The Advantages and Disadvantages of Using Crowdsourcing to Improve Your Ecommerce Business

In June of 2006, Jeff Howe first coined the term “crowdsourcing”, mentioning how tasks that would previously have been outsourced were now being performed by crowd outsourcing, or crowdsourcing. In essence, by harnessing the power of group intelligence (i.e., the power of the masses), businesses gain valuable information and commodities at a fraction of their usual cost. Such information and commodities might include stock photography, product and/or improvement ideas, feedback, logos and branding, complaint resolution, etc. Individual members of the crowd can also vote and comment on submitted ideas and products, helping define what is most popular and likely to apply to a sizeable majority of consumers. The originators of the best ideas and products might be compensated monetarily or they might be awarded prizes or recognition. Overall, crowdsourcing saves substantially on the time and other resources required to gain such information while also generating significant consumer interest and brand loyalty.

One good example of crowdsourcing is LG’s “Design the Future” competition. Through a partnership with crowdSpring, LG is holding a public contest for its next mobile phone design. The winner of this contest will be paid $20,000 while other contestants will receive smaller prizes, such as LG phones. The competition has resulted in significant free publicity for LG, as evidenced by the plethora of articles that appear on the search engine results page when one inputs the keywords “LG contest”.

Genius Crowds is another example of a site that takes advantage of crowdsourcing to come up with product inventions. Every two to three months Genius Crowds presents its members with a product category in need of inventions. Members then submit their invention ideas or vote/comment on the ideas that have already been submitted. Most members of this site are awarded status points and gift cards for their ideas and participation on the site; a lucky few are distributed royalties for the products that they help design.

Crowdsourcing offers numerous advantages for your ecommerce business, including the following:

Significant cost savings
Crowdsourcing costs significantly less time and money than setting up an R&D department or hiring consultants. This point is illustrated by the case of Claudia Menashe, who needed stock photographs of sick people for the National Health Museum (1). Even at a nonprofit rate, her costs would’ve ranged from $100 to $150 per photograph if purchased from a professional photographer. However, through an online crowdsource website called iStockPhoto, she paid about $1 for each purchased photograph. Because iStockPhoto has thousands of amateur and professional photographers vying for buyers, prices are set competitively low. Most of these photographers are also not making their living exclusively through photography, so they can afford to receive much less than what a professional photographer would require just to break even.

No or very little overhead
Compensation for crowdsource member-generated ideas and/or commodities can be limited only to those ideas or commodities that are developed. Unlike employees, crowdsource members do not need to be trained for their tasks, retained after the project end date, or provided with work benefits and severance pay. Even the task of crowdsourcing itself can be outsourced; online crowdsource sites can be hired to perform the tasks of advertising the project and gathering interested members.

Free marketing
When presented via social media tools such as Twitter or Facebook, crowdsourcing can become a free and wonderful marketing tool for your ecommerce business. The crowdsourcing project can be used to create awareness about your ecommerce site as well as your products and brand name. Crowdsourcing can also be used for reputation management; for example, if there have been several complaints about one of your products, you can ask crowd members to suggest improvements.

Customer loyalty
Lane Bryant, a purveyor of plus-size women’s clothing, utilizes crowdsourcing to engage its Facebook fans and gain new followers. However, its crowdsourcing approach is not what you would expect; for example, the site asks its fans what color they feel like today. Based on the answers to that question, Lane Bryant’s Facebook manager creates a customized coupon. Such unexpected crowdsourcing approaches have earned Lane Bryant over half a million “Likes” on Facebook. In essence, crowdsourcing engages customers and helps establish their loyalty to your brand. In exchange, you provide customers with a reason to maintain that engagement and loyalty, whether it be through exclusive product information, special discounts, early-bird sale access, etc.

Talent seeks you
When you hire employees or contractors, you must make the initial effort of placing a job posting, scheduling interviews, and deciding which candidate will do the best job. When it comes to crowdsourcing, the best and most talented individuals come to you. Throughout your crowdsourcing project(s), you learn which individuals are best suited to your business and its goals.

Instant hiring/outsourcing potential
The best and brightest members of your crowds can be retained for future crowdsourcing projects or even hired/contracted outright. By researching your crowd members and learning about their strengths, you gain access to a pool of competent professionals that can help your ecommerce business with its future needs. Having such access again reduces your business costs and overhead.

Of course, crowdsourcing does have its detractions. Some of these include the following:

Questionable ownership
Crowdsource sites typically provide terms of service that members must understand and agree to before they can participate in the site. In most cases, these terms of service include a statement about the soliciting business owning the proposed ideas, products and other collateral. Even so, crowdsourcing members do contest with and sue businesses that use their ideas or products. Even if crowd members do not object to the use of their information, a competitor can easily “lift” that information and develop it. Once such duplication is discovered, one or both parties will need to retract their crowdsource-originated items from the marketplace.

Paying more does not improve quality
Some talented crowdsource members will work hard for pennies on the dollar; meanwhile, their not-so-talented cohorts will demand a high price for mediocre results. This is inevitable with any business but it is more prevalent with crowdsourcing because the group consists of a mixture of individuals. In contrast, outsourced and/or hired labor is more carefully screened, and paying more for its services typically results in higher quality ideas and/or products.

Deadweight members
On many crowdsourcing platforms, one or two crowd members will be very productive with ideas and/or suggestions while the other members will merely mimic what has already been presented. If the crowdsourcing platform compensates members based on their level of participation, those deadweight members will receive maximum compensation for minimum effort. Alternately, due to the short-term nature of crowdsourcing projects, members may simply be unaware of or unwilling to learn about all the idea/product specifications that your business requires. This again results in an unproductive crowdsourcing effort.

Wasted timeWhen you hire a few talented professionals to run an advertising campaign or social media effort, it is easy to make quick changes to the platform by simply telling your team your revised specifications. However, when your ecommerce business is dealing with hundreds if not thousands of crowdsource members, it becomes harder to convey your message and make sure everyone understands it. Change inevitably takes more time to implement, which in the business world, equals wasted time. Since time is money, wasted time also equals wasted money.

Bad reputation/marketing risk
Disgruntled crowdsource members can start posting bad reviews about you, your ecommerce business or your products. Disputes arising between crowdsource members can lead to lawsuits against your developed ideas and/or products. Because your marketing plan has been left out in the public eye, almost anyone can gain access to it and tarnish your image (especially if you publish a blatant error or faux-pas). For example, Tim Ferriss garnered a lengthy negative comment and subsequent review of his book cover design contest. Reputation management (or, if need be, salvaging) can be quite a challenge when it comes to the crowdsource platform.

In summary, crowdsourcing can be a useful method for your ecommerce business to start generating ideas and deducing which of these ideas have merit. By harnessing the “power of the masses”, you find out what your customers and the public at large are looking for in your business. The benefits of such an approach are numerous and come at a low cost. Conversely, crowdsourcing also has its detractions, including questionable intellectual rights, lack of member productivity, and the risk of gaining a bad reputation.

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