Gary Dushnitsky: How did you get into the crowd-sourcing field in the first place?
Simon Schneider: When I was working at IBM 10 years ago I saw the limitations of big companies dealing with their external environments and a changed world. I was working in New York City after 9/11 and the sudden customer demand for security products caught us by surprise. Our model of in-house solutions for everything was becoming unsustainable and I saw the need for big firms to morph into becoming networks of solution providers.
Crowdsourcing as a word didn't exist yet but it was clear that the internet connected everyone and the opportunity to tap into the knowledge and wisdom of the external crowd of customers, suppliers and partners became apparent.
After I left IBM I did my MBA at London Business School where I founded a startup that become Europe’s leading crowdsourcing platform, helping big companies and governments to find new innovations from outside their firm. In five years we gave out over $5 million in prizes to the crowd, but more importantly we achieved a seven-fold ROI for our customers in terms of cost savings and impact, measured by a UK government study.
A few years later in 2012 the industry leader InnoCentive successfully acquired our startup (Omnicompete) for several million dollars.
What are the driving forces encouraging companies to open up their innovation to the crowd?
There have been two trends converging over the last decade, which have forced companies to open up.
The first is the shift companies are undergoing as they see a need to cut costs and deal with increased customer demands around product personalisation and a changed landscape. Emerging peer-to-peer exchange models are threatening the traditional distribution models of companies and forcing a complete reset of thinking, says Gartner Research.
This changed environment has already put a few old and closed companies like Kodak out of business, while open innovation pioneers like P&G have shown impressive results. The good news, according to research at Harvard Business School, is that companies, which do end up creating open networks actually achieve eight times higher value and revenues than any other business model.
The second and perhaps even more powerful shift has been that consumers actually want to be involved. They want an interactive relationship with brands -- this was confirmed by a 2014 study by the PR giant Edelman Group
And as Bernard Hours, the COO of Danone recently put it at a conference: “On the internet a brand is a person. It's not only a relationship with a product, it's something which is offering services, which connects with people, which answers questions.” So the real reason why companies need to open up is because their customers demand it.”
And as the demand for openness has increased the crowd-sourcing sector has evolved.
Looking back over these first ten years of crowdsourcing I reckon we went through a similar evolution to the internet itself. We mainly saw publishing models and passive user behaviour, dominated by InnoCentive and NineSigma, in the 1.0 version. GE started its open innovation hub at that time too, which was all about broadcasting needs to a wider, connected audience.
We then moved to the self-service and interactive 2.0 world, which gave birth to YouTube and blogging. In the crowd economy this led to the emergence of ChallengePost, 99designs, Kickstarter and others who enabled individuals to post challenges and crowdfunding projects to the crowd.
Now we are in a 3.0 word where the internet is all about self-immersion and smart companies have realised that value is created not by focusing on the needs/challenges but rather on the crowd itself and content. Leaders in this crowd-3.0 world are Quora, Spiceworks, ResearchGate and Stack Overflow, who create knowledge and focus on making knowledge visible.
What are the main challenges facing firms that attempt to pursue open innovation (OI)?
There are three.
1. Getting real user engagement from the crowd
Ten years ago we thought the model was that we served the user who had the question or problem and treated the crowd as a supplier. In reality that is a non-scalable model – though, as the famous internet model holds that one per cent ask or start an activity, nine per cent respond and 90 per cent just browse content. Focusing on the answers created by the crowd is a much smarter engagement model as it focuses on the nine per cent of people who by responding create content for the 90 per cent and in a side effect solve the seeker’s problem too.
We saw that problem in our $500K Global Security Challenge every year, where we ended up with a global winner, 500 losers and one happy US government client whose problem got solved. One way we dealt with that problem then was to create many regional final events where we awarded about 50 semi-final winners who used the visibility and the people they met at our events to get over $120 million in venture funding. But the first crowdsourcing competition company that went further than us was Kaggle, which introduced points for top positions in every of their data competitions, so they could produce a global digital ranking of data scientist – which is a high motivation for these users.
2. Loss of control
To be successful in OI, you need to give up some control. It's a partnership with the crowd, not a one-way street. This is also the biggest hurdle for companies to even start OI programmes because they feel uncomfortable sharing ideas and knowledge in such an open way. Starbucks and Dell are a good examples of being committed to implementing the best ideas from its crowdsourcing platform every year. But here are hundreds of others where the company used the OI idea to get outside ideas but then decided to not implement them – for whatever reason.
The problem with that second approach is that you cannot ask the crowd again for advice, input, ideas if you are not seen as taking them seriously. Many OI initiatives also never see the light of day because CEOs realise that such openness comes with loss of control and hence is shelved. That is unfortunate because when big companies then launch “semi-open-innovation” programmes that become unsuccessful, it's OI that gets the bad reputation not the failure of the CEO to open up and let go some of their power.
3. Give up too early
We have seen many OI initiatives with low adoption rates in the first year because it is new, there are no precedents and people want to see how it works first. Many famous challenges like DARPA’s Urban Challenges were first unsuccessful but they stuck to it, repeated them and went on to great success. So companies need to understand that and plan accordingly with low initial expectations and medium-term commitment. As in everything in life a crowdsourcing programme needs to become a brand by itself that somehow gives recognition to its winners/participants. The only way to do that is over time. In our own Global Security Challenge, in the first year we got 50 entrants and the prize was $10,000 – but in the second year we skyrocketed to $500,000 in prizes and 600 entrants. Why? Because we had build a brand around the OI programme and the crowd saw that last year’s winners got follow-on funding and government contracts due to their participation. In our corporate world we are often planning short term and quick wins, but I believe that OI is a long-term innovation and customer engagement tool for your company, so plan accordingly.
And so what is the future for the crowd economy?
As in any other industry, there is a massive switch to the digital world that will be mobile-first and where people require personalised experiences with brands. Mass-broadcasting is out and brands have to find a way to become “like a person” on the internet by opening a dialogue with customers, employees, partners and investors. Going back to Maslow’s hierarchy of needs, companies which open up and fulfil the self-actualisation and recognition of their stakeholders’ ideas and knowledge will master this new digital world. Firms which find ways to turn their customers into heroes will create unprecedented value.
MyStarbucksidea.com is a great example of how to build a direct relationship with consumers online. They are solving it with a crowdsourcing platform for ideas for over 150,000 customers who can initiate and vote on coffee ideas. Starbucks gets free R&D and focus group work done and the customers feel like an important part of the company.
If Einstein had an MBA he would have applied his famous formula of E=MC2 to business. As in the Enterprise value equals the Mass of your customers times the velocity of Communications, squared.
The laws of physics may not change, but those of business most certainly do!
Ten years ago I would have never envisioned a world in which people would like to provide ideas and knowledge for free. We thought we had to always beg, plea and financially reward them for their contributions. But actually we have seen that the need for visibility and building a digital personal brand is becoming more and more important for the new generation of knowledge workers, who need ways to stand-out and demonstrate their knowledge.
For instance, Stack Overflow has done a great job by making programming knowledge visible where millions of programmers answer and publish great insights in order to get ranked in this field and to show off their expertise.
We see also see this exemplified in our ZYNCD white label installations at customer networks where we achieve user-activity rates of 56 per cent, which are much higher than any corporate social networks. We create high quality business knowledge and solutions – by helping business people to make their knowledge visible.