Crowdsourcing and Switching Costs

28 June 2006 at 7:00 pm Peter G. Klein 4 comments

| Peter Klein |

I blogged a while back about crowdsourcing, in which individuals, typically amateurs, complete to supply inputs to large producers or distributors via the web. Crowdsourcing is often likened to distributed computing, an age-old (in computer terms, anyway) method of sharing computationally intensive tasks over many CPUs.

The best-known example of distributed computing is SETI@home, in which individuals donate their spare processing power to the search for extraterrestrial life. There’s a problem, however, as Lee Gomes tells us in today’s Wall Street Journal ($): high switching costs. SETI@home users get points for donating computer time and, like frequent flyers who stick to one airline to rack up miles, many refuse to switch to other, equally worthy distributed computing projects (the search for an Alzheimer’s cure, a difficult problem in theoretical physics, etc.). As a result, says Gomes, SETI@home “is to distributed computing what AARP is to social-security reform.”

Moral of the story: If crowdsourcing projects attract mainly hobbyists, participating for fun or to impress their (virtual) friends, expect lock-in and substantial first-mover advantages. If participants do it for the money, however, the crowdsourcing landscape may be much more competitive.

Entry filed under: - Klein -, Strategic Management, Theory of the Firm.

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4 Comments Add your own

1. Teppo | 29 June 2006 at 12:22 am

I have yet to see a good theory for why people contribute to “crowd-sourcing” or open source-type activities (perhaps I need to more closely read one of the recent open-source special issues – I think Research Policy had one e.g.). Is it a way to “stick it to the man” (e.g., linux v. microsoft), is it a way to project identity or class – what is it? Is it ‘generalized reciprocity” – meaning that you contribute to some larger common good (golden rule type thing) in hopes of others contributing to you later in other ways (Sheen Levine told me once that there is an early 20th century sociologist who made this type of argument). Anyway, just thinking out loud.
2. Peter Klein | 29 June 2006 at 12:53 am

I like the explanation by Lerner and Tirole (J Industrial Econ, 2002), which is that open-source programmers do it for the money — i.e., they do get paid, just not right away. Contributing to open-source projects increases one’s reputation for programming skill, which translates into higher future earnings. (Presumably this doesn’t apply to the SETI folks — hello, intrinsic motivation!)

There’s also a good recent survey by Stephen Maurer and Suzanne Scotchmer: http://ideas.repec.org/p/nbr/nberwo/12148.html. I think they paint a more complicated picture than the Lerner-Tirole story.
3. Peter Klein | 29 June 2006 at 5:35 pm

And here’s an interesting (though lengthy) analysis, by a professional historian, of the history entries in the open-source Wikipedia:

http://chnm.gmu.edu/resources/essays/d/42

Notable excerpt:

Wikipedia has even developed its own form of peer review in its debates on whether articles deserve “featured article” status. Those aspiring to have their articles receive that status—given to the best .1 percent of articles as judged by such criteria as completeness, factual accuracy, and good writing—are encouraged to request “peer review” in order to “expose articles to closer scrutiny than they might otherwise receive.”59 Then further public debate decides whether Wikipedians agree on awarding featured article status.

I wonder if the authors who receive featured article status exploit that status in any way?
4. Lionel DAVID | 12 September 2006 at 1:48 pm

Hello, I’m the founder of a new crowdsourcing company which aims to design new innovative electronic products. This can be a revolution on the manufacturing industry. A well experienced team is already working on that project which is getting a lot of sponsor. Look at the blog to get further details : http://cecrowdsourcing.blogspot.com/. Bookmark this address as we have scheduled to launch an official website by the mid of october for joining this promising community.