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Betting against the crowd

The wisdom of crowds doesn’t always apply, suggests new research from Kevin Boudreau and Lars Bo Jeppesen.

By Steve Coomber 05 March 2014

The wisdom of crowds doesn’t always apply, suggests new research from Kevin Boudreau and Lars Bo Jeppesen.


This article is provided by the Deloitte Institute of Innovation and Entrepreneurship.


bettingagainstthecrowd

Platform based businesses such as games consoles, smartphones, and social media firms, often rush to attract large numbers of third party developers as part of their business strategy. The idea is that having a lot of firms providing complementary services for a platform – complementors – creates competitive advantage, and powerful cross-platform effects. If more video game developers design games for your games console, more game players will use the platform instead of alternatives. This will attract more games developers, a better choice of games, and more game players – and so on.


For the platform owners the short-term race to populate the platform with complementary services is a risky strategy. It may involve aggressive marketing and cut throat pricing. However, the potential payoff of long-term market dominance or even gaining a small competitive edge on rival platforms is often seen as worth the risk. But while this may be true for traditional corporate complementors, is the same true for a new breed of service providers operating via the internet – the crowd?


Kevin Boudreau, an Assistant Professor at London Business School, and Lars Bo Jeppesen, an Associate Professor at Bocconi University, set out to investigate the value of ramping up crowdsourced complementary services on platforms. The use of crowds as a complementary service provider is increasingly popular. Mozilla, the free software community, which allows people to develop ‘add-ons’ to make its Firefox browser platform more useful, is a good example. In other situations, such as YouTube or Apple’s App Store, crowd complementors rub shoulders with corporate service providers.


The benefits (or lack of them) of attracting large numbers of crowd complementors has much to do with the motivation of the service contributors, suggest the authors. Whereas company complementors are profit motivated, the motivation of crowds is often non-monetary. The research highlights three types of non-cash motivation for crowd members. Direct benefits, such as learning a new skill, for example, are gained directly from engaging in online development. Social interaction benefits derive from belonging to a peer group and interacting with other crowd members. While signalling benefits are obtained by crowd members sending a message to others about their competence or reputation.


The authors predicted that increasing the size of the crowd would have very little effect on direct benefits. Also, interactions among members of the crowd were just as likely to be antagonistic and competitive as social and positive, negating any social interaction benefit. While increasing the size of the crowd makes it more difficult to stand out from the crowd, so signalling benefits were likely to be negligible too.


Boudreau and Jeppesen used computer gaming to study the effects of increasing crowd participation. They analysed data on the complementary development of First-Person Shooter (FPS) computer game engines – over 3,000 instances – between February 2002 and June 2004.


The results were as the authors anticipated: efforts taken to add to the crowd by one per cent would result in a negligible overall effect on crowd productivity and rates of development, a net effect of 0.03 per cent. The message to platform owners is simple. Don’t be tempted to make risky bets on boosting the size of the complementor crowd in the hope of outsmarting rivals and seizing competitive victory. The wisdom from the crowds suggests that it’s not going to work.



Resources


K Boudreau and L Jeppesen, ‘Competing with Crowd Complementors: The Network Effect Mirage’

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