In this post, I continue my discussion of how these Open Innovation concepts perhaps offer social media marketers an understanding of social media’s next phase.
The End of Social Media 1.0?
It seems the core problem with Social Media 1.0, as principally a communications strategy, is that it does not on its own anticipate any change in the traditional product design or service creation processes.
Think about the way social media campaigns typically connect a company to customers. In most cases teams of social media people chiefly work on programs to amplify the voice of customers, broadcasting it out to a wider realm of customers and would-be customers . The emphasis here is on increasing the total network size. We continue the mistaken viewpoint that increasing influence is about finding more people to influence, instead of deepening the ties to those we have already influenced.
My thesis is that much of this is perpetuated by the fundamental one-way product design model below.
In some ways, building a sophisticated social media strategy on top of this old model is akin to putting high performance Michelin Bugatti Veyron tires on a V4 engine design: You just can’t get their full performance. To get full performance, companies have got to get under the hood, revise the fundamental engine and chassis design. Reading the struggles within the Open Innovation community itself, this is of course no mean feat and certainly far beyond marketing’s control alone.
But here’s what marketers do have control of: If we take Von Hippel’s thesis seriously as a latent opportunity, namely, the opportunity to leverage the massive number of consumer-innovators out there, companies ought to have an equal size team of social media folks working on getting the customer messages back deep insidethe company.
What Can Social Media Marketing People Do to Aid the Transition?
As long as we point to “best examples” in social media as broadcasty, high buzz Old Spice-style campaigns, we’re still in a corporate media mode, casting broader nets, rather than tightening our relationships with customers for “what matters most”, namely, giving them products they want.
Von Hippel suggests three steps companies can take to leverage consumer innovation. Here I’ve recast his points, adapting them to emphasise marketing’s role.
1. Marketing Needs to Provide a Bridge Bringing Consumer-Innovators into the Product Life-Cycle
Marketing people need to step outside the traditional serial timeline of internal product innovation where their principal role is to educate consumers on why they need a product design by the company. Instead, theyneed to focus on reversing the process, bringing lead consumer innovations into the company, educating the company on what its consumers want. A good start is to review the balance of social media team participants focused on outbound vs. inbound communications. Ask yourself: Are you over-weighted on purely outbound communications?
2. Creating Consumer Incentives to Contribute to Product Design
Marketers need to not only identify and bring those lead innovators into the company design process, but include those lead consumers as part of the company reward system, whether that be by revenue sharing, IP sharing or other. Threadless does it by revenue-sharing and bonuses to designer-users, Quirky does it by sharing a percentage of profit with innovators. As trial programs, companies can experiment with Open Innovation challenges and innovation platforms, allowing lower-risk experimentation without wholesale rearchitecting of fundamental business processes and current operations.
3. Building the Consumer-Innovator Incentives into the Company Revenue Model
Ultimately, given that incentives to your lead consumers are offered, these costs need to built into the cost of sales for product or services introduction.
Is Social Media 2.0 = Social Innovation?
The much sought-after ROI of social media will come to a greater wealth of companies once we realise that “the people formerly known as customers” are far more than brand ambassadors to spread word of mouth,, more than influencers of product buying decision, but as users of our products have a great deal of tacit knowledge of our product and services to aid the product design process itself.
Some may question: Aren’t you simply stating that crowdsourcing is the next evolutionary stage of social media?
And as much as my answer is “Yes”, my point is that companies can’t achieve this without deep change in their product design process, a construct which is usually treated as outside the realm of social media discussion. Von Hippel’s research, showing the huge opportunity in tapping consumer innovation, makes it clear that crowdsourcing – with a specific focus on these consumer-innovators – should be the focus of our social media strategies. This keeps us centered on our product and service missions and not just emitting the “clever campaigns and rudimentary conversations” of which Foremski and Solis rightly despair.
Social media marketers wonder “What’s wrong with my social media strategy?”, “Why have my efforts plateaued?” and “Where’s the Social Media ROI?”. But taking a hint from the Open Innovation camp, we realise the problem may not be with social media per se, so much as that the strategy rests on top of a strictly internal one-way design process. What the Open Innovation experts know is this:
You can’t build an effective 2-way customer communications strategy on top of an outdated one-way product design model.
In the end, I hope both groups step outside their separate rooms to begin a long-lasting conversation. It seems adopting the best of both paradigms promises to unleash a tremendous force of consumer and company co-creation, aka social innovation.
What do you think? As a social media marketer, do you regard crowdsourcing consumer-innovators as an optional strategy? Or is it part of the endgame?
Postscript. For the sake of clarity, I have simplified real company situations in two respects. First, most companies do not have a strictly one-way flow of design – that’s an extreme. Second and obviously, the use of the term “two-way” in here is more realistically replaced with “multi-way”, meaning interaction includes not only other groups beyond end-consumers, but group collaboration.
Who should read this post: If you regard crowdsourcing customer ideas as a separate and optional evolutionary branch of social media.
Who should not read this post: If you’re already exploring or planning to crowdsource customers ideas.
Ever notice how we tend to stay safely inside our chosen paradigms? As Frank Beach, the biological psychologist, and a professor of mine at Berkeley once said, “We entertain the hypothesis because the hypothesis entertains us.” But a school of thought, a particular approach, even in so much as it provides a framework for thinking, can also trap us inside its frame.
Take for instance two paradigms that have radically shifted the way we do business over the past seven years or so: Social Media and Open Innovation. The first, principally a marketing paradigm, tells businesses that it’s time to start listening, engaging and adapting to customers. The second, more strongly affiliated with management consultants, and speaking to a somewhat deeper level of business practice, brings to light that we need to involve business partners, suppliers, potential licensees as well as customers at earlier stages of the product design (or service creation) process, The first focuses on getting closer to customers, the second focuses on leveraging external innovations and spinning out our own “pre-products” (if you will) to lower costs, increase time to market and find new market opportunities.
But something’s been bothering me lately.
Rarely, do experts from the two schools of thought reference each other. (As I’ve lamented in the past, it seems the Open Innovation school rarely discusses marketing at all.) It’s as though the two groups are meeting in separate rooms with corporate management. And that’s a shame. This post explores how current restrictions in the social media paradigm may stem not from within itself, but rather from the foundation of a business structure existing far below the usual level of discussion. I argue that it’s in the cross-fertilization of ideas from the Open Innovation camp that the next evolution in social media may occur.
Much as command-and-control style management style presented resistance to company employees using social media to directly interact with customers, this serial process timeline too, perpetuates an operating model of one-way broadcasting. For in this timeline, marketing and PR functions, the champions of social media, are at the tail-end of the process, whose primary objective is to educate customers on an already internally created-manufactured-delivered product or service. (Note these diagrams from the Open Innovation community do not even depict marketing and PR as part of the company process!)
Yet even at this tail-end of a one-way process, social media and its tools have contributed greatly to companies understanding that they alone do not control their brand or their reputation . Customer service has benefited as well: Rather than using 1 on 1 customer service calls, problems are solved (even while PR takes place) with company representatives tweeting solutions publicly over the web, providing social proof of a company’s accessibility and responsiveness. Indeed, in its best incarnation, a great humanization of brand has occurred.
But for all that social media has accomplished over its fairly brief lifespan,, an e-Marketer report suggested that we were beginning to see a slow-down in social media innovation. Some even despaired (to some outcries of rage) that we were seeing a plateauing of growth.
Social Media is Not Corporate Media
Ever on the zeitgeist of the social media movement, Brian Solis elaborated on these trends in his excellent post The Demise of Social Media 1.0. writing,
As Foremski states, “Social media is not corporate media….if corporations try to turn social media into a corporate sales or marketing channel then they risk losing the naked conversations, and the insight into customer behaviors.”
His point is that there’s more to social media than clever campaigns and rudimentary conversations. Talking isn’t the only thing that makes social media social. Just like adding Facebook, Twitter and other sharing buttons will not magically transform static content into sharable experiences. Listening, learning and adapting is where the real value of social media will show its true colors.”
But have we really adapted?
I’d say, in most cases, no. For there’s another ever-present vexation within the social media camp: Social media ROI continues to remain elusive It seems so few show social media ROI that some have concluded we are attempting to “measure the immeasurable”.
I believe some hint to getting to social media’s next evolutionary stage, how to adapt, close the last mile to the customer, is afforded by looking outside the social media paradigm, venturing into that room where the Open Innovation consultants are talking. Even as much as companies marshal their social media campaign efforts, attempting to widen their influence, ride a large-scale ‘network effect’, amassing “shares” and “likes” and Google plus ratings, there’s a quite independent consumer movement in play. And it has less to do with what consumers are saying, but rather what they are actually doing.
Enter: The New Customer-Innovator Paradigm
A recent paper by MIT’s Eric von Hippel, The Age of the Consumer-Innovator, alerted me to the fact that the serial product design process, as the still dominant business process of most companies, may be the key deterrent to exercising the true value of social media. An extension of Von Hippel’s earlier work and book, Democratizing Innovation, the paper explores how, users, much assisted by improvements in computer and communications technology, increasingly can develop their own products and services.
We’ve always known that consumers can be a hot-bed of product ideas and, yeah, new markets. Legendary examples include the skateboard, created by kids by hammering a wheels onto a board. Or take the dish washing machine, devised by socialite Josephine Cochrane to solve the problem that her servants, in washing, often chipped her fine china. Von Hippel’s examples are wide-ranging, including high performance sports equipment, library systems, PC-CAD systems, the Open Software movement and hospital surgical procedures. Even in financial services, Hippel describes horw sweep accounts, long before they became profitable banking services, were used by retail and corporate banking clients to increase returns from interest payments.across their accounts.
The Millions of Consumer-Innovators
It turns out that consumer innovators are by no means outliers, but rather they number in the millions. Marshalling data from three recent consumer research studies conducted in Japan, the UK and the US, Von Hippel’s data shows that across these three countries alone, consumer-innovators are estimated to spend some $31.2 Bn on consumer-based product innovations per year and they number 18.5 million strong. Most remarkable is the finding that in the U.K., these consumer-innovators spend 144% more annually than what all commercial enterprises as a group spend on consumer product R&D.
Data from The Age of Consumer-Innovator, MIT Sloan Management Review, Sept 21, 2011. Eric vinHippel, SusumuOgawa & Jeroen P.J. de Jong
What I find ironic here is that even while companies are building social media strategy, growing large social media teams to outreach to consumers, a significant group of consumers independently are creating, modifying and testing novel functionality of products and services.
To me, it’s no coincidence whatsoever and Von Hippel’s realisation explains why some of the best-known examples of social media success are companies which have built customer-bridging platforms, if not wholly, at least in part, into their design process. It’s initiatives like Dell’s IdeaStorm, MyStarbucksidea.com and and the company Threadless that are fully leveraging social media’s value. There are other splendid examples: The Fiskarsscrapbooking community and the many Forrester Groundswell Award winners, such as Godiva and the Intercontinental Hotel Group & Chase Card Services who developed a new credit card with the help of and for loyal Priority Club members .
Why did it work in these instances? Because beyond listening, learning and engaging (Social Media 1.0), these companies actually adapted their product design process to incorporate the customer. In other words, they are no longer working off the simple, one-way product process line.
True enough, only a small minority today, some 3.7- 7% of the total consumer base, are full-fledged, self-initiating consumer-innovators or “lead consumers”. But as von Hippel points out, there’s every reason to think that this base of independent innovators is expanding: Not only does the cost of computer-aided design tools continue to drop, but new web-based businesses exist to turn CAD design files into actual product prototypes.
All this should be a wake-up call to social media marketers. You think customers are talking about your brand? What about those that are reinventing your products? Even as much as social media marketers continue to vex in search of larger and larger group of influencers, its seems we’ve been ignoring those who have already been deeply influenced to become inventors and creators. You can listen, engage — but if you don’t really connect with these true influencees, you may well find yourself competing with them.
This speaks to a key flaw in most social media strategies, what Foremski and Solis are referring to in the (misguided) equation of social media with corporate media: We tend to overemphasise total reach, instead of focusing on the depth of conversation. (As I’ve written earlier, this fallacy of large networks as a basis of influence underlies many social marketers misguided obsession with the Klout score.)
Why Consumer-Innovator Communities are the Next Stage of Social Media
Companies and social media marketers need to stop treating social media as the tail-end of product process as well as an extension of their corporate media. Those that take the bold step to go beyond listening and talking but to tap into the consumer-innovator communities stand to benefit immensely. The following benefits stem from Von Hippel but really echo what’s also been noted independently by crowdsourcing advocates:
Decrease R&D & Risk.Since lead consumers are already producing and vetting novel functionality product ideas on web communities, companies stand to benefit in reducing their R&D costs and risk in investing in those same/similar products.
Decrease Market Research Costs. As lead consumer-innovators are conducting market research for their innovations, companies stand to benefit in reducing expensive market research costs in detiming what product/service ideas would be in demand.
Decrease Inventory Excess. Where a consumer-innovator product/service idea has traction, companies may benefit in taking a high potential product concept to market, leaving them to focus on producing it at low manufacturing cost and with lower inventory as the product has already proven to be in demand.
Looking for social media ROI? Once the gap is jumped, moving beyond social media as a pure communication platform but , taken one step further, implemented as a design platform where co-created products or products created solely by users, herein ROI lies.
Is what I’m saying self-evident? Could it be, in many cases when we measure social media ROI, it’s because we’re tapping into these consumer-innovators? Could it be where we see a plateauing of social media’s effect it’s due to an outdated one-way product design process, residing far below our campaigns?
In Part 2 of this post, I’ll explore why this means the end of Social Media 1.0 and what marketers can do to aid the transition to true social innovation, a place where ROI becomes less elusive. To do that requires looking a level deeper than the usual social media discourse.
In an earlier post, I gave a precis of McKinsey’s “And the Winner is…”, a comprehensive study of the $2 Bn incentive-based prize market. I also described the March White House initiative to encourage contests promoting open innovation among federal agencies.
Here I continue my summary describing some of the business efficiencies associated with prizes that make them so appealing and the reasons they are knitting themselves into our business fabric. I’ll also identify some of the players who stand to win the near-term “prizes”,namely, building the infrastructure itself for the new prize-driven economy itself.
In early 2009, Virtual Nerd, an online video-based math and sciences tutoring company, won the Olin Cup business plan competition and its $70,000 investment prize The company had entered the contest to help finance their start-up. Why The NY Times found the story particularly fascinating is that Virtual Nerd decided not to accept the award.
This fascinated me as well: What better way for a startup to announce its presence in the market, attract media attention as well initial customers, partners and financing than to enter a nationally prominent contest? (And yes- Virtual Nerd might have refused the $70.000 – but they ended up accepting a $250,000 loan from a private investor.)
No doubt- for risk-taking new startups, winning a high-visibility prize, is one of the most flamboyant, high yield opportunities for both funding and publicity. Opportunities abound as new commercially-oriented hybrid prizes emerge. Within neglected disease research there is a phenomenal but little publicised prize: According to Cell Magazine, the Gates Foundation and four countries have donated $1.5 Bn for a new financial-marketing instrument, an Advanced Market Commitment (AMC), an extraordinary prize, whereby the winning team earns a significant purchase order for a certain number of pnuemocaccal vaccines.
For large commercial, philanthropic organizations and soon federal agencies, prizes and contests are now seen as a means of injecting the innovation of such startups (and the wider public) into a too-often lumbering operational flow.
Open Innovation Prizes as Change Agents
Much of my excitement over the McKinsey report was in contemplating their thought-graphic, “Seven Ways that Prizes Deliver Change”. The graphic captures in one visual snapshot the immense range and power of prize psychology, from identifying talent, quickening the pace of problem solving for a core societal or industry issue to influencing public perception, waking up the public imagination to the often amazing ability of humans to solve seemingly impossible problems.
Source: McKinsey’s 2009 “And the Winner is..” Report
If you consider the Ansari X PRIZE, it helps to concretize the seven changes: The Ansari X PRIZE, with the lofty goal of creating a reusable manned spacecraft, spurred the development of the private spaceflight industry, attracting 26 teams to invest more than $100 Mn in combined R&D — an amount far more than the $10 Mn prize itself.
The endeavor was of epic proportions: Burt Rutan’s team achieved what had only been achieved previously by three of the world’s most powerful countries. It captured the press, and captured the public imagination: And while quite expensive now ( at $200,000/ticket) the public can await future trips to space. As Virgin Galactic’s video below promotes- it’s the advent of Space Tourism. This is something, NASA, from its government agency position, simply could not provide.
What an exciting way to create a market!
Whether you tuned into the Netflix Prize progression over a 3 year period or were fortunate to catch DARPA’s Red Balloon Challenge last December , it’s like watching the real-time game film of science and engineering’s most passionate and talented players — even though, so far, we’ve had but blogs, tweets, and website leader boards to watch and comment on the action. (I’ll talk more on media coverage in a bit…)
From the prize sponsor’s viewpoint, enlisting participants of diverse talent outside their organization boundaries can lead to tremendous efficiencies.
Business Hyper-Efficiences of Incentive-based Prizes
While McKinsey’s report was focused on philanthropies, they make clear throughout that the basic principles of prize psychology and management apply to all forms of organizations. I’ve taken some liberties in expanding some their points to focus on four important bottom-line and productivity areas:
1. Lower R&D Costs by Outsourcing Development
Most obviously, a prize contest opens the door to virtual team expansion,without adding salary and overhead. No longer are companies constrained by their internal talent pool. As we saw so well with the Netflix Prize and the 55,000 engineers in the competition, even a large prize can marshal the talents of a much a larger-dollar value workforce — on demand – and directed at a specific critical problem.
2. Potential for Decreased Human Resource Costs for Hiring World-Class Talent.
With a contest, a company obviously does not need to directly hire talent. However, a networked contest and its prize can serve to attract and identify The Best and the Brightest not only with greater certainty (only solvers hired) but from the immense global talent pool. What better “test” to give job candidates than to place the toughest challenge in your industry in front of them? All of them?
Organizations like TopCoder in fact are using their prize contests to identify and place rarified expertise within the software industry. As IdeaConnection, an open innovation service provider, writes near their online prize challenge submission form,
Life is getting simpler for R&D Departments who can articulate their innovation needs…
It’s somewhat amazing to think – but organizations like Innocentive , IdeaConnect and TopCoder may be the Creative Artists Agencies of the future — identifying and managing key technical talent and wunderkin around different industry and societal problems.
In fact, I suspect the Class-A headhunters looking for world-class talent from agriculture, automotive, the arts to pharmaceuticals, check in with the prize committees listed in the appendix of McKinsey report. Broadcast search may well be the future preferred method for identifying technical excellence. (And, for that matter, what’s to exclude challenges from including business and financial problem-sets to test the skills of next-generation C-level execs?)
3. Increased Speed & Liklihood of Finding Innovative Solutions
This bears on the “Focus the Community” change effect in the McKinsey diagram.Open Innovation plays a core role here. A seminal 2007 paper, The Value of Openness in Scientific Problem Solving, drew attention to the power of broadcast search, introducing 166 distinct scientific problem to outsiders, and showing nearly a 30% increase in solve-rate for problems that had remained unsolved by well-known science firms. That’s a pretty phenomenal result.
What a prestigious and high dollar prize adds to the open innovation process is critical marketing parameters: a deadline, rules of engagement, sometimes progress milestones (sustaining motivation and momentum) and built-in publicity.
The Netflix Prize, directed at achieving a 10% improvement in a movie recommendation engine, demonstrated the collaborative power of a networked diverse group. As Wiredmagazine described after interviewing participants,
“The top two teams beat the challenge by combining teams and their algorithms into more complex algorithms incorporating everybody’s work. The more people joined, the more the resulting team’s score would increase.
This outcome drew attention particularly as the results fly seemingly in the face of the well-known Mythical Man-Month Limit, which describes the problems of adding head-count within the more traditional closed engineering group.
Diversity turns out to be a core asset in problem-solving. : The Harvard study showed winning solutions were more likely from problem-solvers whose core expertise was 6 disciplines away from the problem. Contests -where challenges are broadcast to a wide public and where interim methods and results can be shared among unlike minds – increase innovative solutions.
Source: Steve Fennessy, Innocentive
Perhaps the most famous case illustrating diversity’s role is the $20,000 Oil Spill Recovery Institute’s challenge to assist with one of the disastrous consequences of the 1989 Exxon Valdez oil spill. The technical challenge was to find a method to separate frozen oil from water. Much to everyone’s surprise – an Illinois chemist suggested the winning solution, one developed from the concrete industry.
4. Built in Cost Controls and Risk Mitigation.
This is undoubtedly the most potent bottom line savings for prize-giving organizations. As success-contingent prizes are only paid with achievement of a defined goal, Peter Diamandis, Founder and Chairman of the X PRIZE Foundation has described them as a form of “fixed cost science and engineering”. Prizes shift risk from the prize sponsors to the competing participants- who themselves, as in the case of the Ansari X PRIZE, may invest much more than the prize value in the project.
Is There Anything Really New Here?
Open Innovation as a business model and management construct is not new: Originating with Chesbrough’s 2003 book Open Innovation: Researching a New Paradigm, the methods have been adopted by some of the world’s largest best-known corporations such as Eli Lilly and Procter & Gamble.Principals fromEli Lilly, an early adopter, founded Innocentive, one of the first company’s leveraging incentive-based prizes on top of internet technology.
The new aspiration is that open innovation prizes may become a particularly furious business force when combined with Web 2.0’s open collaboration tools.
Source: EngadgetNothing so demonstrated the power of all elements working together as DARPA’s Red Balloon Challenge. Designed “to see whether social networking sites like Facebook and Twitter should be seen as credible sources of information” the challenge to identify the locations of 10 red balloons strewn across the U.S. was solved by an MIT team and its collaborators within a mere 9 hours. The solution has made us all keenly aware of social networks role in identifying missing persons in a timely manner.
Net net: Social networks promise still another productivity multiplier to prize-driven markets. So when Forbes magazine somewhat cynically wrote about The Myth of Crowdsourcing as really being still the product of single virtuosos – I believe they somewhat missed the point: Yes, these are virtuosos participating, but the Netflix Prize result would not have occurred had not a significant and diverse number of these virtuosos been sharing and merging their diverse methods.
Who are the Market Makers?
With more federal agencies soon to join the $2 Bn incentive-based prize market and with much smaller firms now realising the business efficiencies of prizes, particularly as the recessionary economy still struggles back, its likely the market is poised for considerably more growth.
Who will reap the benefits in creating the infrastructure of this growing Prize-Driven Economy?
The McKinsey report suggests there are at least four groups who will benefit, many of whom have years of experience in prize management :
Open Innovation Service Providers. Prize management consultancies and their software platforms are the first and foremost beneficiaries. McKinsey references Idea Crossing, Innocentive, NineSigma and Spigit as offering a wide realm of services, from strategic goal-setting to managing the (often non-trivial) contest logistics.
Contest Tracking Orgnaizations include BigCarrot.com and ChallengePost who advertise and provide a software platform for these and smaller contests to prospective participants.
Intellectual Property Law Firms. WHile the X PRIZE and the Netflix Prize are wonderful examples of masterfully navigating the IP rights of sponsors and participants alike, some commercial prize sponsors will find dividing and protecting IP to be a challenge, particularly where it involves point solution types prizes related to products. The complexities become apparent in reviewing the approaches of the service providers. NineSigma requires all submitters to have issued patents or patent applications for their submitted technology. Innocentive protects participants by requiring their solution “seeker” companies to agree to intellectual property audits; should the company not make the award for a problem, the IP is not used.
Public Relations Firms Skilled in Prize Contest Management. Mckinsey describes the case ofthe Man Booker Prize, a yearly contest to identify the best novel written within the Commonwealth of Nations.The visibility of the prize has greatly benefited from the efforts of the PR agency involved,namely Colman Getty.There are clearly many other agencies with similar prize promotion expertise.
There’s perhaps a fifth group yet to benefit: The Sci-Entertainment Media Group. For with such vast sums of money riding on highly-publicised prizes — The Media is sure to follow.
Lights, Action, Science!
Having spent a bit of time myself in the past sitting in the dark surrounded by oscilloscopes, it’s inspiring to think that we may be living in an age where scientists and engineers can get the form of fame and fortune previously reserved only for the world’s most elite athletes and celebrities.
We’re just missing the large Olympic stadium fan fare and tv cameras. But this too may not be far away. According to Cell Magazine, multiple television companies have approached the X PRIZE Foundation to document the next $10 Mn Automotive X Prize.
Will we soon see the likes of Discovery Communications (owners of the Science Channel) cover world-riveting technical challenges, much as the social gaming world in the Electronic Sports World Cup?
What’s more exciting is the likes of TED TV, Wolfram (inventor of Mathematica) and O’Reilly Media doing it. (After all, O’Reilly’s mission includes “amplifying “faint signals” from the alpha geeks who are creating the future”. )
With some 5.8 Million science and engineering researchers on the planet and a much larger base of teachers and next-generation student-scientists, as well as readers of Gizmodo, EnGadget and the many other high profile Sci-Tech blogs out there- it’s clear there’s an immense global audience for instilling excitement over some of the world’s finest scientific and medical challenges. (More to it- not only are Nerds not a minority but they include some of the highest net worth, influential people on the planet)
What do you think? Is an Electronic Sports World Cup format disrespectful of scientific endeavors? Would cheering scientific teams online while they pose solutions to climate change or a medical problem be distasteful? Or would scientists benefit from a bit of such Hollywoodization?
One of the fabulous things about the internet and this era of user-generated content, social platforms and collaborative technologies is that they have made us keenly aware of the many talented people out there. It’s silo-breaking, allowing us to identify and access the genius talents of individuals outside our organizational borders. It’s community building, allowing realization of team strengths and the development of new social skills that magnify group intelligence.
Best of all, the new social web has built-in PR: a resident blogosphere which writes up and actively discusses these team collaborations, many of which, like the DARPA Red Balloon Challenge, light up the public imagination of what’s possible. No where is this more apparent than in the emerging world of incentive-induced prizes and contests, where a cash reward is offered to encourage pursuit of a specific goal.
As I wrote in an earlier post, nothing so woke me up to the potential value of contests and prizes in changing the rules of business-as-we-know-it as the NetFlix Prize, attracting over 51,000 contestants with the hope to win $1 Mn for improving a movie recommendation engine. There’s consensus that NetFlix leveraged that investment extremely well in terms of received R&D benefit, marketing community brand building and much more. In fact, there are marketing lessons in the NetFlix Prize that any prize sponsor or challenge seeking organization can learn from.
According to a recent post on the TechPresident blog, the latent potential of such success-contingent prizes has not been lost on the White House which issued a directive on open innovation in January. Two weeks ago, the Office of Management and Budget released guidance to federal agencies on how they could legally arrange contests to seek ideas for using technology to promote innovation, open government and other national priorities. The message is clear: “Go forth and crowdsource.”
To facilitate the agencies’ action on this, the White House is launching a public website within the next 4 months which agencies can use to “advertise” and promote their challenges Adding momentum to the initiative, Michelle Obama simultaneously launched her “Apps for Healthy Kids” contest, part of her Let’s Move campaign. The contest invites software designers, game developers and others to build fun and engaging tools to motivate children to eat better and engage in physical activity. It has built-in lesson to agencies watching too as the contest design requires using the USDA nutrition data set. What a clever and constructive way to build a better user interface to what would otherwise be fairly dry and abstract data to kids.
Starting with a great example is smart, but how will federal agencies new to this learn the intricacies of both crowdsourcing and contests? (Obviously, DARPA, NASA and a few others within the fold have talents to share.)
Enter McKinsey’s Roadmap for Understanding Prizes
For those seeking to understand how to successfully construct prize contests and challenges, the OMB memo references a 2009 McKinsey study “And the Winner is…Capturing the Promise of Philanthropic Prizes” . This 124 page report describes McKinsey’s research, case studies, a rather comprehensive database of prizes as well as their future potential. But what makes the report extremely valuable is that it leverages the knowledge of sponsors and administrators of some of the best known and successful large-scale prizes, including interviews with experts from NetFlix, The World Food Prize, the X Prize and many others.
The Attention Rivetter: A $1-2 Bn Big Prize Market
What’s capturing a bit of attention right now is that McKinsey estimates there’s a $1- 2 Bn Prize market today in the U.S. – and it’s growing. They point out that the dollar amount for prizes over $100,000 has tripled in the last decade to $375 million a year, expanding particularly in the area of incentive-induced prizes.
Now with part of federal agency budgets to be unleashed soon, there’s more money to add to the prize pot. As Thomas Kalil, Deputy Director for Policy at the Office of Science and Technology Policy at the June 2009 incentive2innovate conference reminded conference attendees,
When you consider that the government invests a total of $150 billion in research and development, there’s a bit more room for experiment in this area.
Starting Point: What Types of Prizes Exist?
One of the more useful thought tools within the”And the Winner is…” report is a description and analysis of six archetypal prize types. ( The diagram below modifies the original McKinsey exhibit to include some of their examples for each prize category.)
We are all perhaps most familiar with their “Exemplar” form of prize, one, like the Nobel prize, which sets a standard for excellence in a field. But there are newer, less familiar prize forms here, ranging from the narrow “Point Solution” (eg. NetFlix prize) in which a specific challenging problem is posed to the broader “Market Stimulation” type, the canonical example of which is the X Prize portfolio, in which real world market conditions are emulated inside the challenge. Perhaps nothing so raised public perception of the raw power of prize development as the $10 million Ansari X PRIZE, which helped ignite the development of the private spaceflight industry.
The diagram is great mind food for considering the types of prizes your own organization might consider, depending upon your goal.
What prize can your organization offer? Will your organization build and implement prizes? Or will your organization seek to win one of the prizes to the benefit of your brand’s value?
If I’ve inspired you to read McKinsey’s “And the Winner is…” report, that’s great. That was one my goals. But bear in mind that while there’s a groundswell of interest in prize mechanisms to address complex problems and identify emerging markets and a growing corpus of knowledge, the report makes clear that the intricacies of successful execution are non-trivial.
In my next post, I will continue this topic, summarizing some of the business efficiencies associated with prizes that are wooing government as well as commercial ventures, despite the complexities. I’ll also identify some of the pre-game players who stand to win one of the near-term “prizes”,namely, building the infrastructure itself for the new prize-driven government and commercial markets.
Why did the NetFlix Prize attract so much attention?
Here’s one reason.
At a time when many companies are still afraid of social media – here’s NetFlix crowdsourcing their engineering knowledge, offering up customer data, knowledge often safeguarded inside a company’s IP sanctum sanctorem.
It’s bold. As many other news sources and this blog reviewed last week, it’s probably the best use of crowdsourcing to date. And, to many, it’s scary.
What specific lessons does the NetFlix Prize teach that can deployed inside and, more importantly, outside, your own company? I see six lessons for companies. (BTW – what’s scary about any of this depends on which, if any, of these lessons appears alien to your company culture.)
1. Share with your industry’s research community.
In order to improve their recommendation engine’s accuracy in predicting the movie likes of their subscribers, the starting point for the NetFlix contest was their offer of a precious data set: 100 million ratings from over 480 thousand randomly-chosen, anonymous customers on nearly 18 thousand movie titles.
To win and take home a prize, the NetFlix contest rules also specified
….. you must share your method with (and non-exclusively license it to) Netflix, and you must describe to the world how you did it and why it works.
If you look at Wikipedia’s definition for the open source process, we see from the first few paragraphs that NetFlix pretty much followed it. (You only need substitute the word “database” for “source code”) In the full open source tradition, NetFlix didn’t just sequester the submitted solutions for their own company use – they fed it back into the community knowledge base.
2. Maximize the number of prizes you give away.
In many ways, NetFlix really offered many prizes to many different shades of stakeholders. (BTW- here’s a key concept in crowdsourcing. Broaden your definition of who is a company stakeholder.)
Note several of these “prizes” are free, posing no additional cost of goods for a company. (This doesn’t mean some of these prizes, such as the customer data set, aren’t tricky to manage, as NetFlix’ current vexations with consumer privacy advocates now show.)
3. Keep them motivated for the long haul.
Tough challanges like solving a design problem, optimizing a movie database recommendation system for subscribers, can take months or years to make progress. In fact, the more valuable the problem being solved is to your company, the longer it will take.
The answer: Milestone or Progress Prizes. Per the NetFlix contest rules …
Serious money demands a serious bar. We suspect the 10% improvement is pretty tough, but we also think there is a good chance it can be achieved. It may take months; it might take years. So to keep things interesting, in addition to the Grand Prize, we’re also offering a $50,000 Progress Prize each year the contest runs. It goes to the team whose system we judge shows the most improvement over the previous year’s best accuracy bar on the same qualifying test set.
Complementing the Progress Prizes, NetFlix offered a leaderboard for the contestants and media to watch.
Why is this gaming approach a key strategic element? Not only did this give contest entrants a sense of momentum, more significantly, it allowed NetFlix to incorporate incremental improvements into their product along the way.
4. Use competitive energy. Build in a “Last Call”.
After each prize submission, NetFlix made a public announcement that allowed all other teams to submit a better alrogithm within a 30-day window.
(For an idea of the sporting drama this lent to the final days and even minutes of the competition between BellKor’s Pragmatic Chaos and The Ensemble teams, check out Wired’s piece.)
Marketing-wise, this “Last Call” phase resulted in heightened PR and media attention to the contest, with the top tier media and techno blogosphere all tracking the contest’s progress with bated breath.
5. Keep the attention of the virtual talent — even when it’s all over.
To maintain the momentum (and perhaps preempt advances of companies seeking use of the newly identified talent) NetFlix launched a new contest on the very same day of the award announcement.
6. Warning: This new marketing territory may be No Country for Old Men
Okay – this one’s definitely scary.
It’s a new day when open systems, crowdsourcing and bold marketing combine.
Are the rules changing?
NetFlix along with the many others bravely deploying crowdsourcing indicate they are changing.
Too often marketing and engineering are separate silos within a company. What NetFlix did here breaks across several silos, brilliantly interweaving a marketing initiative in and out of the R&D process, while also outreaching to the wider research community – giving them a virtual engineering department of 51,000.
For those afraid of open source process as putting their IP at risk – perhaps its time to think of the risks of not doing it, namely, much longer product cycles than your competitors.
As in the movie No Country for Old Men, it really pays to know in advance what you’re looking at: Is it an oxygen tank or an air compressor used as a weapon? So too could be crowdsourcing in the hands of your competitors. PH…SSSST!