The future of crowdsourcing

Crowdfounding and Liquid Enterprises

by Cristbal Ortiz Ehmann

Ideas are abstract and novel concepts that arise in the mind. One thing is
the idea that nests in your head and another completely different thing is
to communicate that idea to others in a way that they will understand it. It
is reasonable that ideas need more extensive explanation than things that
are not new. So ideas that are the result of long and complex cognitive
processes are even more difficult to explain. So this is precisely what the
present text is for: to roll-out the background information of my idea so
that it will become fully graspable to anyone who wants to read and
understand it.
About innovation
First of all: my name is Cris Ortiz-Ehmann, and I have studied a masters
degree in London called Innovation Management at the Central Saint
Martins College of Art and Design. As you can imagine, the main topic of
the course was innovation, and it is precisely with this topic that I will
start to roll out all the steps that will finally lead to my idea. Especially
nowadays that everybody seems to be using the expression innovation,
the first question that comes to mind when thinking about it is: what is it?
Out of several sources I have coined this definition and found it to be most
spot on:
A new thing or system, which didnt exist before. It is neither a solution
to an existing problem nor the satisfaction of current demand, but it
generates value by itself and is, therefore, adopted by a large number of
people over a certain period of time.
Now that we have answered this question I have another question
related to the aforementioned topic that is much contested:
Who does trigger off an innovation? The strategists, the designers or the
technologists? Donald A. Norman, the author of books like The design of
future things or The design of everyday things has until recently always
claimed that the designers were the ones responsible for setting off
innovation. To the dismay of the designers guild, he reconsidered in
favour of the technologists. Now he is convinced they are in the end the
real innovators.
Another question worth asking is whether it is the individual or rather
the group that brings about innovation? Probably people like Gandhi, Jobs
or Lagerfeld are or were probably convinced that they are the sole
generators of innovation in their respective fields. By contrast Tim Brown,
author of Change by design and Roberto Verganti, author of Design-
driven innovation, believe that it is mainly a group that produces
innovations.
Innovation of the last two decades
These questions have led me to identify changes that happened during
the last two decades and that could be considered an innovation according
to the definition given before. These innovations have been probably
developed by individuals and groups together; by technologists but also in
collaboration with designers. Sometimes the technologist was also a
designer. The next list is an enumeration of a few of them:
New forms of hierarchical organisations. The open-source operating
system Linux was created through a new collaborative organisation.
This way of organisation was quite innovative because it was quite flat
and based on voluntary work. The result of this organisation is
perfectly competitive with other operating systems.
New forms of exchange. Napster, as a peer-to-peer file sharing service,
was probably the most famous form of exchange because it was shut
down by court order due to copyright infringement. Despite its
unlawfulness, this way of exchanging intellectual property is quite
innovative because it led to a more current understanding of the value
of music and a changed distribution efficiency. This in turn provoked
that the whole price structure for intellectual property based on digital
information changed to smaller apportioning.
New ways of communication and information consumption. Due to
new online tools the functions of classical peer-to-peer communication
(direct and by telephone) and classical information media (newspaper,
radio, TV) are transforming, transposing and merging. New programs
for online teleconferencing (e.g. Skype), social media (e.g. Twitter and
Facebook), forums and online communities have transposed this
industry from a one-to-one or one-to-many communication to a many-
to-many communication. They can be considered a disruptive
innovation because it is starting to cause the cessation of classical
journalism, TV or radio.
New ways of financing. Although not (yet) fully replaceable the
established functions of the credit services sector are seeing new
competitors arising with new forms of managing credit and equity
capital. These are not just mere customer centric and designful
banking services like moven.com or simple.com. These are programs
that are causing a more fundamental and substantial change of this
industry. Credit capital is started to being increasingly mediated
through peer-to-peer credit services. So crowdfunding is doing the
same for equity capital.
Turking is a task performed by crowds of people recruited through an
online medium. Turking tasks usually require lower intellectual skills
but are still not accomplishable in an acceptable quality by computers.
Amazon Mechanical Turk (AMT) is probably the most widespread
online instrument for turking. Here we are talking about a new way to
obtain and allocate resources. Today turking is about accomplishing
micro-tasks for micro-payments, but this could change in the future.
Not only the complexity and the corresponding remuneration of those
tasks could change but also the resource as well as the remuneration
could become different.
Almost all democracies in the world are representative democracies. As
opposed to direct democracies, this means that elected officials
represent a group of people. Today Switzerland is probably the only
direct democracy. A discourse analysis of recent movements like for
instance Occupy Wall Street show a growing demand for more co-
determination. The Piratenpartei (Pirate Party of Germany) is a
political movement that supports an enhanced transparency of
government by implementing open source governance and providing
for APIs to allow for electronic inspection and monitoring of
government operations by the citizen (Wikipedia). The before
mentioned demand and new technological possibilities could
transform representative democracies into much more direct ones.
Bitcoin is a new currency which is not controlled by a central bank, but
by participants. These bitcoiners invest in mining capabilities to find
new currency units. This peer-to-peer payment system and digital
cryptocurrency is subject to uncertainty and volatility due to its
aversion from institutionalised central banks. Nevertheless it has a
huge potential to change the way the world makes payments because
of its efficiency concerning transaction fees and independence from
the influence of governments and politics.
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The evolution of an innovation
You probably have heard what you will read next a few times, but this time
from a different perspective. Now, what do all of these changes have in
common? What is the golden thread of all the aforementioned changes?
The internet. This technology of networked and talking computers allow
to shift from one-to-one or from one-to-many type of communication to
many-to-many type of communication. This communication allows for
self-organisation of people digitally connected.
However did all these changes happen at once? No. First technologists
invented the internet protocol suite for military purposes. Then that
technology was made available to the public. Later on, the technologist
Tim Berners-Lee invented the World Wide Web. This intuitive interface
between the internet and the user let the newly created connectivity
blossom one step further because through the WWW any user, even the
most technologically illiterate person could access information and start
exchanging information with peers. This new technology changed the
behaviour of the people using it. So this change in behaviour made other
technologies in turn surge.
One small but probably important change in behaviour is for instance
the way people order and sort out digital objects. At the moment, we can
observe a shift from the traditional tree-structure ordering to the tag-
attribution ordering. The tree-structure ordering is an inheritance from a
more linear-based off-line world with a manageable amount of
information. The tag-attribution structuring, however, belongs to the
digital world. It was probably born out of the logic of large databases. Here
chunks of information receive attributes but are not allocated to a logical
tree. This way tag-attributed digital objects receive an order more
according to the functioning of the human brain, which works more like a
network of different interrelated issues. DevonThink is a program that
These changes haven not been all transformations that could mean a paradigm shift. There have
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been other fundamental changes as for instance in education.
offers both types of information ordering, Evernote as well as iCloud from
Apple, however, only provide the tag-attribution ordering.
So the last 20 years, since the internet became available to everyone,
there has been an interplay of new technologies and socio-cultural
changes. These changes in behaviour cannot be explained by the behaviour
of each or the sum of the components of the system, but the new
behaviour emerges due to interactions among the components of the
system.
Due to the mentioned interplay and the emergent nature these socio-
cultural changes are not foreseeable, but we have reached a point in which
we can observe the evolution in the sophistication of the programs or,
how I call them: interaction catalysts. Within this context, we can define
interaction catalysts as digital instruments that live up to the socio-
cultural changes. A an example: Protestants from the Indignant
movement convey a feeling of heteronomy, of being subdued to external
powers of policymakers, corporations and a financial system that is not
human-centred. These feelings are on one hand most probably a
consequence of more interaction due to new communication technology,
and, on the other hand, asks for new interaction catalysts that live up to
this new demand from society. Maybe political parties like the
Piratenpartei will start to develop and to offer these types of catalysts in
return.
New types of business value chains
From a commercial point of view, one of the consequences of this
evolution is a spectrum of new types of business value chains. On one side
we have the classically established companies characterised by their rather
steep hierarchies, few rights of co-determination, opacity & closeness,
strong orientation to efficiency and profit, codification of processes and
behaviours. So on the other side we have new types of organisations (open
source) that are flat with high rights to a say, open and transparent.
Efficiency and profit play a minor role due to crowdsourcing and
unremunerated labour. The first type of organisation was born out of
limited technological possibilities of communication whereas the second
type emerged purely from massive, asynchronous online interaction. The
processes of collaboration and the behaviours are the result of this
interaction and are not subdued to an imposed codification. According to
Charles Leadbeater, in We think we are starting to see hybrids along this
spectrum. Red Hat, for instance, is a company that sells open- source
software products to companies.

The golden thread

So the golden thread of all the mentioned socio-cultural changes is not
just a network of talking computers. The evolution of interaction catalysts
that adapt technology to human demands lets discern the following most
obvious and important common patterns:
A. Disappearance of the classical intermediaries: These are the agents
between the producer and the consumer. The intermediaries have
traditionally been an insurmountable central interface between the
producer and the consumer. There are several industries in which we
can observe the disintegration of these established intermediaries. The
producer, the product and the consumer still prevail though. The
component that is fading away is only the classical intermediary.
B. Disappearance of centralisation: With the intermediary also the
centrality of its interface role is vanishing as well and allowing for
more decentralisation. Due to the global character of the internet (as
well as the institutionalisation of English as the lingua franca) the
reach of any offer is almost borderless. Furthermore, the tools for
creation and dissemination have become available to a vast amount of
people. Almost anyone can create designs, write articles and books or
compose music, and make it available online.
C. Disappearance of the passivity of the consumer: The consumer is not
anymore merely accepting or rejecting a product for a certain price.
Formerly acceptance or rejection was the only way a consumer was
able to give feedback about a certain product. Nowadays the
possibilities of evaluation have become much more sophisticated. The
consumer can give thumbs up or down, the consumer can write
reviews and make these publicly available, as for instance in Amazon.
This way the consumer has received a high influence on the product as
well as on the price. The most empowered consumers were Eric von
Hippels lead users. These are consumers that face needs way ahead of
the bulk of the marketplace. They were used to finding out the design
of future products.
D. Disappearance of efficiency preconditions: because of the digitalisation
and the internet the cost of the distribution of intellectual property is
tending to zero and, therefore, traditional requirements for efficiency
formerly necessary for the distribution of intellectual property are
starting to lack validity nowadays. Before the hackers of Napster
invented a new interaction catalyst (peer-to-peer file sharing) to
exchange music files, music titles needed to be bundled in albums in
order to justify the cost of storage and distribution on data mediums.
The respective rules and laws that came in unison with these efficiency
requirements have been challenged by the hacker community. The
established high costs of albums mismatched the new de-facto cost
structures enabled by new technologies. The industry finally reacted to
this new demand by creating iTunes. This system allowed for single
music titles that can be downloaded over the internet and for a very
low price. This allowed, on the one hand, for smaller apportioning of
intellectual property and, on the other hand, for a higher
customisation of the product delivered.
There are two industries that can be used to showcase these identified
patterns: journalism and credit & equity financing.
Journalism
For journalism, the product is information, and the classical journalistic
industry brought information on paper from the source to the reader in a
more or less elaborated or transformed way. The reader was rather
passive, and the motivation was being informed and entertained. The
environment in which journalism was born and thrived was characterised
by a certain scarcity of information. Nowadays the demand for information
and entertainment can be satisfied at several different digital spots with a
massive affluence of information. Now there are digital versions of the
classical newspaper service like The New York Times (nytimes.com), which
is probably the most representative one. However, there are also new
competitors who offer classical news over the digital medium, as for
instance the Huffington Post (huffingtonpost.com). However the main
competitors are yet other substitutive offerings. There is for instance the
social media and the blogosphere but also simple eMails can be counted
within the group of substitutive offerings because they attract massively
the consumers attention. These services also offer the consumer to
become part of the service. Social media like Facebook give people the
possibility to express and showcase themselves. The blogosphere goes one
step further because it transforms information to a higher degree and,
therefore, fulfils a more journalistic function. So the classical intermediary
is becoming less important and decentralised, less expensive to distribute
and more interactive. One of the first places in which the wind of change
has been taken seriously is probably the Netherlands. Here two young
entrepreneurs have been able to unite all major newspapers and
magazines on one digital platform: blendle.nl. This platform is itunised
journalism because it atomises the product into smaller pieces. In other
words: readers will only pay very small amounts for the articles they
actually read.
Credit and equity financing
Banks have been so far the classical intermediaries of the credit and equity
financing function. They have received money from people in exchange of
a certain yield and lend to other people in exchange of the before
mentioned yield plus a banks share. Now we can observe the rise of what
is known as peer-to-peer banking (p2p) over internet platforms. On the
12th of February 2014, we have almost 41 different peer-to-peer lending
and borrowing services in the United Kingdom. The worlds oldest peer-to-
peer lending service is the british platform called Zopa (zopa.co.uk). So
what equity capital is concerned crowdfunding seems to be the peak of the
iceberg that will probably revolutionise how private funds are allocated in
the business market. As of today the most famous crowdfunding sites like
kickstarter.com or indiegogo.com have still a donation based character.
This means that the crowdfunding initiative is used for charity, proof of
concept, early idea validation and customer pre-order. Nevertheless and
according to a press release from Kickstarter 'on March 3, 2014,
Kickstarter passed $1 BILLION in pledges. Thats $1,000,000,000 pledged
by 5.7 million people to creative projects. This speaks volumes about how
people have changed their behaviour towards more co-determination
concerning which private initiatives should be supported financially. Also
here we can see that the intermediary is loosing ground and the future
perspectives do not look very favourable for the classical credit and equity
functions.
Bundling and managing resources
So now we have seen two types of established industries, but what about
other industries and their respective companies? What is happening within
the education sector for instance? Isnt the situation very similar? The Ivy
League universities in the USA have recognised the paradigm shift and
according to academicearth.org are preveniently offering around 415 free
online courses. In the end, the question remains: Arent all established
off-line companies actually just intermediaries? Dont they all just
bundle and manage resources? So which are those resources that
traditional companies bundle and manage? The following resources could
be considered to be the most important ones:
Employees work
Raw material
Raw information
Financial assets
Know-how like processes, connections and information
Tools like production assets, office space and other working gear
Intangible assets like branding and credibility
One thing is clear: all of these resources are contributed and managed by
people who have some relationship with that off-line intermediary.
Some time ago one of my acquaintances was laid off. Within less than two
years half of the workforce of the company, she worked for had to leave, as
well. This was the typical situation of an unfriendly takeover in which the
newly gained employees were slowly, but steadily replaced by the acquiring
companys own breed. All of the released employees together had enough
skills and knowledge to easily create a new company. Their contributed
resources would then have been their work, their combined know-how
and probably also some of their money. The main missing resource to get
these people back together and start working again would have been the
bulk of the necessary capital to start creating value. However all of these
employees together with a sound business plan could have convinced any
bank or venture capitalist to provide the missing funding.
So what was really missing? Probably a person with the right leadership
skills like trustworthiness, business acumen and leadership credibility.
This person would drum up these former employees back together and
create a new participating structure, organise a new hierarchy of work and
care for the necessary fundraising. Wouldnt these tasks be also
manageable by a digital and online tool specially designed for these tasks?
This piece of software needed to accomplish three things:
create a participating structure: register and value each ones
contribution
organise the collaboration of the new employees in the form of project
management
manage the necessary fundraising by attracting funders
The other day a friend of mine who owns a small software company in
Berlin (arillo.net) showed me his company processes. Even though this is a
small company they have programmed and set up their own project
management software. I was impressed to see that it had all the elements
from rather sophisticated project management tools: todo-lists,
scheduling, hierarchy and authorisation structure, issue tracking, portfolio
and resource management. So we can assert that we already have software
for organising collaborative work, at least for a manageable amount of
employees. However, all of this project management software is a nice
add-on. Linux wasnt created using project management software. This
means that people can organise themselves with very simple and flat
structures of value creation.
So we can claim that the problem of how people collaborate over an
online medium has already got tested solutions. So, what is missing?
Probably a digital system that values and manages each ones
contribution, be it money or another resource as listed above.

Money could be accounted for as equity or credit capital. Equity capital
means that the investor is co-owner and has voting rights. This investor
will receive dividends whenever the company generates profits, but unless
there is an active market for the shares the investor will not be able to
receive back the invested sum (or principal). Credit capital is lent money
and does not entitle to the right of co-determination in the company. The
creditors are due to receive back the money lent plus a certain yield. Both
types of capital should be rather easily manageable by such a digital
intermediary. The problem surges with all the other types of
contributions, the non-monetary resources. Here lies the crux of this new
digital intermediary. Maybe a system that works like as an auction? This
functionality would need much design thinking in order to work and be
accepted by a vast majority of people.
Now imagine there is not a bunch of employees with know-how who
have been fired and willing to create a company with an already defined
business purpose. There is only one person with a vision or just a very
unsharp idea of what could become something extraordinary.
According to a Swiss newspaper, there is a new habit that most parents
in the occidental world have: Indoor-Kinder. These are kids who are being
over cared for by their parents. In line with this new trend or behaviour
and without taking notice of its implications, we could imagine a mother,
who worries very much about her kids, and she would like to know where
they are at any moment in time without her being present. Lets call this
mother Martha. She thinks that it could be a great idea to have an app that
would give her the exact location of where her kids are. She looks in the
app-store, but she does not find anything. During a stroll through the park
Martha meets her friends and also parents. Her friend Ana, whom she tells
about the idea, welcomes such an app but has never heard of anything like
that. Jeff thinks that such an app could only work if each kid would be
equipped with a GPS device. However of course children break and lose
many things they are supposed to be wearing. So this device, Jeff thinks
aloud, needs to be well protected and firmly attached to the kids at least
during the day. Ana has got a new idea: why not a fancy bracelet. Yes,
lets call it Whimyk-band as shortcut for Where is my kid responds
Martha. Now this could be the seed idea and feedback conversation for a
new business and product idea. Now this is usually a state of realisation at
which most of peoples ideas die. They end up just being wishful thinking.
Now what do this potential founders have? They have an idea, which
promises to be successful because it is born out of a very current
necessity. What they most probably are lacking is time, money and know-
how. So these are resources others could be contributing to this idea.
In a first step, the before mentioned digital intermediary could publish
Marthas, Anas and Jeffs idea in a New idea list and propose the three
founders a participatory and organisational structure. In an initial step,
each of them gets a 5% stake. The remaining 85% remain free and to be
floated to other possible contributors. From an organisational point of
view, the three of them would receive the title of founders and would
jointly take any further decisions. All of this information is published and
in the first phase interested contributors could start a creative feedback
conversation or simply press the thumbs up or the thumbs down button.
In the next phase, the founders and the interested contributors could start
building an implementation plan that asserts which resources will be
needed and a further organisational structure..

The rise of Liquid Companies enabler.

As the reader can see I am trying to develop the wheel that invents the
wheel: a platform that allows the creation of online evolved undertakings.
I like to call them liquid companies because they would have evolved by
crowdsourcing all kinds of contributions online. All of this needs to be
developed in a design thinking way, I suppose, that is by having a creative
conversation, building first prototypes, testing and failing, and starting
anew until we have a final working prototype most of the testers feel
comfortable with.
First feedback
I have already received first feedback for this idea, as you can read
below. If you would like to add your own pick to this crowdfounding
community, please visit crowdwithme.com or https://moot.it/
crowdfounding.
Too complicated
One feedback I received was: it is too complicated. Business ideas that
work need to be simple and easily graspable. I suppose this feedback is
quite legitimate. There is this notion that people gravitate towards ideas
that are simple to understand (http://tiny.cc/kr0odx). Facebook was a
simple idea, and it wasnt even the first social network, and it works like a
charm, at least so far.
However, the article mentioned before also claims that it is our
responsibility to take complex information and whittle it down to
something functional, easy to interact with, and aesthetically pleasing.
Well, this is what is meant with creating a liquid enterprise enabler. A
simple interaction catalyst to bundle resources to create new companies.
In the 19th century people also joined to create things like railway
companies or cars. These enterprises evolved under much less favourable
conditions, but it was still possible to create complex value chains and
companies. Now this company creation process should be made simple by
using the technologies and the habits we have nowadays.
It should be possible to publish ideas online without fear of being stolen
Another feedback I received was: many people are wary of publishing
their ideas online or in general because they fear that other people might
steal them. It would be necessary to create a platform that can testify at
any time what idea, by whom and when it was published. Indeed a
platform like this could serve as a legal copyright protector in case any
idea could become an issue of a legal dispute.