09 February 2012

How Big Can Crowdsourcing Get?

By all accounts, the consumer submitted Doritos commercial that aired during the Super Bowl was a hit.  People liked its authenticity (cost $20) and Frito Lay saved millions in production costs.  More and more companies these days are turning to crowdsourcing techniques to help solve business problems by soliciting solutions from the general masses.  VC's poured almost $300M into crowdsourcing startups in 2011 as the industry is expected to explode in the coming years. But how big can it get? Will it be the next outsourcing phenomenon that will revolutionize existing corporate structures?  Or will it merely be a niche offering used in more modest contexts?

While the term crowdsourcing has been around since a Wired article in 2006 on the disruption of professional photography industry, it seems to be ripe for growth in the current business landscape.  With prolonged unemployment as the new normal, the workforce has become more flexible and open to part-time, one-off assignments. Many (like AtmaBus :) are willing to volunteer their talents for virtually nothing to gain exposure.  At the same time, companies realize that it is too expensive and impractical to hire sufficient talent for every requirement.  With the ease of internet distribution, companies can take advantage of the readily available cheap labor force.  They can get a broad reach, diverse input, and pay virtually nothing for it.  No need for expensive engineering and marketing departments, right?

Crowdsourcing hasn't deeply penetrated the business world just yet.  Certainly niches like funding and sites like crowdflower have gained steam.  The biggest splash was probably that Netflix paid $1M a few years ago to a team that built a better recommendation algorithm.  By and large, however, corporations so far have not significantly used crowd techniques for substantive tasks.  Many, in my opinion, are using it more for marketing then problem solving.  The Doritos commercial successfully reached its target market; any cost savings was a byproduct.  My fave Sam Adams is soliciting recipes to debut a new beer at SxSW.  Gap used it to test market a new logo on FB.  There are hundreds of contest/user input projects out there right now.   Do these companies care more about the end result or creating a buzz for their new product?  Its probably the latter as I suspect the cost of these projects are hitting marketing budgets as opposed to production ones.

Also, as I wrote about the end of all things free online, user-generated input will slowly increase in price much like traditional outsourcing has.  As crowdsourcing moves out of early adoption, the intersection of demand and supply will become more meaningful.  A pure play crowdsourced  model is also hard to sustain - which is why sites like Huffington Post are hiring more and more writers on staff.

Crowdsourcing can certainly give companies access to new ideas, help build a social following, and optimize certain corporate tasks.  Like all outsourced activities, crowdsourcing comes with its own limitations that must be weighed.  While there is no question crowdsourcing will move into the mainstream in a big way, I don't expect the next corporate structure to be centered around a free/cheap labor model as it is with offshore manufacturing.  In the interim, I'll continue to train my fifteen month old how to say "Where's the Beef?" (hello Superbowl 2013!).