Crowd Innovation: Hype or Help?

Crowd-Innovation: The Philosopher´s Stone, a Silver Bullet, or Pandora’s Box?

Kurt Matzler


Crowdsourcing, Innovation, Open Collaboration, Contests, Outliers

download pdf

Unconventional thinkers wanted
Solutions to some of the most challenging problems have always come from people that are neither specialists nor experts in the focal field. These people have used unorthodox reasoning and relevant knowledge previously not applied to a given problem. Box 1 describes two such examples, one dating back to the 18th century, and one from current times. An advantage of our digital age is that these innovators, problem solvers, and gifted inventors can be reached and motivated to contribute their ideas and knowledge to the most challenging problems via well-organized crowdsourcing. This term was coined in 2005 by the editors of Wired Magazine, who used it to describe how organizations can take advantage of the networked world to “tap the talent of the crowd”. Crowdsourcing as a term was soon after adopted by bloggers, in the popular press, the business community, and in academia. Not only did it become popular, it was regarded in many industry circles as the philosopher´s stone of innovation. But does crowdsourcing live up to expectations? Or is working with the crowd like opening Pandora’s box? It´s time to take a closer look at how crowdsourcing works and what it can actually accomplish.


Crowdsourcing can take different forms
All kinds of organizations, both public and private, have tapped into the “wisdom of the crowd” to find help in solving problems and developing innovations. According to eYeka, one of the largest crowdsourcing and co-creation platforms, 85% of the 2014 Best Global Brands have used crowdsourcing, of which the quest for innovative ideas was the most frequent application (59%), followed by marketing and communication ideas (34%) and design solutions (7%). Crowdsourcing has become so popular among companies that specialized crowdsourcing platforms and services have emerged to serve the demand. InnoCentive is probably the best known of these. It considers itself “the global pioneer in crowdsourced innovation”, with a community of approximately 400,000 problem solvers from over 190 countries. More than 2,000 contests have been held and more than USD $20,000,000 has been paid out in prizes so far. Kaggle is another example. Owned by Alphabet Inc., Kaggle is an online community with more than 1 million data scientists and machine learning engineers. Kaggle runs competitions in diverse fields and disciplines, from news analytics to predict stock price performance, algorithms to understand customer loyalty, predicting customer revenues, or prices for real estate. Other areas are clinical research, health care, basic biology, criminology, and search technology. There are different forms of crowdsourcing, of which the most popular for innovation are described below.

Contests are the most common way to tap into the creativity and expertise of large crowds in the context of innovation. A company offers cash prizes to those who solve a challenging problem or submit a winning creative solution. The challenge is broadcast as widely as possible and it is open for a fixed period. Some of the toughest scientific and technological challenges have been solved through contests. Contests are also used for topics like developing new product designs, algorithms, or commercials.  For instance, Swarovski organized gemstone design competitions, Netflix created a prize for collaborative filtering algorithms, and Frito-Lay launched its successful  “Crash the Super Bowl” contest. A contest is particularly suitable when the problem is complex or novel, and when it is not obvious who might have the best solution or idea.

Crowd collaboration projects, by contrast, do not seek the best individual solution for a problem, but try to tap into collective wisdom to aggregate knowledge and ideas into a coherent and value-creating whole. Wikipedia is probably the best-known example. Another is OpenIDEO. It was launched by the design and consulting firm IDEO as an “open innovation platform where people from all corners of the world collaboratively tackle some of the toughest global issues through launching challenges, programs, and other tailored experiences”. Based on “design thinking”, the IDEO community shares ideas, collaboratively refines them, and tries to solve problems like “How might mobile technology help improve access to healthcare?”. Some companies have begun to involve large internal and external crowds in strategy-making. IBM, for instance, invited its 150,000 employees plus externals like business partners, customers, or university researchers into its strategy process, attracting more than 46,000 ideas. The US Navy used a crowdsourcing platform in the form of a massive online war game to update its strategic plan.

 Crowd complementors are a third common form of crowdsourcing. With this approach, a product or platform owner invites the crowd to develop innovative solutions that create value through complementary innovations.  In contrast to the other two forms, it does not seek the solution to a defined and specific problem, but new applications for many different problems. Amazon for example, allows the crowd to develop and publish skills for its virtual assistant Alexa. Using the Alexa Skills Kit, by the end of 2018 almost 60,000 skills were developed by the crowd. In 2019 Amazon went further by allowing every user to develop skills with templates and to publish them.

While these are the most relevant, crowdsourcing has been extended to many types of tasks. Micro jobs are offered to crowd workers on platforms like TaskRabbit or Amazon’s Mechanical Turk. Crowdfunding for startups can be performed via Kickstarter, for instance, and user generated content can be offered on iStock’s photo collection, YouTube, and many other platforms.

Why crowdsourcing works

What makes crowds attractive as innovation partners? And why are strangers and anonymous experts often the ones who come up with the most original or simplest solutions? Research has identified four basic explanations.

Marginality refers to the distance between the solver’s field of technical expertise and the focal field of the problem. Karim Lakhani, professor at the Harvard Business School and one of the foremost experts in crowdsourcing, has spent years conducting and studying hundreds of crowdsourcing projects. In the case of the crowdsourcing platform InnoCentive, he found that topical distance was positively related to higher rates of winning solutions. Technical and social marginality can be a source of different perspectives, and heuristics and can play an important role in explaining individual success in problem-solving. Experts, industry specialists and professionals tend to generate many good ideas, but with little variation. Due to specific education, formal training, work experience, and regular practical application, experts accumulate knowledge in their specific domain. They develop routines to solve frequently encountered problems and converge on conventional cognitive frameworks. Crowdsourcing, on the other hand, attracts a diverse audience and a variety of nontraditional problem solvers.

The Bell Curve. Karim Lakhani’s second observation regarding the Bell Curve of ideas is simple but compelling. Innovative ideas tend to be normally distributed. There will be a few “low quality” ideas, many average ideas, a few good ones, and with luck, one or two that are exceptional. To develop groundbreaking innovations, companies seek those exceptional ideas or, statistically speaking, outliers. Outliers are extremely rare in small samples, however. When it comes to innovation, whether strategic, technological, or new products, we care about “extreme values”, and to get those we need large samples. The Austrian crystal producer Swarovski, for instance, invited more than 1,700 participants to submit over 3,000 pieces of jewelry during a jewelry design competition. Among the participants were both professional designers and amateurs or hobbyists. Submitted designs were evaluated by all users, with the top designs generating more than 4,400 evaluations. Statistical analysis revealed the bell-curve pattern depicted in Figure 2: Designs by professionals, on average, received the highest ratings, their variance on quality was the lowest. Non-professionals submitted low average quality, but with high variance. And the designs evaluated exceptionally highly – representing the “extreme values” – came from the non-professionals!


Kurt Matzler
Professor of Strategic Management, University of Innsbruck, Austria, Kurt.Matzler@uibk.ac.at

Further Reading

Boudreau, K. J.; & Lakhani, K. R. (2013): "Using the crowd as an innovation partner", Harvard Business Review, Vol. 91 (4), 60-69, 140.

MacCormack, A.;Murray, F.; & Wagner, E. (2013): "Spurring innovation through competitions", MIT Sloan Management Review, Vol. 55 (1), 25.

Verhoef, P. C.; Beckers, S. F. M.; & von Doorn, J. (2013): "Understand the perils of co-creation", Harvard Business Review, Vol. 91 (1), 28.

Jeppesen, L. B.; & Lakhani, K. R. (2010): “Marginality and problem-solving effectiveness in broadcast search”, Organization Science, Vol. 21(5), 1016-1033.

Poetz, M.; & Schreier, M. (2012): “The value of crowdsourcing: Can users really compete with professionals in generating new product ideas?”, Journal of Product Innovation Management, Vol. 29 (2), 245-256.

Füller, J.; Hutter, K.; Hautz, J.; & Matzler, K. (2017): “The role of professionalism in innovation contest communities”, Long Range Planning, Vol. 50 (2), 243-259.