Marketing Executives Network Group (MENG) Crowdsourcing Speech - Part 1

On July 17th I was fortunate enough to be invited to speak before MENG on the topic of Crowdsourcing. The following videos are dubed over my PowerPoint slides. My rough notes accompany. Episode one covers:

• “Crowdsourcing” coined by Wired magazine Writer Jeff Howe The Rise of Crowdsourcing. Wired Magazine issue 14.06, June 2006
• Nothing new but the term: Guild systems Granges, etc. practiced “crowdsourcing” long before term was coined (dev of steam engine, Niagara Falls suspension bridge)
• The process is all about people wanting to contribute in a highly social way. Maslow's Hierarchy of Needs top of the pyramid “Self-Actualization”

Tenants are:

• Self organization (naturally gravitating to what members like are good at).
• Democratic decision making (Linux votes / Google links / Wikipedia edits)
• Open systems Linux Wikipedia are free, Google open API / Apps (No good “traditional” economic reason for doing this!)
• Unusual Economic Model: Create the environment and then make money of related services. “Shovels & picks to the miners”
• Customer service via mass collaboration

Discuss early involvement in Aetna KM & Clutrain Manifesto

Marketing Executives Network Group (MENG) Crowdsourcing Speech - Part 2

Below is a time-line of major events in crowdsourcing:

Basic categories emerging over time: scientific research, software development, “market as conversation”, reference, business & entertainment. Said another way: creation, prediction, organization

• GenBank 1982 Open access gene sequencing database. Helped some pharma companies to release their sequencing data to the public.
• Linux code released 1991. 1.9 billion dollars (year 2000 U.S. dollars) to develop by conventional means. IDC, 25% of servers and 2.8% of desktop computers ran Linux as of 2004. http://www.linux.org/. 1999 IBM joins Linux community as do Dell, IBM, HP and the Oracle Corporation
• Classmates 1995. first large scale social networking site
• PHP Web scripting language 1995
• MYSQL Database Management 1995 10 million installs
• Apache server software 1995 runs 58% of web 1998 IBM announces support of Apache (joins community)
• LAMP ･Linux, referring to the operating system: Apache, the Web server: MySQL, the database management system (or database server):･PHP, the programming language. http://www.lampware.org
• Redhat 1995 Redhat makes money by selling subscriptions to the support, training, and integration services that help customers in using the open source software
• Mozila foundation 1998 http://www.Mozila.com #2 web browser Firefox
• Google 1998
• Lego Mindstorms, 1998 allows customers to share "hacks" with each other.
• Who Wants to be a Millionaire 1998 Contestants the option of asking an expert 65% accurate or letting the “crowd” decide 91% accurate
• “Cluetrain Manifesto” 1999 First available on the internet then published. “Markets are conversations”
• “Unleashing the Killer App” 1999 Top five business books by WSJ available for free on the internet “Cannibalize Value Chains”
• Gerson Lehrman Group 1999 150,000 members pooling talent in “councils” Also: Society of Industry Leaders, Nitron Advisors, Primary Global
• Epinions 1999 consumer reviews, now owned by Ebay
• SETI @ HOME 1999 NASA experiment in distributed computing 5.2 million members Guinness World Records as the largest computation in history
• Second life 1999 Linden Labs 6,936,647 residents in 3-d user-created world. Created a virtual / real economy on the web. Companies, universities are buying “real-estate”
• Istockphoto 2000, 23,000 photographers selling pictures from $1 to $40, acquired by Getty Images 2006 for $50 million USD
• Tripadvisor 2000 User reviews of 200,000 hotels & 30,000 destinations
• Innocentive 2001, 70,000 solvers work on scientific problems (must propose solution first) http://www.innocentive.com/
• Linkedin 2002
• American Idol 2002 Originally conceived by Simon Cowell as a means of accurately predicting what artists would have mass appeal
• del.icio.us (pronounced as "delicious ) 2003 A social bookmaking web service for storing, sharing, and discovering web bookmarks
• Myspace 2003, purchased by News Corp 2006 top 5 mist visited web site by Alexa
• Flicker 2004 photo sharing
• Zopa 2004 is a bank that uses "Tanda" concepts to allow customers to lend money in a P 2P environment see also Prosper 2006
• Amazon Mechanical Turk 2005 "Artificial Artificial Intelligence”
• Yahoo! Tech Buzz 2005, prediction market on high-tech companies Google runs internal market to help guide the company
• Lifan uses “localized modularization” to crowdsource motorcycles 7 million units produced in 2005
• Twitter 2006 Micro blog, share updates over instant messaging
• Chevy Tahoe Commercials 2006 Chevy failed to filter customer creations and the campaign failed
• P&G 35% of new products from the outside 2007
• Ongoing: NFL, HP decision market 75% accurate
• The Losers People you don’t see on the chart: Network Television / News. U.S. Auto, Britannica, Microsoft (king of closed systems)

Marketing Executives Network Group (MENG) Crowdsourcing Speech - Part 3

Charting the “Wiki-mobile’s” Progress
Phenomenon did not happen by accident: Our increased connectedness, Availability of free, quality knowledge and a mature market made it happen

Connectivity (Internet) creates environment for:

• Rapid diffusion of best practice: PMP, 6 Sigma, ISO, SOX, CMM
• Mash ups (mix & match technology): LAMP, Google maps, Open Source, Linux in Cars, Linux & (Oracle, Dell, IBM, HP)
• Opening of Quality Knowledge Bases: Human genome, (P&G, IBM Patents), Wikipedia, B 2 B Partnerships, Social / Business networking
• Outsourcing to the Customer / Prosumers:
• Plummeting cost of getting on the web (LAMP)

Paradigm Shift - Give More Get More: many companies realize (by accident) they can profit by letting go of what they once held most dear.

• Boeing & aircraft assembly
• IBM Domino & Linux
• BMW & Assembly (computers & software now 50% of car value
• Kimberly-Clark got out of the paper mill business.
• All of these companies discovered that delivering customer experience was key, not their traditional roles. Treating customers / vendors as partners makes these sorts of relationships possible.

Mature Market (Presenteeism):

• Average age of FORTUNE 1000 company = 65 years. 29,139,291 employees.
• Top 10 employers = 5,437,526 and average age of 91 years. Source “One Source”
• Combined with elimination of defined benefits (pensions), outsourcing and looming universal care.
• Many experienced people are exploring “other opportunities” in consulting &self employment.

All forces working in concert make companies like Innocentive possible

The fact that we (Baby Boomers & Gen Xers) need to apply terms to advanced collaboration like “Crowdsourcing” is a measure of how uncomfortable we are with the process.

• Value shift from independent heroic effort to collaborative effort
• Gen “Y” will not need ask permission to crowdsource

Gen Y is not burdened by this:

• They use online collaboration to do their homework
• Constant communication has always been free
• The building blocks of socialization were largely electronically facilitated (online games)
• Instant gratification
• They view electronics, cell phones & the Web as extensions of themselves we see them as tools

Marketing Executives Network Group (MENG) Crowdsourcing Speech - Part 4

Crowdsourcing Economics

Traditional Companies / Orgs:

• Characterized by vertical (silo) integration
  
  
• Product development is tightly held secret
  
  
• Scale by locking out competition, (Apple).
  
  
• Service is a detractor
  
  
• Vendors are told what to do
  
  
• Innovation is for company elite, everybody else “Shut up and row!”
  
  

Crowdsourced Companies / Orgs:

• Create a market: (Linux, IBM) created markets and then gave away core product. They make money by selling services to that product.
  
  

By giving the product away advantages result:

• Price competition is gone (can not be under sold on core product) IBM nullified competition by joining Linux and giving away product
  
  
• Removes financial strain of developing competitive product (Linux)
  
  
• Lots of smart people will help you develop product (IBM, Lifian)
  
  
• You focus on customer relationship and innovation (profit leaders)
  
  

Goldcorp Case Study

Goldcorp owned a 50 year-old mine in Red lake Ontario. Company geologists knew there was gold in the mine but not exactly where (expensive to make mistakes).

• After hearing of the success of Linux, CEO Rob McEwen had an idea to use crowdsourcing to find the gold.
  
  
• Industry protocol is to NEVER release geological data. EE’s were also concerned over their standing in industry “what you can’t find your own gold?”
  
  
• Interesting people joined the challenge: Students, military, physicists, computer graphics
  
  
• Australian company Fractal Graphics won the competition by applying science of geographic information system (GIS) to the “flat” Goldcorp data. Fractial never visited the mine.
  
  

Marketing Executives Network Group (MENG) Crowdsourcing Speech - Part 5

Kiwi Publishing Case Study

Kiwi is a publishing start up with the goal of distributing books in non-traditional markets. Microengagement deployed our Executive Roundtable approach to solving the challenge of identifying a channel marketing strategy and executing it.

Decision Market Case Study

1996, HP and Charles Plott, an economist from the California Institute of Technology, set out on a joint research project whose aim was to set up a software trading platform for a prediction market at HP.

The participants selected for the research project consisted of 30 product and finance managers from HP. They were each given $50 in a trading account and allowed to sell and purchase contracts on the levels they estimated quarterly sales would reach. For instance, if a manager thought sales would be in the range of $201 million and $210 million, he could buy a contract that would pay at the end of the quarter if his prediction was correct. If he revised his personal estimate throughout the quarter, he would likely try to sell the first contract and buy another based on the new estimate. These markets were open during lunch breaks and after business hours, and lasted for a week. The managers were allowed to keep profits earned from owning paying contracts (correct estimates) at the end of the market. When trading stopped, the contract with the highest price (i.e., under the highest demand from the managers) was deemed the ﾒestimateﾓ of the market. The HP marketing manager estimated simultaneously and independently estimated quarterly sales, as usual.

The marketing manager;s projections missed by 13% during the experiment while the estimate of the information market had an error of only 6%. In further trials, the market estimate outperformed official forecasts 75% of the time. Notorious Flash in the Pan The United States government attempted to put information markets to use. In 2001, the Defense Advanced Research Projects Agency (DARPA), a research think tank within the Department of Defense, began funding a project called FutureMAP (later under the name Policy Analysis Market, or PAM).

"Big Board" Mentality

"To dare is to lose one's footing momentarily. Not to dare is to lose oneself. "
Soren Kierkegaard

As I travel and meet people who are interested in expertsourcing & crowdsourcing there is one often asked question, while understandable, still leaves me shaking my head.

"How can I crowdsource, we are a public company." or "Our secrets will be lost if we involve outside experts."

The best way to answer this question is with a clip from Stanley Kubrick's movie "Dr. Strangelove." There is a scene in the movie where the U.S. Joint Chiefs of Staff are in the war room discussing wether or not to allow the Russian ambassador access to the room. George C. Scott plays a U.S. general who is concerned such access will lead to a "security breach" with the Russians gaining secrets on his "big board." (at end of clip).

The scene is silly but it brings up a good point that is relevant in business. Most companies suffer not as victims of corporate espionage (the "big board" scenario) but under the weight of their own secrecy. If a business never takes a chance and engages its: experts, customers, shareholders, or any other constituency, mediocrity is almost certain. In Short, "You can't win if you don't play."

It is a natural human trait to be proud of our achievements. The general's big board represents his value chain, tanks, planes, all things he is proud of and afraid to share with his enemy. It is the unwillingness to share that prevents him from achieving the goal of meeting with his adversary and preventing WWIII. Value chain analysis is critical in a hyper-connected "flat" world:

• The secrets most businesses think are safe, probably are not.
• A competitor, dumb enough to steal and replicate a business process will likely screw up the execution and end up helping the originator (Microsoft Zune).
• The effort expended in developing a value chain such as: a call center, subscription knowledge bank or, digital rights management system may end up handicapping the value chain owner as less expensive, disruptive technologies emerge.

Many public companies such as P&G, Merck, Kimberly - Clark, and The New York Times realized the threat secrecy represented in the form of protected value chains and disposed of them. P&G takes a chance every time it allows an outsider to develop a product, but not developing the next killer product is an even greater risk.

Tim Gilchrist, Microengagement Co-founder