Crowdsourcing: Move Beyond the Buzz, Consider the Costs

If you monitor the blogosphere like Fuentek does, you undoubtedly have heard about  “crowdsourcing.” The term can take several forms but, in the tech transfer realm, crowdsourcing refers to Web-based systems where organizations with a technical need (seekers) can post their problem (challenge) and allow “the crowd” (solvers) to offer up their ideas for a solution.

This type of crowdsourcing is basically the spin-in equivalent of posting your technology licensing opportunities on your organization’s tech transfer Web site or through online services to achieve spin-out success. In short, it is passive marketing, dependent upon the right people finding you at the right time. Ay, there’s the rub.

Don’t get me wrong: Passive marketing is an important arrow in your quiver when it comes to getting tech transfer deals. (Check out this example of a passive marketing effort that sprang to life.) Passive marketing provides a low-cost means for getting your technology (or need) “out there” in the hopes that someone looking for (or offering) a technical solution will find it and connect with you.

My concern with spin-in crowdsourcing is that I’m not sure the “low-cost” aspect is happening. I’m worried that organizations are not factoring in all of the cost aspects of the crowdsourcing model for open innovation. (I also have serious concerns for the solvers who are contributing their creativity without adequate compensation, but that’s another post.)

So let’s consider costs of crowdsourcing for open innovation and tech transfer so you can be sure to include all of them.

As far as direct, out-of-pocket expenses, there is the set-up fee, fees for each challenge you post, a financial prize to the solver, and a “finders fee” to crowdsourcing service if a solution is found (usually a percentage of the prize). But that’s not the whole picture.

These costs are on top of the internal costs you incur for any effort to look outside your own walls for a technology solution:

• Identifying the needs that are appropriate for external sources for solutions (check out Section 1.0 on pages 1–3 of this paper where I discuss the importance of screening the need)
• Writing up an effective description of the need to be solved (see Section 3.1 on page 6 of the same paper)
• Sifting through the proposed solutions to separate the wheat from the chaff (not unlike the technology screenings used to identify commercialization opportunities) Note: I suppose some of the crowdsourcing providers offer this service… for a fee.
• Developing and implementing the solution

There is another aspect of the crowdsourcing model that is often forgotten and yet dramatically affects the costs. That is: Most solvers in the crowd are independent individuals, not companies. This carries some additional risks/costs:

• They might not have the right expertise to create relevant solutions, which adds to the sifting costs without increasing value.
• They might lack the industry knowledge to recognize that their solution has switching costs that make it unviable, which adds costs for analyzing whether those costs outweigh the benefits.
• They likely have not done the research to know if their solution is infringing on an existing patent, which means that their solution is unusable without incurring the additional costs of obtaining a license.
• They are unlikely to have the resources needed to contribute to further development in collaboration, which means the seeker bears all of those costs alone. That or the seeker now has to seek out a partner for collaborative development, which adds yet another cost.

Plus, maybe that partner had the solution you needed all along. Is the solution coming in through crowdsourcing truly “outside the box”? Or might this same (or an even better) solution have been identified if you had gone through more proactive approaches to forming collaborative R&D partnerships.

I’m not denying that the crowdsourcing successes are out there. I saw a video about innovative solutions to sanitation problems in rural India that were identified and are now being worked on. How great! (That is, the story was great; the music was awful.)

But I do wonder about the return on investment for crowdsourcing. The data I have seen on the percentage of ideas submitted that resulted in awards do not indicate the value of those results versus the costs to participate. If a company has $100K to spend, does going the crowdsourcing route really end up being more cost-effective than a targeted, strategic, proactive approach to finding sources of external technology solutions?

If you have experiences with crowdsourcing (good or bad), I would love to hear from you. You can share your experiences privately via our Contact Us page.

UPDATE: On July 27, 2011, StartupBeat ran an article further elaborating on my concerns with crowdsourcing for tech transfer. You can read it here.