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High rewards at high stakes
More knowledge, better understanding of needs, fresh ideas, solutions to unsolved problems--these are the traditional benefits organizations seek from crowdsourcing. Not all companies, however, are aware that while the gains can be high, the risks can also be substantial. Prior research suggests that about half of all crowdsourcing campaigns fail. Crowdsourcing contests may turn out to be a nightmare for the sponsoring organization when participants do not behave as envisioned. Some contests are hijacked, and participants start to bash, shame or ridicule a company instead of being cooperative and supportive. Often such “firestorms” – negative, highly emotional posts in social media –arise when management acts in undesirable ways from participant perspectives (see Box 1 for examples). On the other hand, there is more to gain from the practice than innovative ideas. Positive side benefits from crowdsourcing can involve increased brand awareness, well-established customer relationships, or an innovative brand image. The difference between disaster and victory depends on how well a company succeeds in handling its crowd.

Understanding participants’ expectations helps avert negative distortions
In online contests consumers, designers, lead users, students, software developers, or other experts donate time to contribute know-how, often for free, and may reveal their own intellectual property (IP) to companies. To avoid negative turns in online competitions, it is important to understand why people engage. Organizations need to pay close attention to what participants expect to gain. They can be persuaded to share creative ideas, offer candid opinions of products, and spend valuable time only if their expectations are to be met. Besides intrinsic interest in a project, which is a precondition for participation, there are other crucial aspects that require careful planning.

Offered incentives
Even if personal interest plays a key role, incentives are part of the game. Participants may be attracted by what a company offers in return for engagement besides monetary incentives like cash prizes, financial compensation, financial participation in product success, special offers and giveaways. Non-monetary incentives such as industry experts’ feedback, a warm thank-you, an appointment at the company to further elaborate an idea, or an official naming as co-developer are additional motivators. Similarly, recognition from the organization’s leadership throughout the selection process, and the prestige of associating with a well-known company are further motivators. Overall, crowdsourcing participants are heterogeneous not only in their expectations but also in their skills and contributions. Expectations may differ depending on the innovation task and stages of the process. Some users may be more interested in generating new ideas and solutions, while others prefer the evaluation and selection of product concepts. The incentives offered should suit these different desires and types of challenges. 

Fairness
Community members must feel fairly treated and learn to trust the contest provider. Figure 1 shows how fairness can be insured and signaled to participants and how it affects the outcome of a contest. Distributive fairness refers to the offered prizes: the amount of money and the number of prizes that can be earned. Whether the prizes are considered fair depends on what participants are expected to contribute, for instance, fair terms and conditions regarding the transfer of intellectual property rights. Procedural fairness refers to a transparent and consistent process, how winners are selected, as well as the quality of day-to-day interactions. While distributive fairness is a basic requirement for avoiding negative behavioral outcomes, procedural fairness serves as an engagement factor that engenders positive behavioral outcomes.

The contests of Moleskine and Pril (see Box 1) are two well-known examples that ended up in a publicity disaster because they violated participants’ sense of fairness. Moleskine’s incentive scheme for its target group of freelancers was poorly thought out. Their choice to award only the winner with a cash prize while requiring the transfer of IP rights from all participants regardless of whether they won or not was perceived as an insult and an unfair practice. In the case of Pril, it was the change of the rules in the selection of the winning design that inspired outrage, as participants felt cheated.