Monday, October 18, 2010

Crowdsourcing: Customers' design power

Let me introduce a furniture business with no warehouse - and no inventory.

Instead, products are "crowdsourced".

This is how it works. Visitors to the website are encouraged to submit their designs. The best of these are worked up into prototypes, and posted on the website. Registered members of the community vote. The most popular pieces are then available for pre-order - made in China (unfortunately), shipped by container and delivered directly to buyers from the port.

The designers are paid nothing upfront - but receive 5% royalties on successful designs, which Mr Li maintains is above the industry average. It also motivates the designers to promote and market their 'own' products.

By going directly to manufacturers in Mr Li's native China (of course), he says the company can offer high-quality furniture at (cheap prices) discounts of between 60-70% compared to traditional (European and US) high street retailers.

"People buy things from very valued brands. They buy from an importer, who buys from an agent, who sources it from elsewhere. Each time a mark-up is added, sometimes it changes hands three to four times."

"You can sell cheap furniture for a cheap price, but that's not a bargain for consumers. The only way to create a bargain is to create quality furniture for a good price.

"How do we do that? When you link the consumer to the manufacturer there are huge areas of opportunity." (Big savings in not paying designers for their designs i.e. the IKEA effect)

Defining crowdsourcing

Crowdsourcing isn't new. Wired magazine's Jeff Howe, defines it as "the act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call."(which ignores the impact on designers and the null price attached to their work and skills)

Companies who have embraced it include Procter & Gamble. Their Connect + Develop initiative gave birth to the Swiffer range of cleaning products. InnoCentive crowdsources solutions to R&D problems; chipmaker Intel is looking for the home phone of tomorrow; industrial giant GE is offering $100,000 for a green electricity grid, and Crowdspring deals in design. (Clear corporate and financial benefits to removal of designer costs from product creation and development)

It's the internet, of course, that makes crowdsourcing possible - on a global scale.

So is turning your customers into both creative director and chief of research the ideal low-cost model for business?(which is great unless you are a professional creative director or designer)

John Winsor is the author of Spark: Be more Innovative through Co-Creation and chief executive of Victors & Spoils, an ad agency built on crowdsourcing principles: "First of all it's a lot cheaper, and secondly you get a lot more diversity of ideas, so those are the big advantages, and the speed - you get hundreds of ideas in a matter of four or five days. Great ideas come from the edges."

(Clearly you will get a wave of new ideas of variable quality, because there is no cost, filtering or selection criteria carried out. In the same way, you would get lots of applicants for a highly paid CEO position if you asked for no qualifying criteria or relevant experience)

Even the evangelists of crowdsourcing admit that there are pitfalls. "The biggest caveat is the issue of curation. It's great you opening the gates up to everybody - but all of a sudden you're going to get a lot more stuff."

To cope, ever more companies offer to help setting up crowdsourcing solutions. Mr Li, though, feels that the technology doesn't need to be onerous.

"We take very good photos, with a solid, fast website. We have a technical team so everything's been built in-house. The voting section for instance, this kind of feature is very easy to design."

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