Prosuming

Opening up to open sourcing as a profitable business model is one of the newest trends among businesses. Many different companies are embracing the idea that their consumers and the public at large could produce valuable contributions to product design. Starbucks, for example, allows consumers to design their own coffee drink. Puma’s Mongolian Shoe BBQ lets the public design their own shoe. Amazon.com, IBM, craigslist, and a host of other businesses are all looking to open source as a new way to market, to design products, and to compete in what is becoming a ‘prosumer’ world.

Here are some more examples of companies integrating Open Source procedures into their business philosophy:

Fashion – Threadless

Why hire a product design team to come up with catchy phrases and designs for t-shirts when you can have the public do it for free?

Threadless is a Chicago-based T-shirt company which serves as the perfect example of a business capitalizing on prosumers. All of the tees produced by Threadless are designed and voted on by the public. Up to 300 designs are submitted daily, the favorites are picked by the public, and then the winners are awarded $2,000 per creation.

According to an article in Forbes Magazine, this translates into a T-shirt company with no product design team who made $30 million in revenue in 2009, secured 1.5 million followers on Twitter, and 100,000 fans on Facebook. Not bad for a company of only 50 actual employees.

Threadless has expertly cultivated a community of loyal fans and contributors that has proved to be the key to its success.

As Cam Balzer, the vice president of marketing at Threadless says:

“We’ve got a close-knit group of loyal customers and have worked hard to build that. The people who submit ideas to us, vote and buy our products aren’t random people, and they aren’t producing random work. We work closely with our consumers and give them a place on our site, the Threadless forum, where they can exchange ideas with one another–ideas that go beyond designing T-shirts. We have consumers who have voted on 150,000 designs, which means they’ve spent hours interacting on our site … They’re part of the community we’ve cultivated.”

- Forbes Magazine

The Web – Mozilla Firefox

The widespread use of the internet plays an integral in bringing open sourcing to the forefront of business practice. Without it, companies wouldn’t have nearly as much access to the opinions and contributions of prosumers. It therefore makes sense that web browsers like Mozilla Firefox (along with many other web-based software and applications) would be open source.

Introduced in 1998, Mozilla Firefox was designed around the idea that the internet “should be public, open, and accessible.” To that end, Mozilla brings together thousands of volunteers to aid its small staff in creating products which are available for free to the public. The company’s operations are open and transparent, the entire code for the browser is therefore a public resource, and the company hierarchy not defined by seniority or necessarily ownership, but by who contributes the most to product design and ultimately to “making the internet better for everyone.”

Media – NowPublic

NowPublic is a Vancvouer-based, online news source based entirely on stories and news submitted by the public. All of the audio, video, images, and written stories come from the public. The public even chose the lead story by voting on their favorite. The entire content of NowPublic is produced by 200,000 citizen journalists living in 5,500 different cities in 160 different countries. This makes NowPublic the largest participatory news organization in the world.

Still a relatively new company, NowPublic is rapidly making its mark in the media as reliable and remarkably current. Because NowPublic’s journalists are regular people with access to technology – whether it’s a computer, cell phone, camera, or anything else – NowPublic often finds itself the first news source to run a story. Other news sources have to bring in the reporters, ship them over to the drama lugging camera equipment in a manner which isn’t entirely expedious. For NowPublic, all it takes is one person with a Camcorder and an internet connection.

In 2007, NowPublic was named by Time Magazine as one of the top 50 websites for the year.

The Gold Industry – Goldcorp

Open Source methods have even found their way to gold!

When Goldcorp CEO Rob McEwen found himself heading up a dying mining company out of a 50 year old mine in Red Lake, Ontario, he knew he had do something different and radical to keep Goldcorp from folding.

Taking a page out of Linus Torvalds book, he decided to open up to the public and allow them to tell him where to dig for gold. McEwen published all of Goldcorp’s geological data on the web – an unprecedented move in the gold industry – and waited for mass collaboration to work its magic…. and it didn’t disappoint.

1,000 people from 50 countries competed for a grand price of $575,000 in what McEwen called the Goldcorp challenge. The virtual prospecting resulting in 110 targets being pinpointed by the public. 80% of those targets were profitable and resulted in $3 billion dollars worth of gold.

Goldcorp was transformed from the underperforming, dying company it used to be into a $9 billion company. Open sourcing proved to be the company’s savior.

A New and Open Breed of Enterprise

I’ll sign out with a quote from Wikinomics authors Don Tapscott and Anthony D. Williams from a Wikinomics series they wrote for Business Week in 2007:

“A new breed of 21st-century enterprise is emerging—one that opens its doors to the world; co-innovates with everyone, especially customers; shares resources that were previously closely guarded; harnesses the power of mass collaboration; and behaves not as a multi-national, but as something new: a truly global business. These new modus operandi revolve around four powerful new ideas: openness, ‘peering,’ sharing, and acting globally.”

Community, Consumer Loyalty, and Word-of-Mouth Marketing

When a company creates community around its products, it ensures customer loyalty. When engaged in a community, consumers no longer feel like they’re consumers. Rather, they see themselves as guests, members, and participants congregating around a common goal or belief. That change in mindset plays an integral role in up-keeping consumer commitment and in encouraging word-of-mouth marketing.

But why stop there? If community cultivating can serve as a marketing strategy and as the best possible customer care model available, shouldn’t it be able to do more?

Well, it can. A business’s community of fans, clients, followers, subscribers, guests…whatever you want to call them… can also take care of product design.

Peering and Linux

The idea of outsourcing product design to the public has become much more popular with the invention of the internet. It is the internet that has allowed businesses to source the intellect of people all over the world. What we’re seeing, as the Wikinomics authors Don Tapscott and Anthony D. Williams describe it, is a “new form of horizontal organization [that] is emerging [to rival] the hierarchical firm in its capacity to create information-based products and services, and in some cases, physical things” (22).

Tapscott and Williams call this new form of organization ‘peering,’ but the act of increasing corporate transparency and bringing in the public to help design and create a product is also becoming known under different vocabulary such as ‘open sourcing,’ ‘crowd sourcing,’ ‘peer-to-peer production,’ and ‘community-based design.’

One of the most familiar cases of outsourcing product design to the public is the example of the Linux computer operating system. Linux was started by a man named Linus Torvalds in 1991. Torvalds took the existing Unix operating system, created a simpler version of it, and then posted that version online for other programmers to view and modify. Some of the programmers made changes, for free, Torvalds ended up licensing the program under a general public license, and Linux as an open source operating system was born (Tapscott and Williams, 24).

Today, thousands of volunteer programmers make modifications to Linux on a daily basis, and because it’s reliable and more importantly, free, Linux is considered an important “enterprise software keystone” for many companies (Tapscott and Williams, 24).

Linux represents the perfect example of an organization or a business sourcing the public to help design a product. With the internet, especially the onset of Web 2.0, with our still sour economy, more and more companies are adopting the open source model. It’s cheaper than supporting a bulky design team; it can be quicker than using traditional design methods; and perhaps most importantly, the transparency and trust inherent in peering and open source strategies are incredibly effective at cultivating that longed-for sense of community and customer loyalty around a product.

Of course, with that sense of community and loyalty centering around a product, businesses are rewarded with increased word-of-mouth marketing and increased participation in product design. It’s a virtuous circle. Open up to the public, allow them an opinion on the product design, secure their loyalties and their powers of advocacy, garner more interest in the product, and ultimately receive more input in product design!

I want to go into more detail on different businesses and companies that operate on the open source model, but I think a separate blog post should be dedicated to exploring those distinct examples. Look for it next week!

Collaboration = Wealth

For now, I would like to close out with a Ted Talk by Howard Rheingold on the history of human collaboration, current economic thought on human collaboration, and the future of human collaboration. In particular, I want to draw attention to the last six minutes of Rheingold’s talk where Rheingold starts to talk about how open sourcing, peer-production, and cooperation, can transform into wealth.

*Tapscott, Don and Anthony D. Willilams. Wikinomics: How Mass Collaboration Changes Everything. USA: Portfolio, 2008.

This article in Globe and Mail points out that everyone is searching for ways to solve problems in one of the most difficult economic climates in generations.  The temptation for institutional traditionalists is to sink further into their bunker while (paradoxically) looking for a new way forward.  This is exactly the kind of thinking that got us into this mess.

We need leaders to start looking for something more, and the author notes:

The key to finding that “something more” may well lie in “open-source problem solving” – a technique employed by Toronto executive Rob McEwen more than a decade ago to revitalize a dying gold mine at Red Lake, Ont., and turn it into one of the most productive lowest-cost gold mines in the world. (The story is well told in the book Wikinomics, by Don Tapscott and Anthony D. Williams.)

When Mr. McEwen took over the Red Lake mine, the gold market was depressed, the mine’s costs were out of sight and its union refused to make concessions. It looked like the end was near. (Sound familiar?) But Mr. McEwen believed there was gold to be found. He gave his geologists a “stimulus package” – $10-million for further exploration – and his faith was rewarded when they brought in test results indicating rich new deposits on the Red Lake property. But getting an accurate estimate of the gold’s location and value, and proceeding with development, proved frustratingly elusive.

Then, in 1999, Mr. McEwen attended a seminar for young presidents at the Massachusetts Institute of Technology. He listened to the story of Linus Torvalds and how he had assembled a world-class computer system over the Internet by using the “open source” technique. At its heart was Mr. Torvalds’s willingness to reveal his computer code to the world and invite thousands of anonymous programmers to vet and improve it.

Open-source problem solving! Expose your goal, your problems and all your data on the Internet. Invite proposals from anyone. Offer clear guidelines and substantial financial incentives to induce quality responses, and act on the best proposals received.

So, Mr. McEwen offered $575,000 in prize money to participants with the best proposals for developing his mining property. To the horror of his company’s old guard, he posted all the proprietary geological data on the Red Lake property on the Internet, inviting analysis from geologists and other experts all over the world. Responses flooded in identifying target sites for development, only half of which had been identified by the company. To make a long story short, the open-source collaborative process aided Red Lake in finding and extracting more than eight million ounces of gold and in re-establishing the mine on a more prosperous footing than it had ever enjoyed before.

It is possible to build innovation and increase productivity even by sharing a company’s previously proprietary information, if it includes inviting ideas from outsiders and breaking down artificial barriers between them.  The big problems are going to take a more comprehensive approach, and one way to get us all working on solutions is to embrace open source problem solving.

You can find more about Wikinomics here.