Monday, February 25, 2008

Crowds

I met with a young company a few weeks ago at a local coffee house. The company's name is catchy, a bit cavalier. What does [company name] mean? I asked. Well, it's this, and this, and this. Hmmm. To the embarrassment of the entrepreneurs, I turned to a few fellow caffeine heads: When you hear [company name], whadya think? Universally, they contradicted the company's perception.

Ask a similar sample of folks what they think of "crowds". Their response -- my perception -- would be negative. Who likes crowds?

As we explored here, here, here, here, and here, crowd-funding/sourcing/decision-making/ideation/company creation/most anything is hip. The common thread: Harnessing the opinion of many to collectively make an informed, cooperative, better-than-the-experts decision. It works and it's cool.

Josh Catone proffers a thorough overview of crowd-centric business models, Crowdsourcing: A Million Heads is Better than One. He evidences household examples (Google and Wikipedia, among others) -- and back-alley models (Cambrian House and CrowdSpirit). Catone's take:

Crowdsourcing can be looked at as an application of the wisdom of crowds concept, in which the knowledge and talents of a group of people is leveraged to create content and solve problems. The official definition from the term's originator, Jeff Howe, is "the act of a company or institution taking a function once performed by employees and outsourcing it to an undefined (and generally large) network of people in the form of an open call."

Crowdsourcing can be broken down in to three categories:

1. creation (like Wikipedia);
2. prediction (like Yahoo! Buzz); and
3. organization (like Google).

A poignant example is PicksPal:
PicksPal is a sporting event prediction site that allows users to vote on amateur and professional sporting events. The site is set up like a game, allowing you to spend points to try and beat the odds makers - you win or lose points depending on the accuracy of your picks and how ambitious you are. PicksPal awards weekly prizes, like sports tickets and flat screen televisions, to the top performing players. PicksPal says they have over 100,000 users ...

PicksPal sells "genius" picks, based on the picks of their top performing members, to people betting actual money. So far the site is doing pretty well. As I write this, they have a 52% win rate against the spread for their last 25 picks, and they report a 63% win rate overall.

Catone asks: Can crowdsourcing be successful at creating products, predicting markets, or organizing data? He suggests four rules to help fuse success in tapping the wisdom of crowds:
  1. Crowds should operate within constraints.
  2. Not everything can be democratic.
  3. Crowds must retain their individuality.
  4. Crowds are better at vetting content than creating it.
To me the efficacy of crowd-based decisions and business models is based on the obvious (the wisdom of many) and the less obvious (the obscurity of participants). Individuals acting individually in a collective endeavor mitigate their phobia and distaste of crowds and maximize the returns of the collaborative. It's a contemporary cooperative with the reach of millions.

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Post-script (28 Feb 08): Interesting, relevant and timely Springwise post reviewing Kluster, a crowdsourcing platform. Quick take:
By offering a set of sophisticated project management tools, Kluster aims to enable crowds to develop new concepts. The system is currently being demonstrated at the TED conference in Monterey, where the event's attendees will be able to work together to create a product prototype in 72 hours. (Rapid prototyping machines and a team of modellers are standing by.) Kluster wasn’t developed just for tangible objects though. It can also be used to create brand identities, plan events or for any other project that would benefit from crowd input.
I love it, particularly their engage-and-reward participants model. Members can earn ‘Watts’ (the local currency) by helping solve problems (bringing new things to light?) or suggesting refinements or enhancements. They can also invest their Watts, and can cash out if a project is purchased by a third party. Investments grow along with a project’s value, and a member’s stake is based on how much he or she has contributed. Springwise wraps:
At the very least, using Kluster will let them interact with their most dedicated customers. Smaller companies, meanwhile, can use Kluster as an instant research and development lab, enlisting (and rewarding!) the community to help ‘flesh out’ ideas that they might otherwise not be able to develop.

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