Prizes are generally set up such that someone posts an issue they want resolved or work they want done or a community of enthusiasts works to give an award for work around a specific area on an ongoing basis (Threadless). They set their price for successful completion and anyone can contribute – professional, amateur, moron, and genius alike — that is where the power arises. A winner is chosen and the prize awarded. The issue, though, that many have with this approach is that it can be exploitative and opens up businesses to… let’s say ethical challenges, in that the work is completed in some cases and the company can abscond with your work without paying.

Further, looking at it from an economic perspective: if you post a $300 reward for a logo and 50 people do, say, $150 worth of work each, that is a total of $7500 worth of effort. Or $7200 worth of “wasted” effort. (Of course many of these people might be doing this for fun as a hobby or with free time in which case it’s not technically wasted effort but effort that would not have been utilized in the first place.)

Some controversy has arisen around these, particularly in the design worlds: Pros hate it because it lowers prices paid for work and potentially the quality of the work (in their view), amateurs love it given that this creates a way to make a few extra dollars doing something they love anyway, and small businesses who might not have been able to afford professional prices obviously benefit. It is distinct from spec work in that spec work entails one professional or company creating a work in the hopes of selling it but without any guarantee or prior commitment from anyone that it will be bought.

A variety of sites which will be and have been covered in the past here employ this strategy so here are a sampling of them:

Competition examples:
99designs
Threadless
Crowdspring
Idea Crossing
Fujitsu-Siemens Innovation Contest
Netflix Prize

Related:
Derek Powazek - Pixish, Spec Work, and Graggers
The Power of the Prize

Open source software, citizen journalism, crowdsourcing, user-generated content, social networks, the sharing economy, peer production, Multi-User Virtual Environments, participatory media, collaborative creativity. Distributed capitalism. These are all terms in the rapidly expanding lexicon of the field of ‘user-led innovation’. For much of the 20th century business operated on an enterprise logic of ‘managerial capitalism’ which maintains that value is created by organisational producers and is stored inside the products and services they sell.

Quoting Eric von Hippel:

Historically the assumption has been that manufacturers are the innovators, they go and they look at users, understand what they need and then develop something in response. We then went and looked at the histories of innovation and found out that very often, very commercially successful products actually had been developed by users at the leading edge of a market-based trend first. So it appeared that in fact innovation was user-led, which means that the users actually develop prototype products and show their value and use of what they really want.

These lead users (who can be viewed as pre-early adopters, creating their own solutions) have entered into an increasingly ideal epoch in which more and more tools are available every day to innovate: tools of media production and distribution, rapid fabrication tools such as widely available laser cutters and 3D printers, communication with other enthusiasts, etc. This distributed capitalism is the result of the democratization of innovation that Eric Von Hippel wrote about in the aptly titled Democratizing Innovation

.

Below is a great classification of four successful and productive user-led niches:

If you ever find yourself scratching your head about exactly what I am talking about, I would highly recommend reading the report.
(Also wanted to say Hi to Paul.)

This is not to denigrate any of these areas, it is simply to say that they have been applied to so many areas since then as to make them essentially meaningless. Of course, Web 2.0 itself never had a narrow, well-defined meaning — O’Reilly’s initial description of it was a slide with about 25 bubbles on it each with a different concept in it.

It is not the crowds producing the wisdom but the individuals in the crowd whose collective wisdom creates value. Dave Winer agrees saying “I am not part of a crowd, I am an individual” There seem to be two distinct things going on: tapping into the collective individual intelligence of a group of people (prediction markets, Threadless picks, popularity, ratings) and tapping into individual contributors or empowering individual contributors to participate in something that would classically be taken care of within the firm, via a contract with another firm, or via a professional relationship (what Jeff Howe would consider true crowdsourcing).

So, unless you are tapping into a crowd and, in the end, paying someone in that crowd to produce work that you would classically outsource or hire externally for, you are not crowdsourcing. You are likely creating a community, tapping into the wisdom of crowds, getting feedback, and on and on. The very fact that there are so many different things going on, is why I am — VERY slowly — working my way through a multi-part look at every different aspect of what is going on and how it will effect business and communication.

Thus, I have returned to the site in an attempt to revitalize it with a new, cleaner, less bug prone design and to begin posting once every couple of weeks again. The content may evolve a bit as well… we’ll see. My next post will be Part 4 of my on-going series covering the overarching topics of this site.

Be sure to subscribe and enjoy.

Eric von Hippel speaks at MIT about Lead Users (Video: Part 1 and Part 2):
Lead users in certain segments are working together to drive the manufacturers out of the innovation process.  Companies are freely revealing to others so that others can improve on it. An example of lead users in action: Kitesurfing, which was developed by users.  First, manufacturers stepped in, then Saul Griffith posted his designs online and others did too. Each manufacturer had 1 or 2 engineers, but then aerodynamicists from NASA started joining in and brought their tools with them.  These lead users drove manufacturers back out of the design busines.  Users collaboratively built tools and designs.

Linus’ law: the reason you want a lot of people looking at a problem is that they all look at it in different ways.  Given enough eyeballs all bugs are shallow.

Users innovated historically but collaborative user design is becoming so efficient it will drive manufacturers out of design.

Johnny Chung Lee: A perfect example of lead user innovation: 
Not only has he dones these wicked things with nothing more than cheap parts and a Wii, he is the creator of the poor man’s steadycam, and wowed the audience at TED.

Freakin awesome Future of Making Map from the Institute for the Future:
Check this out for an incredible overview of many of the topics and companies covered on this blog.  Categories covered are: Networked artisans (Threadless); Citizen R&D (Lego Mindstorms, Innocentive); Lightweight manufacturing (Ponoko); Personal design and fabrication (reprap); From closed IP to open innovation (theoscarproject.org).

This type of technology is similar in spirit to that found at Crowdspirit, Spigit, and Kluster, to be discussed in a future installment of this series, but the aim is different – and much more difficult to pull off. While these are unestablished companies looking to the wisdom of crowds to create totally new products and work up the design, the Dell’s and Starbuck’s of the world are looking for popular ideas to use as jumping off points for their internal experts to mold and launch.

As Charlene Li and Josh Bernoff would say, this is the “Embracing” portion of the Groundswell – though I would argue it is also a “Listening” activity on the companys’ part. As a commenter on the Groundswell blog mentioned, the only way this works is if it is supported and promoted within and outside of the company. The fact that a company follows up on ideas is an essential way to improve contributions and return visits. Simply slapping your own SalesForce Ideas up on your company’s site will do nothing for you if you don’t promote it and actually incorporate it into the regular functioning of your company.

Getting feedback without some kind of action, whether that be an explanation why the company can’t implement it or examples of successful implementations, will lead to failure.

(I have included below a set of companies that, while they do not have an open process available for voting, they do accept submissions over the web from anyone with an idea or relevant intellectual property. Not quite there, but interesting that companies are opening up, nonetheless.)

Examples of open, digital suggestion boxes:
Dell IdeaStorm
SalesForce IdeaExchange
My StarbucksIdea
IBM ThinkPlace
Cool Software

Throw it over the wall and hope they buy it:
P&G Connect+Develop
Ideas4Unilever
Staples Invention Quest (closed idea competition project)
Kraft
Shell’s GameChanger

Read previous posts:

Part 1: Figuring out crowdsourcing: What does it mean? What’s working? What isn’t?
Part 2: Crowdfunding, Investing and Donation 2.0

Extremely cool and definitely effective, Crowdfunding is a viable application of these principles. Of course it is: it’s been going on for centuries via investing in companies and projects — but now it’s so much easier and transparent of a process. No longer focused on commercial enterprises, any enterprise in need of funds can connect the long tail of people interested in a particular topic, play, artist, film, event, political candidate, even a niche knitting and crocheting site to bring together small amounts of money to raise what is needed. Raising money from fans to record an album, for example, would have been prohibitively difficult in the past, but now a band can easily offer free downloads, take payment, show progress, and keep fans abreast of developments.

And this extends beyond simply an alternative for funding but can also be applied in untold new ways. Case in point: what about crowdfunded investigative journalism?

Verdict: Viable and ripe for experimentation.

Examples of crowdfunding:
Album recordings and band support: Sellaband, ArtistShare, SliceThePie, VIP Band Manager.
Soccer club takeover: MyFootballClub
Fashion: Catwalk Genius, nvohk,
Community funding: Liverpool Culture Cafe.
Creating a film: A Swarm of Angels, Its Our Movie, FilmRiot, IndieGoGo,
Content creation: Countless blogs seeking donations, Ze Frank, Fund A VLog, Democracy in America.
Loans: Prosper, Kiva, Zopa, Lending Club.
Brewery Funding: BeerBankRoll
Journalism: Guerrilla Journalism Fund, Assignment Zero
Software: MicroPledge
Political fund raising: ActBlue
Music festival: Tennents Mutual
Tools for crowdfunding: Crowdfunder, FirstGiving, BountyUp, Fundable, Global Giving
VC decisions: VenCorps

Resources:
Crowdfunding Wiki
P2P Foundation
Know The Music Biz

Read previous parts:
Part 1: Figuring out crowdsourcing: What does it mean? What’s working? What isn’t?

So, let’s set out with a few of the current names for it and related concepts that feed into it:

The overarching themes revolve around: Crowdsourcing; Outside Innovation; Innovation Networks; the Wisdom of crowds; and Customer co-creation.

These larger initiatives are supported by: Web 2.0/Social Computing; Mass Customization; the Long Tail; Open Innovation; Peer production; Prediction markets; Voting and ratings; Competitions and prizes; Lead users; Transparent business practices; and Democratized content creation and distribution.

(Don’t forget, Sami Viitamaki has a pretty generalized but effective take on how to think about Crowdsourcing in particular with his FLIRT model.)

So, going forward I am going to touch on a variety of topics that will hopefully clear things up a bit. Some of the topics I will cover:

• Crowdfunding
• Prediction markets
• Crowdsourcing: Graphic design
• Customer co-creation and crowdsourcing: New product development
• Home Fabbing and Crowdsourcing: Physical product design and development
• Crowdsourcing: Content creation
• Crowd feedback; or, Business starts to listen
• Crowdsourcing: Problem solving
  
• Many hands make light work: The atomization of work resulting in the completion of massive jobs.
  
• Crowdcooperation
  

All of this stuff is connected somehow, is undergirded by similar philosophies, tools and technology, and methodologies — and I love geeking out about it. There are some powerful changes hidden in all of this and, while many of the concepts have been with us and operating for some time — centuries even — only recently has a confluence of developments led to the ability to really harness it all.

Ideablob appears to be a marketing vehicle for Advanta, a large credit card company, which makes a certain amount of sense. It costs them $120K a year for the prize money and whatever it costs them to run and promote the site, which can only help them in marketing to the small businesses at the core of their target market.  It would be interesting to see what comes of the contest winners 6 months, a year after winning. There is nothing revolutionary here, it is basically a monthly contest the with the small twist of allowing people to vote.

You Be The VC on the other hand is a bit more interesting in that there is some follow up and responsibility there: winners aren’t just released into the wild with $10K to spend on their business, they need to go to Cambridge for 3 months and are provided with office space, advisors (such as Curt Shilling, yup, the Red Sox pitcher, huh?) and other admin/legal support services — not prize money.  It is run by Bang Ventures which is a legitimate investment company with some heavy hitter advisors.

The question remains: does the crowd voting in these cases add any value to the process or is it more of a gimic than anything else?  Any VC will tell you, they would rather go with a mediocre idea/great team than a great idea/mediocre team while the people voting are likely not that worried about the team, just the pizzaz of the idea. Although Bang Ventures is not a VC and don’t award money, they are investing time and resources in these companies.

As these types of sites proliferate it will become harder and harder to bring people into the process and get their feedback.  Threadless works so spectacularly due to their being pretty much first and best in the space as well as the simplicity of the feedback they are looking for.  You can look at a graphic design and make a quick decision… a business idea on the other hand?  A bit more complex.

Only the sites that are extremely compelling will survive.

Further, the more complex the decisions being made, the fewer people will participate and the more focused/passionate/obsessed they will have to be about the topic.