Entries in crowdsourcing (18)


The Transcapitalist swan song: a summary of two years exploring the technology & free markets intersection

After 177 posts spanning nearly two years, Transcapitalist is going into hibernation. I have loved writing here, most of all for the opportunities to meet other people who think like me (and those who didn’t and told me why). Highlights of the experience were co-hosting Tap the Collective with Inkling Markets, participating in Ignite DC and Ignite Baltimore with my talk Web Capitalism Doesn’t Need a Bailout (a summary of the Transcapitalist philosophy), and having the opportunity to interview people at many of the companies that I most admire.

When I got started, there were three emerging constructs that really excited me: social lending, peer-to-peer e-commerce, and prediction markets.  As this was late 2008 at the height of anti-market fervor in DC, what struck me about these platforms was that they were essentially distributed marketplaces, largely self-policing, transparent, efficient, community-driven, and enabled by the internet. At a time when much of the political rhetoric focused on how the market had failed, these seemed to be constructs that offered a purer and non-exploitative example of how market capitalism could and should work. Transcapitalist began with this idea – to explore the intersection of technology and free markets – with the presumption that the former had the potential to transform the latter and for the better.

My viewpoint evolved through the course of writing here and discussions with others, but I still think that web capitalism has a lot to offer our traditional view of market dynamics. I’ve summarized my thinking on these topics below, linking heavily to previous posts with more detailed coverage.

In the face of tightened financial conditions, new investing and borrowing mechanisms are emerging ranging from the “personal IPO” to crowdfunding. Peer-to-peer lending remains a viable alternative to banks for both borrowing and lending at small scales with better rates for both sides of the transaction.

Largely in response to the credit crunch and the restrictions of the current financial marketplace, interesting financial innovations emerged over the past few years. We were particularly intrigued by the new concept of selling a percentage of your future income in exchange for a cash investment up front, which I referred to alternatively as the Personal IPO, or “taking yourself public” or “selling your personal equity”.

Another emerging construct which holds promise is crowdfunding. We came out early with enthusiasm for Kickstarter, a platform to match creators and artists with funding through, and we’ve been thrilled to see it take off ever since. The first real example at scale was set by Trampoline which sough to crowdsource its Series B funding. We loved the trend for mobile payments like Square for merchants and Venmo for repaying friends. More troubling financial innovation is on display at eToro which aims to create a “Zynga for real men” in the world of foreign exchange trading.

However the most prominent innovation is in p2p lending which experienced great change over the past two years as they sought to create an entirely new financial product and asset class. The original innovators Lending Club and Prosper Marketplace made it successfully through the SEC process (which at the time was far from certain as Prosper alternatively opened and closed), while promising privacy-focused hybrid upstart Pertuity Direct folded.  What began as a platform to browse individual profiles prone to adverse selection is now a more scalable steamlined dashboard experience to select target characteristics from vetted borrowers in order to create a custom portfolio. Since opening my Lending Club account, my discussions with their team and continuing healthy returns (~10%) encouraged me to expand my portfolio, and I plan to keep up my investments there for some time to come. The appeal of p2p lending is that it is simple and commonsense: by cutting out the middleman of the bank and lending directly, investors earn better returns and borrowers pay lower rates. Why give that spread to the bank? However, even with high interest rates and the credit crunch, p2p lending has not gone mainstream. Uncrunch America was an effort by a coalition of non-traditional finance platforms to encourage people to look beyond the bank, but it’s not clear that the message was heard.

More niche markets also emerged to mixed results. Yadyap (“payday” spelled backwards), which aims to provide an alternative to the payday lending market, has yet to get off the ground.  On the other hand, People Capital has secured significant financing and during my interview with them, they impressed me greatly with their concept of a Human Capital Index to replace the FICO as the credit evaluation metric for young people. Unithrive seeks to connect Harvard students with alumni who can provide interest-free loans. Vittana targets helping students in the developing world.

Internationally, internet-enabled market-based practices are introducing new concepts to traditional international development approaches.

Muhammed Yunus, godfather of the microfinance movement, pointed out that Grameen Bank’s microfinance investments performed steadily through the financial downturn where other lending arrangements failed and could be a means to “return the economy to health”. I keep a small amount of money with MicroPlace, interest-bearing investments in microfinance institutions in Nicaragua and Uzbekistan, which each send me $0.50 or so every month.

In China, p2p lending is a nascent movement, as  CreditEase offers a p2p lending platform to institutionalize informal lending practices, and Qifang employs clever cultural pressures for repayment, including posting the pictures of family members to shame defaulting customers.

I greatly admire Acumen Fund’s approach to international development, which seeks to invest in targeted local ventures, providing an example of a free market solution providing social good. And one of the top startups of the past couple of years is socially responsible outsourcing nonprofit Samasource which encourages you to “give work” through paying the poor to do online tasks.

New e-commerce platforms have the potential to cut out the middleman to directly connect small-scale sellers and buyers, but many remain in the realm of gimmick.

Etsy remains one of the most amazing and promising sites on the web. A destination for handmade goods which defied the odds to become the fastest growing e-commerce site, I covered it a full 20 times. It’s a prime example of an open marketplace, from its open API to the Community Council that brings the buyer and seller community together to talk about the future of Etsy, and it serves the artisan community well. Its blog encouraged me to join the outcry against the Consumer Product Safety Improvement Act, and I argued that the community-enforced handmade standards of the Etsy community were an approach to support, not smother with regulation.

I was an early fan of Groupon with absolutely no idea of how huge it would become just a year and half later, but my opinion now is considerably tempered. Also out there with innovative selling platforms are  the cleverness of Gilt Groupe and the fast purchase decisions made through online sample sales, the scam-like approach of Swoopo, and gaming travel deals on Off and Away.

Crowdsourcing is opening up problems sets previously thought as being too complex for non-“professionals” resulting in more efficient and open approaches.

Netflix set the model for challenge competitions as it successfully crowdsourced the improvement of its recommendation algorithm, setting off a trend within government to procure technology and approaches through contests, saving taxpayer dollars.  Other crowdsourcing projects we enjoyed included:

However, when I was ambivalent about its application in crowdsourced design sites such as 99 Designs, I received an unexpected outpouring of support from the design community and a simultaneous beatingon HackerNews by those who believed that this was simply a more efficient marketplace. I was less sympathetic to the artists’ cause when they rallied against the Australian government’s decision to seek citizen photos for its website rather than professionals’.

I was generally unimpressed with crowdsourced Q&A sites like Yahoo Answers, Mahalo, and Aardvark; however, Quora seems to be on to something.

Crowdsourcing was also applied in dumb, troubling, or useless ways, including:


And finally, the two posts that didn’t fit into any clear bucket, but which were the two most read and commented upon posts on Transcapitalist …

After the first release of classified documents, I came out strongly against Wikileaks with “How Wikileaks threatens transparency”, arguing that its actions threatened transparency where it really mattered: between government agencies. All commenters both on my site and on HackerNews disagreed strongly, but I still stand fully behind my original opinion: with the latest release, we see exactly the closing down of information channels that I feared.

Markets at Burning Man” explored my personal experience of the gift economy on the playa and the contrast of the commercialism that is in the outside world before and after the event. The post started a fascinating thread on HackerNews by fellow Burners and Burning Man novices alike.

Thanks for reading and keep in touch.

Melody & Anita



Australian government crowdsources its website photos; artists up in arms

Fighting a losing battle against the rise of sites like U.S. startups 99Designs and Genius Rocket, the No!Spec movement has found some sympathizers internationally. Australian artists are railing against the "worrying precedent" potentially set by their government's new effort to solicit photography contributions from average citizens as part of their campaign to revitalize their tourism marketing.

Nothing Like Australia, the new tourism site features photos sent in from around the country to help would-be tourists get a better sense of the real Australia that they can experience. Professional photographers, meanwhile, are upset that the government is willing to use free photos rather than relying on professional photos, saying,

Refusing to license these photographic works in an appropriate way sends a message that it (government) does not value creative work in the same way as it values other economic assets.

I've been sympathetic to some of the NoSpec! critiques, notably the winner-takes-all approach that encourages quantity over quality design. But the Australian artist response is a bit outrageous: the Australian tourism site is pretty great (better than any comparable city or country tourism campaign that I've seen before) and its strength is surely attibutable to the diversity of the photos submitted by average Australians depicting their way of life (rather than say, perfectly composed sunset and mountain photos typical to such campaigns).

Designers: you are right to demand that your work is properly valued, but pick your battles. In seeking to gain a taste of the diversity of Australia, the crowd of amateurs is more valuable.


America Speaking Out may be the worst community website ever created

Hi GOP, how desperate can you be to attempt to crowdsource your agenda?

America Speaking Out is your attempt to hear the voices of America, but the thoughtless design violates just about every principle of a good community website, featuring pure anonymity, no structure to the "discussion", lame "badges" to reward participation, and zero moderating. The result is a vapid waste, but what did you expect when you failed to put any of your own ideas out there to kickstart a discussion? If you won't take this seriously, neither will the public.

Rep Lungren (R-CA) offers:

House Republicans are offering the country a new set of policy solutions, but rather than handing an agenda down from the Washington DC, we want to include the American people in building it... So to show that the voices of the America people can still make a difference in Washington, we are introducing America Speaking Out and giving citizens a new opportunity to lend their ideas to the creation of a new national policy agenda.

Connecting to the public online to get input is actually a good idea.  But the public isn't here to do your job for you, GOP. A much more effective way to engage would be for you to actually draft a set of policy options, put together the key elements of the agenda, and then let the public comment on, vote on, and prioritize the elements.

Take a page from Less Wrong, one of the best community websites out there. Its model allows writers to compose thoughtfuls piece that are opened to the community for voting (more votes bring it closer to the top) and comments (that are threaded so there is actually a robust discussion). I would love to see Republican leaders compose an opinion piece on each of the elements of their agenda that they then open for annotation and comment.  That's a real way to engage the population in a civil discourse. Soundbites destroy real policymaking; take a moment to write out your argument and post it online. See what ideas stick and which flop. You may be suprised. That would be a discussion worth having.


Crowdsourcing a book club; when will it end?

The adoration of the crowd has really gone too far.

Jeff Howe, of Crowdsourcing fame has "a dream. An idea. A maybe great notion."  He wants everyone on Twitter to read the same book at the same time to form “a massive international book club.” The idea, One Book One Twitter (#1b1t) is modeled after some city programs that took off earlier in the decade and were publicized by local libraries and politicians to encourage, for example, residents of the city of Chicago to read To Kill a Mockingbird in 2002. Howe writes:

“When the program works — and it doesn’t always — it gets more people reading, more people talking and more people generally appreciating the written word. What’s not to like?”

A lot.

Click to read more ...


Most terrifying application of crowdsourcing ever

The term alone is mildly disturbing - "human flesh search" - and its application - vigilatism translated from the online to real-life worlds is terrifying. Simulatenously, it may be one of the more impressive examples of crowdsourcing around. Human flesh searches in China have tracked down individuals accused of wrongs ranging from stomping a kitty to death to instigating the suicide of a young woman based solely on images and videos uploaded to the internet. Intensively active chat room users put together the pieces to identify the wanted individuals' identities and place their personal details online for the community to enact its retribution.

Click to read more ...


Book Review: You are Not a Gadget by Jaron Lanier

The ascendant tribe is composed of the folks from the open culture/Creative Commons world, the Linux community, folks associated with the artificial intelligence approach to computer science, the web 2.0 people, the anticontext file sharers and remashers and a variety of others. Their capital is Silicon Valley...their favorite blogs include Boing Boing, TechCrunch, and Slashdot, and their embassy in the old country is Wired.

Thus Jaron Lanier describes the "cybernetic totalists" or "digital maoists" whose rising influence Lanier fears is leading us down a path of online culture where appreciation for humanity is displaced by blind trust in technology. In You are Not a Gadget Lanier laments recent trends in the online world - belief in the wisdom of crowds, reliance on algorithms for recommendations rather than people,  mashups and other piecemeal appropriation of others' content, templated web 2.0 designs - and argues that this failure to appreciate individual expression in the web world may have grave consequences for creativity and culture.

Click to read more ...


Do crowdsourced Q&A sites deliver any value?

The theory behind free Q&A sites is appealing: ask a question to the masses and someone out there should have the answer. Yet, I'm beginning to think that free advice really isn't so great. Here's why:

Yahoo Answers. Probably the oldest and most known of these sites, the quality of answers on this site is appalling. Maybe worse is the quality of the questions. Perusing the questions can be mildly amusing for a while, e.g., Q: "Can your baby get pregnant if you have sex while pregnant?" A: "The baby can get pregnant only if it's a female. If you suspect that your baby is pregnant, try not to have sex again. You run the risk of getting your baby's baby pregnant and that can lead to complications like an infinite loop." But actually, it's overall more just depressing. I can't imagine the site making a comeback; the people contributing seem to be so useless and the domain of answers is so vast, that smart, new participants can't possibly feel any karma by helping others as the probability that they will be helped themselves is so low.

Hunch. I've written about its weaknesses before, but in a nutshell, the challenge is that the value of the site is entirely driven by the participation of the community. Since Hunch allows you to ask questions about anything, my experience is that across the board, the Q&A engine is weak.

Aardvark. I participate in this community and answer a lot of questions (which I like to think add value), but I must admit that I have never had a question of my own satisfactorily answered on this site. Recent example: Q: "What is a good website to discover apartments for rent in Washington, DC (anything but Craigslist please)" A1: "Craigslist" A2: "Craigslist". Their model makes a lot of sense though: identify what you areas you actually know something about (e.g., cooking blogs, the south of France, decoupage) and questions will be filtered before they arrive in your inbox. Both the questioner and I are better off by not waiting on me to give an answer on something say, sports-related.

Mahalo. It's like a slightly more intellectual Yahoo Answers. They try to encourage the karma factor by awarding "points" for participation, and allowing questioners to give "tips" for good answers, but these points only buy you karate-inspired levels. To attain a black belt, for example, you need 13,000 points. Almost all activity, however is in ONE point increments (with the notable exceptions of 1) initially joining and 2) embedding the Mahalo widget on your website, each which is a one time 50 point add), so this is a ridiculous amount of dedication. I'd rather go after a real karate belt.

What would I like to see? A movement towards niche, small community Q&A sites. By definition, all crowdsourced sites depend on their community for their power and in turn, communities are most engaged when they are focused. I like the attitude of Aardvark, but it is still challenged by how diverse it seeks to be; I am getting discouraged by the number of questions I am asked that I am forced to pass on because I have nothing of value to add. Etsy forums is a good example of a dedicated community question site, but it's not quite at the level of a true decision engine.


Victors & Spoils – the First Ad Agency based on Crowdsourcing Principles

Thursday marked the launch of Victors & Spoils, the world’s first creative advertisement agency built on crowdsourcing principles.

The company is based on the idea that bringing together the leadership and management of an ad agency together with the diverse creativity of crowdsourcing can create a new business model that can change the industry.

The company is still figuring some things out.  The logo and branding for Victors and Spoils will be the first project to be outsourced.  The compensation for designers also seems to be a work in process.  However, the company’s founders have made it clear that they believe that all participants should be rewarded in some form for being a part of the creative process.  As they state in their blog, “members will not only be rewarded for the solutions they develop (both individually and as a group) but also for participating in the community itself.”

In a response to the controversy surrounding spec and to shed more light on compensation, Victors & Spoils explains in another post:

Now if you’re thinking that “crowdsourcing” has gotten a bit of a bad rap lately from the “No-Spec!” movement, you’re right. It has. And we believe those naysayers make some really great points. So another thing to know about our model is that each V&S project will always yield more than one winner (Victors), will always provide more than one way to “win,” and will always have some of the largest rewards in crowdsourcing (Spoils) attached to it.  And perhaps the most important thing to know about our model is that all of these ways to contribute and win will build each creative’s V&S Reputation Score (or better name TBD).”

It doesn’t seem that Victors & Spoils plans to set up their own crowdsourcing platform for the time, but instead leverage existing ones, such as CrowdSPRING, 99 Designs, and Genius Rocket. 

As the company continues to develop its operational process it will be interesting to see what develops.  Will it make more use of social networking principles to build the community that its founders envision? Will decision making be limited to the company managers?  Will it truly become a place where talent is developed, so that even if participants don’t win a prize they win a better chance at a job somewhere else in the long run? I believe that this new company has many opportunities to innovate a new model that truly uses the masses to create a better product.  A part of how successful it will be in doing so depends on how far it is able to limit the “sweepstakes” model.  But there is also room for adopting new and innovative tools and processes.  As the first of its kind, I look forward to following its development.


Kickstarter is the epitome of awesomeness

22 hours to go to contribute to the development of "Put This on: A Web Video Pilot About Dressing Like a Grownup," a project crowdsourcing its financing on Kickstarter.  The project is already 264% funded and it's easy to see why.

Donations can be as small as $2 (with the reward of a warm and fuzzy feeling) to $50 (to receive funding credit in the video) to $250 (earning a personal style consultation with the project's creator), and beyond. No one has taken up the $250 offer, although it is creative rewards like that that make this site so fun to browse.

Contribute to an artist's dream project + concretely share in the experience. So cool.


Taking the prize model to government: innovation, taxpayer savings, greening

Following the model of the Netflix Prize (winners officially announced this past week), the Department of Energy has its own L Prize: $10 million and consideration for future federal purchasing agreements in exchange for inventing a bulb that produces the same amount of light and color of a 60 watt bulb while using only 10 watts of power.  For the government procurement business, known for waste, contractor relationships, and stringent statements of work that hamper creativity, this type of open call for innovation by industry at a total bargain to the government is a welcome approach.

Like Netflix, DoE is implementing a goal-oriented program. Netflix told its participants that it wanted a 10% improvement in its recommendation engine; it did not say how that target should be reached. Similarly, DoE has laid out clear metrics on what the bulbs should be able to achieve, noting the ultimate goal that replacing 60 watt incandescent bulbs in the United States with their LED equivalents as described by the Department would cut carbon emissions by 5.6 metric tons annually; it did not provide the interim benchmarks and deliverables standard in government contracts.

Which gets to a major take-away: By freeing itself from traditional government contracting procedures, DoE has been able to incentivize massive research and development at private companies at a great cost savings to the government. Phillips has already submitted the first entry that is currently undergoing testing in the Department, while other companies are said to also be developing their own alternatives. DoE is also shaking up the lighting industry that has seen very little innovation since the 19th century when the incandescent lightbulb was first invented, by targeting the ubiquitous bulb that has nearly 50% market share in this country. An industry that wasn’t really taking energy efficiency seriously is now encouraged to pay attention. It’s the best type of government intervention: nudging through incentivizing rather than new standards that just pass additional costs onto consumers.

Of course, the prize model has its drawbacks. Just as The Ensemble in the Netflix contest found out upon submitting a winning product 10 minutes after BelKor’s Programmatic Chaos, there is no reward for second place. Three years and thousands of hours of work in this case lead to $0. It’s similar to the critique made of many creative design crowdsourcing sites – participating in prize competitions is inherently risky. Maybe there is a bit of glory in making it to spots 2 or 3, but in most cases, that is not worth the effort expended. When small designers are the ones slaving away in this high risk environment, it’s hard not to feel that something isn’t quite right. However, when huge industry behemoths that have resisted innovation for years are competing for lucrative government contracts, the drawback of this model – a first place winner-take-all outcome – seems to be greatly outweighed by the benefits – fostered innovation, taxpayer savings, and greening.


Unilever Testing the Value of Crowdsourcing

As the heated debate surrounding crowdsourcing in design and marketing rages on, another big name has decided to turn to the crowds for some help in branding.  Unilever, one of the world’s largest fast-moving consumer product companies, recently decided to offer a $10,000 reward on Idea Bounty for the winner of a competition to advertise Peperami, the company’s popular meat snack for children. 

Unilever owns more than 400 brands, including those pictured to the right.

Idea Bounty is a new crowdsourcing platform for designers and despite being less than a year old, it has attracted big names such as Redbull, BMW, and World Wildlife Fund.

Unilever claims this is not a publicity stunt.  In fact  the company believes that crowdsourcing marketing ideas might be a sustainable strategy they would be willing to consider for their other brands as well. The Peperami competition seems to be in some ways their pilot to test the value of crowdsourcing. Unilever’s Matt Burgess, (Managing Director of the division that owns Peperami) indicates that the company sees potential in creative platforms: "We want to get the creative back from 'good' to 'outstanding' again. The best way to increase our chances was to increase the amount of creatives exposed to this brief. This is the overriding driver."

Putting aside the debate about sites such as Idea Bounty or 99 Designs, it is interesting to see Unilever step into this space in such a strong manner.  Unilever is a company that is willing to take risks in the name of innovating ways to stay ahead of its completion.  One example is its Shakti program in India. By partnering with self-help groups it enables rural, poor entrepreneurial women to take on microcredit and purchase consumer goods from small retailers that they can then sell door-to-door and earn income. After several years, some pilots, and alterations, the program broke even, scaled rapidly, and increased revenues by cutting costs, reaching new clientele, and leveraging (while also supporting) local microenterprises to better market its products.   Could Unilver’s decision to crowdsource mark another such attempt to stay ahead of the competition? And if such an attempt is a success, what could it mean for sites like 99 Designs and Idea Bounty?

The truth is that companies like Unilever are not the typical “clients” one might expect at crowdsourcing sites.  Their entry into this field may mark a transformation for creative platforms, (from platforms generally catering to the small guys to ones that have real value for companies earning annual revenues in the billions) and it will be interesting to see the implications of such a transformation.


Crowdsourced product development at Quirky.com

I expressed my skepticism last week over the effectiveness of crowdsourcing creative work and most of the commenters agreed.  I suggested that crowdsourcing at its best should be collaborative, not winner-take-all.

A real collective creativity platform may now exist: Quirky.com is a site to bring "community developed" products to the marketplace.  Would-be inventors submit their ideas to the site, the crowd of Quirky users votes on the best idea to go into development, and then the site community makes decisions on design before the product moves out for manufacturing. The original inventor earns 12 cent for every dollar the product brings in and other contributors also share in the future value of the product.

At first glance, the concept is a big odd. As an inventor, you PAY $99 to share your idea with little chance of it turning into something big and the assurance that, if it does, you've just given up a big share of its future profit. Yet, I still love this site. It's probably not the place to bring your sure-fire brilliant idea, but the site is full of funky, oddball, just-might-be-big proposals for small manufactured items. If your idea is terrible, the site community will let you know so and save you the hassle of moving forward with it at greater expense. If your idea has promise, you'll get objective feedback from a community of interest that may greatly improve the concept. And best of all, Quirky has agreements with manufacturers to actually move a concept into production.

It's a fun way to be an armchair inventor and submit an idea that you've been thinking about for a while --whether it's a "sexy thigh holster carry", "thimble mouse", or "curvy groovy wrist rest" -- and see if it goes anywhere. Surely not a mechanism to profoundly change the world, Quirky is nonetheless a fun collaborative creative community and I like the market approach to rewarding thoughtful participation.


The other side of crowdsourcing

I write about the power of crowdsourcing a lot, from its applications in venture capital to the Netflix prize to funding artistic ventures to micro-volunteerism to patent review. My own blog's header was created at 99 Designs.

Yet...the design community is not so thrilled. Especially with the launch of a campaign by advertising agency juggernaut Crispin Porter + Bugusky to crowdsource the logo of Bramma through the site Crowdspring, designers are railing against what they see as the devaluation of their work.

They may have a point. CP+B will offer a paltry $1,000 prize to the winning design, while the remaining 753 submissions will receive nothing. For Bramma, it's a great deal (although it was certainly a dumb move to hire CP+B as a facilitator): 754 logo choices for a mere $1,000. On the other hand, what quality was lost by having no interaction between client and designer, especially with a short design brief with this gem: " We like the idea of representing a bull...We also like the idea of not representing a bull" ?

Sites like No!Spec argue that language like "crowdsource" hides the basic fact that 99 Designs, Crowdspring and Genius Rocket are essentially design prize sites for speculative work. While I'm not crazy about their tactics, I agree that the term crowdsourcing may be misused. While design sites tout the "community" aspects of their sites, the truth is that they play a winner-take-all game where work is purposefully not collaborative. The power of crowdsourcing comes from when many people working together can achieve something big, like when hundreds of people spend a few minutes each tagging museum photos through the Extraordinaries or when 50 people each contributing $50 can collectively fund an artist's dream project through Kickstarter.

Design sites are fundamentally different. There is no cumulative effort among designers to produce the best result. Rather, each works independently, maybe learning gradually from designs that have been thrown out or voted up, but too much learning and adoption of good ideas is strictly disallowed. These are prize sites, and while I think they still have value for small projects (such as my blog header -- I would have never engaged a professional design firm) and for budding designers (they are a mechanism to build a portfolio), the idea of crowdsourcing design should not be oversold.

Crowdsourcing should be about collaboration to solved problems and make decisions. Even the $1 million Netflix contest saw great sharing and discussions in their forum. Even if a single best idea needs to rise to the top in the end, it should do so because it has been honed by the crowd over time, not because one selector was able to simply take his choice from several hundred disparate submissions.

[Update: Based upon the many comments and conversations that I've had in relation to this post, I should probably clarify my position. The CP+B example is indeed an outlier; most of the entities that choose to use design sites are small (like mine) and simply not in the ad agency market. I would also highlight that designers enter this sites voluntarily of course, so they clearly see some value in participating, making the No!Spec attacks seem a bit sensationalist. The main objectives of this piece were to: 1) discuss some of the reasonable critiques made of the disruptive market power of design sites, since they are often described universally favorably; and 2) question what it really means to crowdsource -- is discovering diverse points of view sufficient or is some greater good of collaboration implied? I would argue for the latter.]


Taking crowdsourcing to the next level at Trampoline

Finally, a successful application of crowdsourcing as an alternative to venture capital investing. Trampoline Systems, a UK-based social analytics business is relying on "crowdfunding" for its series B investing -- soliciting smaller investments of a minimum of £10,000 each to collectively total £1 M.

Trampoline has navigated the difficult waters of regulation to enable this creative approach. We've seen crowdsourcing in action for project financing before at Kickstarter, but there backers are donors, rather than investors, without any share in the future value of the projects that they support. Just as with social lending, it is far easier from a legal perspective to make Kiva work (where loans are interest-free donations) than Prosper (where loans are interest-bearing). With Trampoline's model, nearly anyone can become a mini-VC of sort, funding projects at small amounts and sharing in the returns.

The crowdfunding model lends itself to better investment diversification, although investors likely have little to say about how the company is run. Maybe that is for the best from the company's perspective; when funding is distributed across many investors, each investor has less power and in the end, the company may likely have more freedom of action.

Trampoline isn't sharing the details yet of how they are making this work exactly, but lessons learned from this experiment may be invaluable for both startups looking for alternative financing options in a tough VC climate and for smaller time investors looking to get involved in the VC space.


Success in crowdsourcing project financing with Kickstarter

Andy Baio, of waxy.org, announced today that he is joining Kickstarter as CTO. We've profiled the crowdsourcing-artistic-funding site before and we're impressed to see the growth since then.

As a quick re-cap, Kickstarter enables creative types of all colors to make their pitch online for funding and solicit micro-contributions from family, friends, admirers. While donations are not investments -- donors do not get a share of any proceeds of the project -- a project only receives money if it is 100% funded, reducing risk to both donor and artist.

The site has now facilitated over $250,000 in the 10 weeks since its launch, and that's while remaining invitation-only for artists. What Kiva is doing for micro-entrepreneurs, Kickstarter is doing for budding artists -- through small contributions, as little as $1, people can come together to collectively fund a creator's dream project. Anyone can become an art patron.

Andy's blog today has some interesting insights on success in crowdsourcing financing:

  • All-or-nothing. Projects are only successful if they reach the fundraising goal by the deadline, otherwise nobody pays. This limits risk for both backers and project creators, who don't have to worry about committing money and time to a failed project.
  • Rewards. We strongly emphasize the importance of crafting good rewards, which makes Kickstarter more like commerce than altruism. We support multiple tiers of rewards from $1 to $10,000, limits for each, and tools for creators to contact each tier group independently.
  • Publishing. A simple and powerful reward is access to exclusive updates during a project's funding and development, creating a powerful connection between the audience and project. As a result, we offer publishing tools for public or private updates, including hosted media and update notifications.