Crowdsourcing Business Models: Creating and Capturing Value Through Tournaments and Collaboration
Topics: Social Talent & Workforce Value Chain
Allan Afuah
Associate Professor of Strategy
Stephen M. Ross School of Business
University of Michigan
PHD, Massachusetts Institute Of Technology
MS, Massachusetts Institute Of Technology
Dr. Afuah’s teaching awards include Best Professor in the MBA program in 1999. His second book, Internet Business Models and Strategies (co-authored with Christopher Tucci) has been translated into nine different languages, and has been adopted by dozens of schools to teach business models. His latest book, Strategic Innovation: New Game Strategies for Competitive Advantage, explores how firms can use new game strategies to profit from strategic innovations—innovations in products, business models, business processes, and positioning vis-à-vis coopetitors. His research has been published in the Academy of Management Journal, Academy of Management Review, Strategic Management Journal, Research Policy, Economics of Innovation and New Technology, Industrial and Corporate Change, and IEEE Transactions on Engineering Management. His latest research focuses on how the concept of value creation and capture can be used to explain not only the present financial crises but also why Africa has remained desperately poor despite being heavily endowed with natural resources. He is visiting Tuck as part of the Technology, Innovation, and Learning (TIL) seminar series.
Crowdsourcing Business Models: Creating and Capturing Value Through Tournaments and Collaboration
Recent anecdotal examples of crowdsourcing are simply fascinating. Such examples raise an interesting question: Why might crowdsourcing be a better mechanism for creating and capturing value than using hierarchies or contract suppliers? I offer two reasons. First, in tournament-based crowdsourcing, only the highest-value solutions are selected and the focal firm does not incur the cost of those solutions that do not win. Second, in collaboration-based crowdsourcing, a task is parceled into smaller, less demanding subtasks that crowd members with limited capabilities can perform, improving the likelihood of obtaining higher-value and/or lower-cost solutions. However, crowdsourcing has three shortcomings: (1) the transaction costs associated with crowdsourcing some problems can be rather high, potentially reducing the value created and captured, (2) the risk of not obtaining a solution at all can be high for some problems, and (3) the likelihood of a solution being imitated is higher. The right business model can alleviate these disadvantages. Effectively, in pursuing successful crowdsourcing business models, a focal firm not only has to make the right choices between tournament-based and collaboration-based activities, it also has to choose whether to crowdsource directly or pass through an intermediary.
