The issues driving success for the 8 major crowd business models
On Monday October 22 I am running Crowd Business Models Summit, where some of the most experienced leaders in successfully building business models based on crowds will share their insights. The event is being run in association with CrowdConf 2012, the leading industry crowdsourcing event.
Here is the overview of the success factors relevant across the 8 major business models (see the Crowd Business Models Framework for details), excerpted from the chapter on Crowd Business Models (Chapter 22 in the first edition, Chapter 25 in the second edition). Explanations of each factor are provided below the chart.
Success factors for crowd business models
For marketplaces and related business models, dual network effects are at play.
The challenge for these models is to develop both sides of these networks simultaneously, unless there is pre-existing pool from an established business. For example, design competition platform 99designs was established out of the existing deep pool of designers on SitePoint.com. This meant that with one side of the network established, only the client side of the market needed to be developed.
Clearly crowd business models by their very nature depend on having many contributors. The two primary characteristics are the breadth and quality of the contributors, however not all business models require both.
In some cases having the largest possible pool of contributors is a fundamental enabler of a crowd business model. This can be attractive to buyers in marketplaces through the diversity of skills available, or in the scalability of access to those resources.
Characteristics of high-quality contributors include domain expertise, keeping current in their field, excellent communication, offering creative solutions, and meeting deadlines.
Contributors have substantial choices in the crowd ventures in which they participate. They will clearly be attracted to broad, deep pools of clients. However the quality of the clients is also important. In the case of crowd services there is just one client, in which case its characteristics will attract – or not – the best providers.
In the case of models such as service and content marketplaces, a deep pool of clients is required to generate sufficient business for service providers.
Clients that attract the most talented providers generally are sophisticated, offer interesting, challenging work, communicate well, have reasonable pay expectations, understand non-financial rewards, and respect the contributors. Where business models are based on crowd service delivery, a significant part of value creation comes from managing client relationships effectively, and thus attracting high quality and high value buyers. Specific skill sets that support success include defining objectives, pricing, managing expectations, and process communication.
There are a variety of capabilities that provide important foundations for crowd business models. Developing and sustaining these will be fundamental to success.
Public reputation measures
A key factor in attracting clients to marketplaces is having relevant and accurate reputation measures for providers, making it easy to find the most reliable, highest-quality providers. Contributors also find it valuable to see accurate reputation measures for the buyers, to maximize the chances of having a good experience.
Internal reputation measures
For crowd services and other models where the providers are not directly visible to end-clients, internal reputation scores that enable the identification of the best providers for particular tasks can provide competitive advantage. In a broader sense, being able to assess and select the most relevant providers for bounded talent pools is a critical skill. This usually requires effective use of interviews, internal tests, and trials.
Project management capabilities
Established project management processes and the ability to run these well is fundamental to any business model that requires service delivery by crowds.
One of the most important yet challenging capabilities needed for many crowd business models is consistent and cost-effective quality control processes. In some cases these can be delegated to providers or crowds within strict processes to achieve maximum efficiency, however there are limits to this depending on the relevant quality criteria.
Project management tools
Clients often use marketplaces as much for the ability to manage projects and multiple providers easily as for the pool of talent they can access.
Content monetization model
While crowds can readily be used to generate content in a variety of formats, effective monetization models are required that link revenue including content sales, advertising, and search advertising with the specific content being created.
For crowdsourced content and product markets, for example for articles such as art, clothes, or merchandise, competence at fulfilment including manufacturing and shipping is critical for success. While some companies outsource much of the fulfilment function, they still need to manage it effectively. Others find there is greater value creation in managing this process themselves, effectively making them crowd-fueled fulfilment companies.