we explored a diverse pool of over
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2016 to August 2017.
Crowdsourcing-Based Business Models: How to Create and Capture Value
100 crowdsourcing sites. For each company, we analyzed the value creation and
value capture mechanisms by studying the platform and available publications.
Next, we narrowed down this initial selection to 35 cases for an in-depth analysis
based on certain criteria. First, we aimed to collect diverse cases with different forms
of crowdsourcing processes. Second, we chose sites that have crowdsourcing as a
core standalone platform, rather than those involving peripheral and time-limited
crowdsourcing projects. Third, we were particularly interested in platforms with
solid traction. To estimate the traction we identified key metrics around the
number or value of the unit that is created on the platform.
To generate data we conducted interviews with managers (n=35) and crowd
members (n=14). We interviewed executives and managers to understand the
company’s business model design and how they engage the crowd. With the participant interviews, we aimed to gather insights about their motivation and their
perspective on the value co-creation and co-capture aspects. Primary interview data
was complemented through observations of the platform and publicly available
material. All interviews were transcribed and coded. To guide our analysis, we added
a “crowd layer” to the business model canvas developed by Osterwalder and
Pigneur.25 We chose this structure because the template has gained significant recognition among practitioners and scholars26 and studies demonstrated its usefulness
for generating business model innovation.27 We studied similarities and compared
differences to identify common patterns of crowdsourcing-based business models.28
We asked the company to verify the final case write-up for correctness. Exhibit 1 lists
the cases, segmented by primary platform type and captures the interviewees.
EXHIBIT 1. Case and Interview List (n = 49)
Platform Name
Platform Type
Interview Partner(s)
Athlete Originals
Appirio
eYeka
Distributed Proofreaders
IdeaConnection
Innocentive
Innosite
Lego Ideas
Local Motors
NineSigma
Integrator
Integrator
Integrator
Integrator
Integrator
Integrator
Integrator
Integrator
Integrator
Integrator
Threadless
Integrator
Open@Citrix
Product
AirCasting
Kaltura
Keen IO
Product
Product
Product
Kaltura
Kaltura
Product
Product
Founder
SVP, Crowdsourcing and Strategy
Research Fellow
General Manager
CEO
Marketing Manager
Manager
Head Of Open Innovation
Head Of Innovation
Senior Director Of Strategic
Marketing
Former Community Partnerships
Manager (Informal)
Community Manager & Individual
…
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