Chapter 2 Literature Review
2.1 What is a Crowdsourcing Platform?
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Chapter 2 Literature Review
2.1 What is a Crowdsourcing Platform?
What is a crowdsourcing platform? This is the first thing that we must define.
Following are the four essential characteristics that we should understand to
demonstrate what a crowdsourcing platform it is: crowdsourcing, two-sided markets, network effects, and mobile mind shift.
2.1.1 Crowdsourcing
“Crowdsourcing” is a modern business term coined by Jeff Howe and Mark Robinson in the June 2006 issue of Wired magazine (Howe, 2006). The word combines “crowd” and “outsourcing,” expressing a method for using the power of crowds for an outsourcing operation. It is a recent phenomenon receiving significant attention both inside and outside of academia, and it has been implemented rapidly and widely. On Howe’s blog, he provides a white paper version of the definition:
“Crowdsourcing is the act of taking a job traditionally performed by a designated agent (usually an employee) and outsourcing it to an undefined, generally large group of people in the form of an open call.” Brabham (2008a), the person who introduced the word “crowdsourcing” to public scholarly research, defined crowdsourcing as online, distributed problem-solving and production models.
In our view, crowdsourcing is a problem-solving and production model that builds a close relationship among numerous people from the public who have intelligence.
These people usually reach a consensus of on the specific transactions, and each takes what he or she needs. It can be collective collaboration or connective cooperation on a platform. Because crowdsourcing provides an easy access to participation for
individuals from anywhere in the world, it is increasingly organized through the Internet (Hossain and Kauranen, 2015). Crowdsourcing has proved beneficial in many adoptions from information sharing, labor or product services to specific purposes of participation.
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There is a current lawsuit more than one year old that recently became viral. United Airlines and Orbitz sued Aktarer Zaman for creating a website called Sikplagged.com as a hobby to help travelers find inexpensive flight tickets through a strategy called Hidden City ticketing. This 23-year-old man, Aktarer Zaman, fought back against the two giants instead of succumbing to the lawsuit. He asked for help from the crowds on Sikplagged.com to help him pay for his legal expenses using a GoFundMe
campaign, and he ultimately received a flood of donations (Bort, 2015; Zaman, 2014;
Gillespie, 2015). This story provides an example of using the power of
crowdsourcing: Aktarer Zaman received funds from crowds. However, crowdsourcing has potential use beyond raise money, it can be used widely in less expensive and more effective manners.
2.1.2 Two-sided Markets
Two-sided markets, also called two-sided networks, are economic platforms with two distinct user groups that provide network benefits to each other. According to Rysman (2009) it is a meeting place for two sets of user groups to interact through an
intermediary or platform (i.e., credit cards and recruitment sites). Examples of famous companies employing two-sided markets include the largest marketplace in China, Taobao; the social website Facebook; the recruitment site Monster.com; the search engine Google; and others. Two-sided markets can be found in many industries, sharing the space with traditional product and service offerings.
Different from values moving from left to right in traditional value chains, in two-sided markets, cost and revenue both move to the left and right due to the platform having distinct groups of supply side users and demand side users, although one side is often subsidized. The benefits to each group on the platform exhibit demand
economies of scale and demonstrate that two-sided markets are based on externalities, which economists called network effects, indicating that the two user groups are attracted to each other, and any given user largely relies on the existence of a
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friends are on Facebook posting their updates and there are news updates that we have liked. Our friends and our liked pages will encourage further new friends and new pages which is network effects that we all experience on Facebook. The other side of user group is businesses, who subsidize to the previous user group, they create their business pages and then advertising on Facebook for precision marketing. Facebook performs values both moving to the left and right, building up a meeting place for two user groups and also minimizing the transaction costs between the two.
Two-sided markets are said to be particularly useful for analyzing the chicken-and-egg problem of standards battles, so it will provide us with some ideas for studying how to balance the supply side and demand side of a platform. However, a new approach to strategy should be developed for the distinct characteristics of a business, so establishing a set of policies for the platform to ensure that it can satisfy each user and that it works well in a virtuous fashion is important. Due to the two-sided network effects on the platform, the value of the network increases when it facilitates
transactions for both sides. Eisenmann et al. (2011) also warn that three key
challenges should be considered when managing platforms: setting a pricing policy, dealing with the competition, and avoiding being swallowed.
2.1.3 Network Effects
Network effects, also called network externalities, arise when values in a network to a user relies on the number of other users with whom that user interact, has a feedback effect on individual user utility. Katz and Shapiro (1985) define two types of network effects: direct and indirect. Direct network effects occur when consumer utility depends directly on the total number of purchasers of the same network product.
Indirect network effects result from the availability of complementary goods and services. In platform-mediated networks, the network exhibits cross-side network effects when members of one user group have a preference regarding the number of users in the other group; the network exhibits same-side network effects when each group’s members have preferences regarding the number of users in their own group (Eisenmann, 2006; Coles and Edelman, 2011). As described previously, “direct” and
“indirect” network effects typically refer as same-side and cross-side network effects respectively.
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Network effects have impact on existing and prospective users’ tendency to participate in a network and their willingness to pay (WTP) for participation.
According to Eisenmann (2006), WTP is the maximum amount that an individual would pay for a product or service, and he assume that network effects are positive, then network growth increases WTP for prospective users. Although network effects typically positive, it can be negative as well (Coles and Edelman, 2011). With positive network effects, the more users participate in the platform, the more prospective users tend to join onto the platform. Examples of the novel and prevalence of Skype appeals users to introduce their contacts on their lists to use it, or online game players benefit from swapping online games with more peers, leading to attract more people to participate. On the other hand, with negative network effects, the more users
participate in the platform, the less WTP of users for network participation. Take Uber for instance, passengers feel a long waiting time to have a lift will turn to other similar services, or drivers feel congestion in the form of bad weather or rush hours will stop taking orders. Other common situations like platform users’ refusing reactions to advertising (as a user group), resulting in a sudden crunch rate of users.
In platform-mediated networks, network effects facilitate interactions between users.
The larger size and more prestigious a platform, the more useful or valuable users are perceived. The more compatible and more complementary a platform, the more users are willing to pay. Prior research has modeled perceived network size and perceived external prestige as factors of same-side network effects, and perceived compatibility and perceived complementarity as factors of cross-side network effects (Chiu et al., 2013).
2.1.4 Mobile Mind Shift
The rapid adoption of smartphones and tablets represents an unprecedented transformation in the ways in which consumers access the Web and other digital services (Walters, 2013). It was estimated by Forester (Wu, 2013; Scevak, 2014) that
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mind shift, which is the expectation that a person can obtain what he or she wants, in context, in moments of need (Bernoff, 2014). Digitally savvy customers are changing the world, the economy, and business, causing companies to scramble to keep up with mobile opportunities. Companies eventually make their websites mobile-ready and build apps to fulfill customers’ needs or, it can be said, to occupy the market.
With the mobile mind shift, companies use online-to-offline commerce, which drives online visitors (to either a website or an app) to purchase at offline stores and to transform the users into the companies’ own customers; these companies can easily and directly connect to customers with mobile devices. One of the best-known companies adopts online-to-offline commerce is the coupon service Groupon. It provides a deal-of-the-day recommendation service to customers for local establishments, ranging from restaurants and shops to fitness clubs and spas.
Customers order vouchers online on Groupon website or its app and then go to brick-and-mortar store to purchase offline.
Mobile mind shifts facilitates online-to-offline commerce and provides more effective and convenient means for both customers and companies. Customers can obtain bulk discounts and abundant, complete information about the company, they have more effective ways to contact the company, and they pay a less expensive price than in a brick-and-mortar store. Companies can acquire more channels to expose to large new, traceable customers, and they can understand customers more deeply through direct communication and customers’ profiles.
In summary, crowdsourcing platforms provide an environment for a specific transaction where two-sided markets and network effects operate, using
crowdsourcing to build a close relationship among numerous people from the public with intelligence through powerful technologies (we focus on “Online” platforms), and serve at least two distinct and mutually attracting groups of users to collaborate or cooperate through the power of crowds. Crowdsourcing has changed traditional industry chains and work structures. Moreover, crowdsourcing platforms mostly gather and exchange via the Internet. Many startups and companies with innovative thinking have intentionally harnessed online-to-offline commerce in their platform
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strategies. It can not only help to attain large numbers of users through network effects but also allow transactions to become more convenient and cost-effective.
Crowdsourcing platforms can be applied to diverse industries owing to the rapid and reliable development of ICT along with the prevalence of the Internet, and the concept of CAMS. Prominent companies that have adopted this type of business model
include the English language learning service VoiceTube, the private taxi service Uber, the accommodation service Airbnb, and the funding platform GoFundMe.