Money-making platforms are rare: the cost of co-creation
When Hyve retweeted Sense (two renown co-creation consultancies), I thought the information must really be interesting. And it was. A report about Winning and Failing Co-Creation Platforms which compares 20 different platforms by interest, community scope or interaction tools.
Even though the report does have some flaws, its conclusion is very insightful and concludes that “money-making platforms are rare“, which is perfectly true. To generate cash, companies either have to sell community-output (like Quirky or Local Motors) or make big companies pay for using the platforms (like eYeka or InnoCentive). Co-creation, Open Innovation, Crowdsourcing… all these iniatives bear costs that can’t be neglected !
The advent Open Innovation (as comapred to producer innovation) represents a major paradigm shift. “We do not believe that Producer Innovation will disappear, but we do expect it to become less pervasive and ubiquitous (than before, and) to be combined with User & Open Collaborative Innovation” Eric Von Hippel and Carliss Baldwin say in a recent paper. The companies that failed at crowdsourcing product ideas, for example, did so because they considered it like a substitution (of other means of value creation) rather than a means for value creation. Engagement platforms are a major constituant of value co-creation, but using them for collaborative innovation or participative marketing bears costs. Von Hippel and Carliss Baldwin identify different types:
- The cost of design : paying for work equipment, identifying user needs, prototyping viable solutions…
As we could see in the video about the redesign of the shopping cart, identifying user needs and consumer insights is a crucial part in designing viable solutions to any problem. You need to hire qualified and experienced people (ideally with different backgrounds) to reach out to people and observe their behaviors. An alternative solution is to sollicit a global web-based community like eYeka or OpenIDEO to generate these insights by creatively answering to questions, but using these platforms isn’t free neither. A platform needs developers, designers, community managers; you also need to pay for bandwidth, storage, domains etc.
- The cost of communication and transactions : managing intra-project communication (and necessary hardware), getting product awareness of potential buyers…
Single-user innovations don’t need communication, mainly because the user is the sole developer and beneficiary of the innovation. Open-source communities rely on donations and the participants’ willingness to absorb small costs to make their platforms run. Firms, however, need to organize internal collaboration and to educate a large potential audience to the product’s benefits… Even the firms who have such a good product that they don’t really need to educate anyone, like Google, still need to pay for data storage, IP or lobbying.
- The cost of production : carrying out design instructions, purchasing and storing raw material, paying for work and infrastructures…
If you watch Quirky’s Manifesto, you’ll see how much it takes to develop and to build something, even if it’s 100% community-inspired (the video is as illustrative for production than for design costs, see first point). Other innovative companies like the French e-commerce retailer MyFab squeeze production costs by producing only pre-sold items, which not only decreases the sales price but also eliminates waste. This allows you to get a fixie for 200€, for instance.
- The cost of distribution : storing and delivering products, handling customer support and sustaining demand…
This point could also be illustrated by Quirky and MyFab, but let’s get back to the web. Co-creation platforms don’t only have to pay for data- or design-related costs, they also have to show that they are alive! Especially in creativity-related tasks, it is crucial to feed a community, to stimulate it and to provide support if needed. By regularly providing contests, by initiating proper contests or by being very reactive to user feedback (btw, UserVoice is another of these tools that a platform has to pay for), web-based platforms deliver the expected service to participants. A bad example is the current state or BootB (see photo) or the Portuguese site cocreation.pt, which “is not ‘alive‘”. This gives the unpleasant impression of just being an idea/innovation basket to the company’s benefit.
People who join want to experience a breathing platform. Not something that is dead.
Organizing and giving sense to user contributions is not free, and over-sollicited consumers probably won’t offer their time and energy for initiatives if they don’t see any value in doing it. Michael Cusumano (Professor of Management at MIT) recently said in an interview that “Consumers continually demand more innovation (…) but they want to pay increasingly less money. They want to pay what they pay Google for searching on the Internet, which is zero. They want to pay what they pay for an open-source software product, which is zero“. How can co-creation platforms make money, then?
Chris Anderson also said that Free creates tremendous pressure on companies, which have to figure out ways to make money. The only platform I know that asks participants to pay for submitting ideas is Quirky (here‘s how they explain it), but my guess is that even this fee does cover 1% of the total costs engaged. But Quirky is still backed up by numerous VC firms… the last round of funding got them USD 16 million! If you’re interested in business-models, you might have a look at another great presentation from Board Of Innovation:
I’d be glad to receive comments and precisions about all this, blogs are for sharing and learning!