Jeff Howe, a contributor to Wired, coined the term "crowdsourcing" in June 2006. His book, Crowdsourcing: Why the Power of the Crowd is Driving the Future of Business, looks at the evolution of crowdsourcing and the industries and companies that benefit from the open call for ideas. He finds crowds have driven innovation at many companies, and could be particularly relevant for product development and Web 2.0 strategies.
BTN: What is crowdsourcing?
Jeff Howe: The technical definition is taking a job once performed by employees and outsourcing it to a large, undefined group of people through the form of an open call, generally over the Internet.
Since you coined the term, has the definition evolved?
People have used crowdsourcing pretty loosely...but it's [grown] to include not only when a company outsources jobs once performed by employees to the crowd, but when people come together of their own accord and begin performing that function, and I think that function is a fairly common use of crowdsourcing. It doesn't have to start with the company, sometimes it starts with the crowd... and then companies get involved and sort of exploit that labor or compete with it.
How has crowdsourcing been used for product development?
One of my favorite examples-because it's old and underpublicized - is that certain consumer electronics companies, boutique makers of audio components for audiophiles, have established very close relationships with their audience because their audience is so knowledgeable about products. What we've seen is that these core users have taken it on themselves to help design the further iterations of these products.
....[IBM's] IdeaJam is 24 hours; people propose their ideas for, basically, "What should IBM be doing?" Since IBM is so big that can run the gamut of just about anything. People vote on the winners and IBM selects like 10 ideas and then funds them, sometimes with a lot of money. We've seen a number of these spring up since then.
And the most famous example that's in the news now is Dell. Dell's recent product launch of nine laptops and desktops all featured innovations and details that were generated through Dell's IdeaStorm, a neat product design community where they use salesforce.com software, which I'm a big fan of. I think it's a very simple model for how these things will operate moving forward.
How is crowdsourcing different from other forms of product development?
Someone at a conference asked me, "Are people using crowdsourcing to find a needle in a haystack?" My answer is not really. In traditional command and control management systems you know you need a needle. We have the inversion of this logic with crowdsourcing; in this case you say a needle might work, but it might not. We're going to let the crowd go through the haystack. One person might say, "Hey, I found this key, will this work?"
How can banks leverage the crowd?
There are a couple ways in which crowdsourcing is manifesting itself in financial services. The stock market is, in a sense, crowdsourcing. Markets are, in theory, the ultimate manifestation of the wisdom of the crowd... A price point should reflect the collective judgment of everyone participating in the market. How do we determine the price of a commodity? Through the market; we give it to the crowd and the crowd determines the price.
Above and beyond that, there have been companies over the last several years who have really tried to very explicitly tap the wisdom of the crowd to guide stock portfolios, equity investments; Marketocracy is a good example of that.
Within retail banking, there have been a number of firms - I only remember [U.K.-based] Zopa - [that engage in] peer-to-peer lending. Peer-to-peer lending is a real phenomenon. According to [Newsweek] there was several hundred million dollars that had changed hands as part of peer-to-peer lending. That's still a drop in the bucket compared to overall bank-lending practices, but significant - that's a lot of money.
There are a lot of efforts to tap the crowd's knowledge and its powers of judgment...It would make sense to me if a bank wanted to crowdsource, "What would make our loan program more attractive to you? What could we offer you in a checking account?" Those kind of ideas.
Could crowdsourcing help financial institutions with their Web 2.0 strategies and reaching the Facebook generation?
I would probably argue that any company large enough to have a marketing department should have a Facebook strategy....but the very last paragraph of my book says, "Ask not what a community can do for you, but what you can do for a community." That really should be driving banks or any other company moving into Web 2.0: What services can I offer? How can I attract people?