Crowdsourcing As An Effective E Commerce Strategy Business Essay Example

rewarded with some form of monetary compensation, and the company then mass produces the idea for their own benefit. In another article by Matt H. Evans titled "Power of Crowdsourcing", he explains that crowdsourcing leverages the worldwide pool of ideas to help companies go through a rapid design process. Both definitions emphasize that crowdsourcing requires an effective channel to reach the masses, with the internet being the most obvious choice.

The advent of Web 2.0 technologies has empowered individuals to actively shape the web rather than simply browsing passively, thereby increasing the attractiveness of crowdsourcing for companies. Crowdsourcing allows businesses to harness the collective intelligence of the masses to accomplish their objectives. E-commerce enterprises, in particular, are inclined towards incorporating crowdsourcing into their e-commerce strategy, which entails planning and implementing measures to provide products and services online. For companies with existing offline operations, the focus lies in integrating these operations into an online presence by determining the most effective way to represent the company online, establishing essential infrastructure and framework, and engaging in various activities to promote core business functions on the World Wide Web.

The increasing popularity of crowdsourcing can be attributed to several factors in today's globalized market. First, competition in innovation has become incredibly fierce, making in-house research and development more expensive. As stated in "The Global Brain" by Nambisan and Sawhney (2008), these factors - decreasing product life cycles, declining internal innovation productivity, and global competition - create a Red Queen effect[1]. Companies must continually invest more to maintain their market position. Crowdsourcing offers a viable solution by tapping into the vast intelligence of the masses. As former Sun Chief Scientist Bill

Joy highlights, "Most of the smart people in the world don't work for your company." Moreover, this intelligence can be acquired at a relatively low cost.

THE POPULARITY OF CROWDSOURCING

To understand the current popularity of crowdsourcing, this paper references PBworks, one of the world's largest providers of hosted collaboration solutions for business and education. PBworks' wiki provides a comprehensive list of companies that utilize crowdsourcing.

This paper not only refers to the wiki, but also cites Grant Silverstone's article, "Friday Fact Box - Crowdsourcing," for a visual representation of PBworks' list. Two graphs have been extracted from the article. These graphs display industries that primarily use crowdsourcing as their business strategy and industries that incorporate crowdsourcing as an additional initiative without disrupting their core strategy. The charts reveal that most companies utilizing crowdsourcing are in industries that rely on large community networks (such as sales, news, and marketing) and creativity (such as design, advertising, and media). Conversely, industries that require specific skills (like education) and are more systematic (like science and IT) are less popular among companies considering crowdsourcing as a business strategy. Moreover, crowdsourcing is mainly employed in Western countries with well-developed economies and infrastructure.

A key element in the success of crowdsourcing is having a robust networking channel, as previously stated. Figure 1.3 illustrates how companies have incorporated crowdsourcing into their business strategy, with the IT sector accounting for the majority at 33%. It should be noted that renowned industry giants such as Adobe, BMW, and Nokia are among those listed. Both the chart and list demonstrate that crowdsourcing is still a relatively novel concept and not widely adopted by companies as an additional

aspect of their existing business strategy.

Large companies acknowledge the significance of crowdsourcing and have the capacity to invest in it thanks to their substantial resources. This is why the IT industry plays a major role in contributing to crowdsourcing initiatives, as they possess the know-how and skills to leverage the internet for maximizing the potential of crowdsourcing.

Instances of Businesses utilizing Crowdsourcing

In order to comprehend how businesses currently employ crowdsourcing and evaluate its efficacy, it is crucial to analyze practical examples. This article will investigate three companies, each with distinct methods of engaging in crowdsourcing.

Threadless, Amazon Mechanical Turk, and Cambrian House are all online platforms with distinct community-centered approaches. Threadless, launched in 2000 by Jake Nickell and Jacob DeHart, originated from an Internet jersey design competition where the founders received $1,000 in seed money. Rather than relying on a jury, they opted to empower the designers themselves to choose the winner of their design competition. Initially, members of the Threadless community would submit their t-shirt designs online, and then the designs would be subjected to a member ballot.

The person who wins will receive free Jerseys with the winning design, while everyone else will have to buy the shirt. Currently, Threadless receives around one thousand designs each week, but only ten of the top one hundred voted designs are chosen to be published and sold through an online store. DeHart and Nickell have also increased the prize for the winners to $2,000 in cash, a $500 gift certificate ($200 in cash if they trade in the certificate), and an additional $500 for each reprint. Limited batches of shirts are printed and sold, and they will only

be reprinted if there is enough demand from customers requesting a reprint. Occasionally, special competitions will be held in collaboration with different sponsors. These competitions have a theme for designs, and additional prizes, often related to the sponsor, are given to the chosen winner.

How successful was Threadless?

The Threadless community is currently 600,000 strong, generating approximately 1,000 designs for voting each week. In 2006, Threadless successfully generated $17 million in revenues and continues to experience rapid growth. According to Jeffrey Kamikoff, Threadless Chief Creative Officer, the company boasts "incredible profit margins". Each shirt is sold for $12 to $25 and is produced at a cost of only $5.

Furthermore, Threadless does not need to make any advertisement or selling because the community itself will self-perform such tasks. The interior decorators will invite friends and community members to see and vote for their work. Threadless will also reward the community for those who submit photos of themselves wearing a Threadless shirt or refer a friend who buys a shirt with shop credits (worth $1.50 and $3.00 respectively). This crowdsourcing strategy helps Threadless to sell an average of 90 thousand Jerseys a month. However, Threadless has also experienced challenges due to their own success. Their spring sale in March 2008 resulted in significant server downtime, leading to the offer of $50 vouchers to affected customers and the promise to never let this happen again.

"Eighteen months later, Threadless experienced another overwhelming surge of traffic during a special one-day sale on September 9, 2009 (09/09/09). Users encountered difficulties accessing the site for prolonged periods, with some unable to access it at all. This lack of traffic planning was expected from

a company that dealt with such a large social community. It was through these experiences that Threadless began exploring ways to better manage their fluctuating levels of traffic within their infrastructure. Amazon Mechanical Turk, a service launched on November 2, 2005 by Amazon.com, was initially created by Peter Cohen for in-house usage as a way to find additional content for its web pages describing products."

As of 2010, Mechanical Turk, although still in beta, has become a crowdsourcing online marketplace for work. In this marketplace, concerns (known as Petitioners) publish tasks (known as Human Intelligence Tasks or HITS), and workers (known as Suppliers) complete them in exchange for a monetary payment determined by the Requesters. Amazon Mechanical Turk offers concerns immediate access to a diverse and global on-demand workforce, while providing Workers with thousands of tasks to complete at their convenience. This platform specializes in tasks that computers and machines are unable to do accurately, requiring human intelligence. Examples of such tasks include writing reviews or identifying specific objects in images. The process of Mechanical Turk involves companies posting jobs (HITS) on MTurk (the Amazon Mechanical Turk Marketplace) and depositing the payout amount into their MTurk account. Registered members of MTurks, known as Workers, then search for tasks they believe they are capable of performing.

Once workers accept an assignment on Amazon Mechanical Turk, they will be assigned to it without a formal contract. These assignments, called HITS, are relatively easy and quick to complete, usually taking less than 20 to 30 seconds. The payout ranges from 10 to 50 cents. Upon completion and submission of the HIT, the money is transferred from the Requester's prepaid HIT

balance to the worker's Amazon gift certification history. Workers can then choose to transfer the money to their bank account or their amazon.com gift certification balance. Amazon takes a percentage of the payment for each completed task.

Moreover, Requesters have the option to offer bonuses to workers who have satisfactorily completed the task. Apart from the Official MTurk website, there is another platform known as Turker Nation that functions as a forum for workers and requestors to connect and converse about ongoing tasks. Any issues concerning Hits are dealt with on this independent site, which is not associated with Amazon in any manner.

How Successful was Mechanical Turk

Since its launch in 2005, the number of worker members in Amazon Mechanical Turk had increased significantly. By March 2007, there were reportedly more than 100,000 workers in over 100 countries. MTurk is popular with companies as they find that HITS are a very cost-effective way to outsource large groups of similar tasks that are very easy to complete. Companies find the MT "task auction'' model attractive because it reduces payroll costs of having to employ regular workers to perform such tasks.

However, despite the attractiveness of the low cost of prosecuting MTurk to finish HITS, Companies or Petitioners face various criticisms. HITS are often seen as simple and repetitive tasks, with users being paid only a few cents to complete them. Consequently, many individuals have condemned Mechanical Turk as a platform that exploits "slaves". Furthermore, workers are treated as contractors rather than employees, allowing petitioners to enjoy tax advantages and cost savings while avoiding laws regarding minimum pay, overtime, and workers compensation. Conversely, workers must declare their income as self-employment

income. Additionally, some petitioners have taken advantage of workers by making them complete tasks and then rejecting their entries in order to avoid payment.

Amazon.com does not oversee the service and redirects all complaints to the posting of the HIT. Despite this criticism, MTurk continues to attract workers, especially those living in developing economies, because the impact of earning a few additional dollars will be multiplied many times over. Cambrian House, launched in 2006, initially served as a crowdsourcing community that first introduced the concept of harnessing the power of the crowd to generate ideas for websites and software products. Its motto is "You think it ; crowds test it ; crowds build it ; you sell it ; you profit".

Welsh House is a community that connects individuals with different talents and interests to develop and sell web-based products that are in high demand worldwide. Additionally, they distribute the profits earned from these products. Their services cater to busy individuals who desire to pursue new ideas or those with a strong vision and motivation to submit their ideas. To begin, individuals can sign up on the Welsh House website and create a profile highlighting their skills. After registration, they can actively engage in the community by sharing their ideas.

The community will validate these ideas and endorse those that can be put into action. Then, the Welsh House staff will create a website to showcase the winner's popularity and usefulness within the community. If the idea is successful, the team will then seek individuals from the community who have passion and accomplishments to help build or co-develop a commercial version of the idea. These individuals will be

rewarded with Royalty Points (the amount received for originating an original idea) or Cambro (the currency of Cambrian House, where 1 Cambro equals $1 USD). Welsh House will provide funding for the project, and if necessary, they can also seek additional assistance from the community.

Once the merchandise is created, the project owners can then seek sellers, business development professionals, and SEO (Search Engine Optimization) experts within the Welsh House community to handle the promotion, selling, and delivery of the product. Ultimately, once the product starts to sell, every contributing member will receive Royalty Points or Cambro, as previously agreed upon with the project owner. In summary, every member of the Welsh House community can participate not only by providing ideas but also by bringing members' ideas to fruition. There are no limits to the number of projects that members can join. Throughout each development phase, all involved parties will also serve as peer reviewers at designated "decision gates" to assess each individual's contribution.

While Welsh House allows the crowd to participate in the creation and construction of its products, all ideas undergo editorial review by a core team and actual production must adhere to a set of quality guidelines. If there are conflicting code or design elements, the community decides which option is best. An example of Welsh House's involvement in each project is their initial product, a video game, which originated from community forums and gained popularity. As a result, they invested $8,000CAD in a preliminary website to promote the game. The game successfully passed the "market trial" by selling hundreds of pre-orders at half-price ($9.95CAD) in just one weekend. This positive response encouraged Welsh

House to allocate more resources for the next development phase.

Welsh House's ultimate goal is to transform each project into a separate, independently funded house, but only after it has been market-validated.

How Successful was Welsh House

The original Welsh House community was considered successful as it achieved the most important aspect of crowdsourcing by attracting over 50,000 members and generating more than 7000 ideas from the crowd. However, Welsh House did not realize that although the crowd excelled at generating and testing ideas, they were less interested in the building aspect of Cambrian House's model. Additionally, there are weaknesses in the idea-community model, including the challenge of persuading users to evaluate and vote on a rapidly growing pool of ideas, some of which are of relatively low quality. Managing distributed development and dealing with a large number of duplicate entries also pose challenges.

After attempting and failing to secure new capital, Cambrian House announced in May 2008 that it would sell many of its assets to Spencer Trask, a venture capital company based in New York. Although Welsh House will continue to operate as a seller of Crowdsourcing software, its role as a crowdsourcing community has come to a halt. In a letter, Welsh House CEO Michael Sikorsky reflects on this situation, stating: "Our model did not succeed. In short, we became a destination that people preferred to bookmark rather than actively visit. The limiting factor in the startup equation is not ideas, but amazing founding teams."

Our initial belief was that if we had a great idea supported by the community and market trial information, we would be able to find a team to execute it through

crowdsourcing, or we could do it ourselves. Unfortunately, we found that we needed strong teams for each idea, which was a flaw in our model. We realized that it would have been better to have strong teams for mediocre ideas, as most of the work fell back on us or a few select community members. This created a challenging and overwhelming situation for all of us. Therefore, while the concept of crowdsourcing worked well in theory, it was our implementation of involving crowds that failed. It was difficult and time-consuming to find people willing or capable of executing the outcomes of the Cambrian House model.

(Michael Sikorsky, 2008) The lesson from Welsh House is that the crowd simply is not enough as it needs to be managed and needs an inspiring leader to guide it.

How can Crowdsourcing be an Effective E-commerce Strategy?

After examining the definition and examples of crowdsourcing, it is evident that crowdsourcing has the potential to assist e-commerce businesses in gaining a competitive advantage. However, like all business strategies, it does not guarantee success. Nonetheless, crowdsourcing can be effective as an e-commerce strategy by helping companies in five ways. First, crowdsourcing can help companies anticipate the market by utilizing the crowd's understanding of market desires. Companies can also use the crowd to evaluate the appeal of new business ideas. Additionally, companies can gather emerging market desires and trends from the crowd.

Additionally, companies can utilize crowdsourcing to gain insights into market demand and gather information for product and business innovation. By tapping into the knowledge of the crowd, companies can prioritize new business ideas, conduct product trials, determine the next best enhancements for existing products,

and identify ways to reduce costs and improve service. Furthermore, crowdsourcing is a powerful tool for addressing difficult problems that cannot be solved solely with internal resources. By soliciting answers or solutions from the crowd, companies can find valuable assistance and even discover new scientific breakthroughs. Moreover, crowdsourcing can be used to tackle external challenges, such as marketing.

Companies have the ability to solicit the assistance of a crowd for creative endeavors, which can be much more cost-effective compared to hiring a dedicated workforce for similar tasks. This is because companies only need to provide modest rewards to those who contribute to the crowd. Therefore, crowdsourcing can help companies reduce their expenses. However, the effectiveness of crowdsourcing depends on the specific circumstances and environment in which it is utilized.

The paper has determined several important points for effective crowdsourcing based on gathered information. First, the size of the crowd is crucial. For example, if Threadless only has 100 members and selects 10 winning designs per week, there may come a time when members lose interest or question the legitimacy of these winning designs. Additionally, a key aspect of crowdsourcing is that the crowd represents the market, so a larger community or crowd provides a better representation. Second, companies need to comprehend the crowd.

When companies engage in crowdsourcing, their target audience is typically a specific community united by a shared interest. Consequently, in order to effectively crowdsourcing, companies must understand the strengths and weaknesses of this community. For instance, if Threadless decides to request its community to submit computer programming works, they might not receive any submissions or the works submitted might be of subpar quality. Lastly, companies

must have a clear understanding of their objectives and requirements from the crowd.

One important factor that affects the effectiveness of crowdsourcing is the clarity of demands. For example, in Amazon Mechanical Turk, if requesters post HITs with unclear instructions, workers may have difficulty understanding what is expected of them and submit works that are irrelevant or not aligned with the intended requirements. This leads to a high number of rejected tasks, wasting both the company's and the crowd's time and causing inefficiency. Additionally, companies should recognize the contributions made by the crowd.

Monetary wages is one way to incentivize participants in crowdsourcing, but typically people participate for non-monetary reasons. The individuals who contribute to crowdsourcing projects are often casual users who are motivated by a desire for recognition and a sense of belonging to a community. The level of attachment they feel towards the community will determine their willingness to provide assistance on presented projects. Additionally, companies must have sufficient resources in place to effectively manage the crowd and support the output generated by the crowd. Many companies make the mistake of assuming that the crowd will be able to contribute to every aspect of their business plan, but this is not always the case, as demonstrated by Welsh House's experience.

As stated previously, the crowd typically consists of casual participants who are more willing to engage in activities that require less effort, such as providing ideas and suggestions, rather than more tedious tasks like constructing the actual product, which they tend to avoid.

Conclusion

The above discussion has demonstrated that crowdsourcing, when utilized correctly, can be highly effective as an ecommerce strategy. It has the ability to harness

the limitless knowledge of the crowd at a very low cost. Similar to Threadless, as long as the crowd remains motivated, business will thrive as the crowd's knowledge grows. However, it is important to note that there are situations where crowdsourcing is not feasible or practical. Jobs that involve confidentiality, such as lawyers and accountants, as well as high-level positions like business process planning, cannot be crowdsourced.

The company should monitor and provide resources to the crowd for successful manifestation of thoughts, as demonstrated by Welsh House. Therefore, it is not possible to completely crowdsource a business process to the crowd. Internal workforce is still necessary as the crowd may not fully understand the company's business models and goals. These internal employees are responsible for monitoring and ensuring that the crowd's contributions align with the company's guidelines and procedures. Additionally, relying too heavily on the crowd can be seen as unethical and may expose the company to criticism regarding its true societal mission.

Many companies have used Amazon Mechanical Turk to run "practical perspiration stores". Therefore, the company requires a physical workforce in order to maintain its public image.