President Obama ‘crowdsourced’ a part of his political agenda with his initiative, which embraced the conversation and allowed users to identify topics that were important to them and vote on their relative importance. The addition of social media tools and philosophy to the mix resulted in a perfectly ordered list of the political issues that mattered most to US citizens.

In the last ten years the innovation landscape has been deeply transformed through the emergence of several new innovation patterns and trends, and the entry of new technologies and ways of understanding collaboration. The open innovation paradigm is a natural evolution of an ongoing social change: in order to be successful, companies need to exploit both their internal ideas and technology bases, and also to draw on any other resources available. In a globally connected world, knowledge is globally distributed, requiring the involvement of new external actors in the innovation processes of companies.

However, all this is easier said than done: in addition to the cultural and organizational barriers to collaboration, there is the complexity inherent in integrating new technological actors into the innovation process.

Several authors are suggesting that it is imperative that we centre our innovation efforts on the key piece in the business chain, the one that controls the buying process: the customer/user (Von Hippel’s user-centred innovation or Stephen Shapiro’s customer-focused innovation). However, what would happen if we adopt a very broad definition of ‘user’ and address almost everyone?

A social approach to co-creation

The term crowdsourcing was coined by the editor of Wired magazine, Jeff Howe, and combines “outsourcing” and “crowd”. The concept of crowdsourcing is based on the cocreation principle, meaning that both customer and enterprise can create value together. In a typical crowdsourcing scenario, value is created when an organization presents a problem to a large base of users, usually with the promise of a reward for a solution.

The success of this concept is based on the application of the ‘long tail’ principle to knowledge: inside the organization we would hope to have several experts with a good knowledge of a limited set of topics (the more frequent and important ones for the enterprise). But what about the rest of the world? Externally, there are many knowledgeable people, whose knowledge may not be so intimately linked to the technical topics of interest to our company, but with interesting and original ideas. So why not exploit this knowledge?

The best known approach to crowdsourcing is in the context of ‘ideagoras’ or marketplaces, where companies advertise challenges with the promise of monetary rewards for their solution. Ideagoras are companies whose business model is two sided. The subsidized side (the crowd) is used to entice companies to pay to use the platform (the monetizing side). Some of the most renowned players include Innocentive, WorthIdea, Yet2Com o Ninesigma.

Real world examples

Crowdsourcing can be applied not only to make use of established markets to involve the internet ‘crowd’, but also to more tightly target the customer/user base. For example:

  • Netflix organizes an annual contest, which pays handsomely for the best improvement to its Cinematch recommendation algorithm;
  • P&G (see previous article) uses crowdsourcing in its Connect&Develop programme;
  • Fiat, through its MIO initiative, found out by asking the community what attributes they wanted of a car, and decided to release them through a Creative Commons licence.

Some facts on crowdsourcing real- world application

Crowdsourcing may be an interesting and profitable approach to innovation, but before applying this concept in the organization, it is necessary to ensure that it makes sense for the market and for potential users. It is necessary also to be fully aware of its limitations:

  • Management of contributions is a difficult aspect of crowdsourcing, since potentially hundreds (or thousands) of users will propose one or more ideas or solutions;
  • Dealing with contributions of widely differing quality: Sturgeon’s Law states that ‘90% of everything is crud/crap’. Clear guidelines and criteria must be established to rate and filter contributions;
  • Intellectual property (IP) management: If an idea were to be chosen, who would be the owner of the results or royalties? This can be approached in several ways ranging from the prerequisite of waiving IP rights in favour of the company, from revenue/royalties sharing. Whatever the solution decided, the rules need to be defined and agreed in advance.

We should clarify also that:

  • Crowdsourcing does not mean that a company can dispense with its R&D function, even if it eventually adopts crowdsourcing as its main innovation process: It must manage the innovation strategy, and translate the problem so that it becomes understandable and can be broken down into discrete parts;
  • Rewards drive results: to achieve wide collaboration some kind of motivating factor is needed and rewards must be proportional to the difficulty of the challenge. Rewards need not be in the form of money. There are several other substitute/complementary ways of enticing users to join a crowdsourcing initiative, ranging from reputation (ego rewarding) to rewards in the form of company products or refreshment vouchers;
  • Using talent and knowledge outside the organization’s (or event market’s) standard can give access to completely new ways to solve problems. Goldcorp, an underperforming Canadian mining company, launched a pioneer crowdsourcing initiative. It challenged the crowd to identify new gold veins, offering a 1 million dollar reward. Since the contest was initiated, 8 million ounces of gold have been mined. Most intriguing is that the 1,000 participants included geologists, mathematicians, retired physicists, students and even ex army officers – a very diverse crowd.

Social Media, the secret of a successful initiative

Once crowdsourcing is characterized and understood a typical practical question that arises is how can I use it? It seems quite difficult to manage’. The answer is to use social media. Social media refer to the technology, tools and interactions designed to share content and engage users in conversations, focusing on relations as well as content. Social media includes also the philosophical aspects of collaboration.

To cope with the need to involve the user in the innovation process and to reach valuable knowledge outside the organization, the binomial crowdsourcing + social media is exploited to democratize innovation. What would happen if users took on some control of a crowdsourcing? Social media allows the more tedious tasks to be delegated to the crowd, by applying the principle of auto-organization:

  • if users are allowed to vote on the most interesting ideas or proposals, the result is an ordered list of what the crowd believes to be the best ones. Of course, lobbyists should be guarded against. President Obama crowdsourced a part of his political agenda through his initiative; he embraced the conversation and let users propose the topics that were important to them, and to vote on them. The result was a perfectly ordered list  of the political issues that were the most important to US citizens;
  • If a company allows participants to create groups and share the prizes, viral phenomenon and social media becomes a very powerful couple: DARPA organized a contest to find 10 red, weather balloons that had been released across the US and were visible for just 24-hours. The winning team, a crowdsourcing initiative managed by MIT, found all 10 (located in 10 different states) in just 8 hours and 52 minutes, with a reward of $40,000 (MIT used an inverted pyramid reward schema to encourage the help from others).

It can be seen, therefore, that there are many innovative ways to crowdsource company initiatives, ranging from logo design contests or startup project funding to selling t-shirts. The possibilities are limited only by the limits to the imagination and willingness to try a different approach to innovation. So companies should experiment. The prizes might be big and the risk quite small.

By Javier Megias, Branch Director at GMV

About the author

Javier Megias is Branch Director at GMV, an international company based in Spain, where he also acts as member of the R&D board. He is specialized mainly on Innovation management and IT Governance, and his current consultancy and research work encompasses the social and economic impact on companies/government of innovative collaboration approaches. He also acts as an expert on the Information Technology (ICT) area for FP7 European R&D programme, and is member of the CEN (European Committee for Standardization) group for Innovation management.

Javier teaches Innovation and Strategy on several master programmes, and has published a number of papers and articles in various Journals and magazines. Javier has also coauthored two books and is a frequent speaker in conferences on social media, innovation and start-up strategy (given he is also a private investor or “Business Angel”).

More information about Javier can be found at his blog,