Crowdsourcing: social phenomenon in monetary markets

Today, probably everybody has heard about crowdsourcing. However, do you know what is it? More importantly, do you know why do we do it? How do firms exploit it? And what are the implications for competition?

This post starts a short series on crowdsourcing. We will have a closer look both at psychological aspects and market consequences:

• How concept of money changes personal and interpersonal behavior?
• Enterprise 2.0 and social networking within corporation
• What drives people to contribute for free?

Today we start with general information about crowdsourcing, definition and examples.

What is crowdsourcing

—First time this term was coined by Jeff Howe in June 2006 in Wired. Howe presented crowdsourcing as a

"business model that leverages the power of online communities for profit". 

"Wired" cover: June 2006

It combines 

"the best aspects of open source production and outsourcing".

According to Wikipedia —

“crowdsourcing is defined as the act of taking a task traditionally performed by an employee or contractor, and outsourcing it to an undefined, generally large group of people, in the form of an open call.”

There are three main pillars of crowdsourcing:

• —Collective intelligence: a million heads are better than one 
• —Crowd wisdom: aggregating the individual solutions of many is often better than collaboration for problem solving 
• —New media technology (Internet): helps cast a wide net to harness this talent

The power of the crowd

Empire State Building

Facebook 1bn users spend on average 8 hours per month on the site

= 8 billion hours per month

= 266 million hours per day

Empire State Building took 7 million man hours to build. Time spend every day on Facebook is enough to build 38 new Empire State Buildings every day!

Why do users contribute?

They contribute for a sense of collaboration and trust. Below are the main drivers for users' contribution:

• Collect participants’ resources or data 
• To get a reasonably immediate rewards 
• Social rewards, being part of the community 
• Reputation 
• Self expression 
• Altruism 

If you are interested in how concept of money changes social behavior, stay tuned for the next post.

Source: Cook, Scott. "The contribution revolution: Letting volunteers build your business." Harvard Business Review 86.10 (2008): 60-69.

What are the advantages for companies?

1. —Cost advantage. These sites enjoy free “raw materials”, ex: eBay, an online store with no inventory 
2. —Scalability advantage. Contributions of countless people can be aggregated into vast compilations that surpass traditional offerings. Wikipedia has ten times as many articles as Britannica. 
3. —Competitive advantage. The network effect put in motion a spiral in which increasingly more people choose to use and contribute to it.