“Crowdsourcing” is defined as taking a task traditionally performed by an employee or organization, and outsourcing it to a group (or crowd) of people.

Crowdsourcing has given rise to a new breed of company. While historically companies served their customers in formal, one-way exchanges, crowdsourced companies are run by their customers, and serve as a conduit for their customers’ talent and ambition.

Crowdsourcing has given rise to companies whose entire business model is based on selling products dreamed up by their customers. For example, a company called Quirky lets customers submit home-grown product ideas which, if rated favorably by visitors to their website, are manufactured and sold. Following Quirky’s example, Threadless has introduced a similar model in the T-shirt space; Innocentive and IdeaBlob in the innovation space. Read: the only products these companies sell are the ones designed by their customers.

This phenomenon in not limited to web startups; traditional brick-and-mortar companies have also integrated crowdsourcing into their operations.

Starbucks has used crowdsourcing to change the way it runs its stores. Through the “My Starbucks Idea” website, Starbucks customers can create and prioritize the management decisions that Starbucks makes at a corporate level and rolls out through it coffeeshops.

Frito-Lay has used crowdsourcing to create TV ads for their products. In 2009 they crowdsourced the development of their SuperBowl ad for Doritos chips. The result? Not only was the ad televised to 95 million people, but in market surveys it ranked as the most memorable ad of the night.

So why should companies crowdsource?

For starters, I believe that companies that outsource can improve brand loyalty and lower costs. No doubt customers will think more highly of a company that not only hears their recommendations, but implements them (Starbucks). Doritos proved that crowdsourcing certain aspects of operations can lead to a product (advertisement) that is extremely cheap to make and very effective. Finally, Accenture recently reported that “68 percent of returns are products that work properly but do not meet customers’ expectations.” I believe that companies that open up the design process to their users are more likely to close this gap. And what is the impact on the bottom line? In 2009, $13.8 billion.

The philosophy of a company is actually sort of beautiful: a publicly owned entity in service of its stakeholders. In practice the difficulty of integrating potentially millions of stakeholders into the organization has made realizing this philosophy difficult, resulting in a disconnect (often public), between a company and its customers. Crowdsourcing enables a new reality, where companies are not only more responsive to customers, but in many cases are the customers themselves.

This week two Sloanies and I attended The Economist’s Media Convergence Forum in New York City. The purpose of this forum is understand the ongoing convergence between media, marketing, and technology. The panelists ranged from the founder of Twitter to the President of Sony Music. The topics ranged from media consumption trends among 12 year olds, to an excellent Oxford-style debate with Jeff Jarvis (What Would Google Do) on privacy and his prostate.

Here are the insights I found especially compelling:

On convergence in the music industry
– While digital distribution is killing off certain functions of the music industry (e.g. producing and distributing CDs), the industry itself continues to be viable. There will always be a need for an aggregator (i.e. major music label) that has the scale to help artists to negotiate favorable terms with large retailers (e.g. Apple’s iTunes store) and to launch synchronized global marketing campaigns.
Thomas Hesse, President, Sony Music Entertainment Global Digital Business

On convergence in the journalism industry
– While consumers care less about where they get their news from (established news-houses such as NYT vs. internet newcomers such as Politico.com), they care more than ever that their news sources are trustworthy. “Trust is the new black.”
Craig Newmark, Chairman, Craiglist

On convergence in the cable TV industry
– Misconception: A television show watched online will garner the same demographic as the same show on television. Reality: Putting a show online creates an entirely new audience. The average viewer of the News Hour on PBS is over 55. On the internet? Under 35 (and has never watched the show on TV).
Paula Kerger, President, PBS

On a business model for Twitter
– Twitter’s goals are twofold: to increase revenue and to maintain or better the user experience. Most of the time, these goals oppose each other: for example, banner ads increase revenue, but they diminish the user experience. Twitter wants to emulate Google’s approach to monetization: Be patient, and develop an innovative, game-changing model (e.g. Adwords) that increases revenue while maintaining or improving the user experience.
Jack Dorsey, Chairman, Twitter

On the future of the gaming industry
– Traditionally, great graphics have been the key differentiators for great games. Today, the quality of the game’s story is equally important. EA employs several academy-award winning screenwriters to create the storylines for their titles.
– It’s hard for to stay that modern kids have shorter attention spans, when they can focus for upwards of 100 hours on one game.
Elizabeth Harz, Vice President, Electronic Arts

– There is a rise in “pass-back” applications, or applications on expensive smartphones that a parent loads on to the device and passes it to their kid in the backseat of the car.
Michael Bellavia, President, Animax Entertainment

On the future of targeted advertising
– DEMO: YCD showed off their adscreens, which deliver an ad based on the gender and age of the person viewing it, as extrapolated from a snapshot of their face.
– DEMO: DecisionLab showed off a product which delivers an ad based on the emotional state of the person viewing it, as perceived through their visual expressions.

Finally, here is the Economist’s teaser video, chock-full with great factoids on media convergence:

My Communications prof recently asked my class to deliver a persuasive presentation on our topic of choice. I decided to use this opportunity to flesh out my thinking on recommendation engines, a concept I explored a few weeks earlier (See Data Mining: Because You’re Worth it).

The product I came up with is called Google Life. I pretended to be the “VP of Strategic Asset Development” (whatever that means) at Google, presenting the new product to Sergey Brin, Larry Page, and the rest of the Google Board (otherwise known as my classmates at MIT Sloan).

Don’t mind the financial projections — they’re completely made up.

Set-up and presentation below. Click the magnifying glass icon to view full screen.

What’s a more powerful organizational tool: your bedroom or your operating system?

Visualize your bedroom for a minute. Between your socks, books, and art, it probably contains hundreds of items (or if you’re my friend Jared, closer to thousands). If I ask you where to find one item (say your running shoes), chances are you can tell me on the spot.

Now let’s look at your operating system (e.g. Windows or Mac OS). Say I give you 100 word documents to place in folders throughout your operating system, and then ask you where a specific file is located. Chances are it might take you a bit longer to recall. Ask you a month later and, if you’re anything like me, you’ll need to fire up the search function to find the file.

So why is it easier for us to recall where things are stored in a bedroom versus an operating system?

It has something to do with the way our mind works.

Our minds are incredibly adept at remembering where things are located in the tangible “space” around us. And for good reason. It is this “spatial memory” that we’ve trained over millions of years to remember critical things such as where our tribe is located, or that we tap into today to remember where we’ve stored our shoes.

When it comes to locating a file on a operating system, however, our minds are less adept. Remembering where files are stored in digital folders has never been a survival skill (and may that never change!). Simply put: our minds have never been trained to think this way.

As we move an increasing amount of data into our operating systems, developing an easy way for our mind to remember where files are located has become increasingly valuable. That said, companies such as Microsoft and Apple continue to make life tricky for us by pushing out operating systems built around our minds remembering unfamiliar folder hierarchies. Why not take a different approach, and present data in a way that takes advantage of millions of years of human evolution?

Meet BumpTop.

BumpTop is the bedroom of user interfaces. BumpTop takes all of your digital files and throws them into a virtual room. It is then your task to organize these files however you want in this space. Throw your photos.jpg on your wall, your diary.doc on your nightstand, and your movies.avi on the TV stand. Once you’ve organized your files (or “moved in” to your room), retrieving a photo is as simple as walking over to the wall on which you hung it. Some would say it’s natural.

My prediction is that technologies such as BumpTop, that tap into our spatial awareness, will continue to find success as they make life easier for existing consumers, and lower the learning curve for new consumers (e.g. first-time computer users). So what does this more intuitive future look like? Here’s a start: marry Bumptop to the MIT MediaLab’s Sixth Sense, where users select files by just waving their hands, and finding a file may become as easy as walking over to a digital desk and waving your hand in their air.

And finding a word document will be as natural as finding (or losing) a pair of shoes.

BumpTop in action:

One of my favorite services is Pandora, a free, personalized streaming radio station.  Pandora’s appeal has less to do with it being free and streaming (free streaming radio has been around since the dawn of the internet), and more to do with it being personalized.  Pandora tracks the songs to which I listen — versus the ones that I skip — and plugs that info into a powerful algorithm that figures out what song I’d like to listen to next.  And then feeds it to me.

I love Pandora.  And I’m not alone.  Today 20 million users log in to Pandora because Pandora has got them figured out.  Other organizations have also jumped on the personalization bandwagon.  Even your local grocery store tracks the items you buy, and uses that information to print coupons on your receipt, which experience has shown you are more likely to redeem.

But in many ways, that’s old news.

What I find really interesting is what happens when user data is combined from more than one organization.  It’s taking the profiles of the Facebook friends you invited over for dinner, and combining it with your grocery store history to recommend the food you should buy for the party.  It’s taking your listening history on your iPod, and combining it with your bank’s data on the concert tickets you’ve purchased over the last ten years, to give you a deal on an artist you’d like who is playing five blocks from your house.

My prediction is that more accurate recommendations drawn from multiple sources will only make people happier.  So who’s going to do it?

That’s less certain.

The simplest theory is that a large company will snap up user databases that have a lot of synergy (e.g. streaming media companies and banks) by buying those companies outright.  The obvious choice is cash-rich Google, which through services that it has either created or purchased already knows what you search for, what you watch (YouTube), where you are (Latitude), what you read (Adsense cookies), how healthy you are (Google Health) and the sweet nothings your better half whispers in your voicemail (Google Voice), albeit poorly.

The alternative is that as more companies appreciate the value of buying more data (to understand their clients) or sharing more data (as an added source of revenue), we’ll see the rise of a universal API that will enable companies to plug into one-another’s databases for a set cost.

The biggest stumbling block to moving in this direction is privacy.  The data love-making that I described above would be illegal in many European countries, where consumer privacy laws are very strict.  On a social level, people might not be so pumped to have their kid’s liberal daycare center know that they spend most of their discretionary income on aerial wolf-hunting junkets.

This last week, I asked Facebook’s VP Mike Schroepfer (who spoke at the MIT EmTech conference) and the founder of Mint.com Aaron Patzer (who spoke at MIT Sloan two days after selling his personalized financial website… for $170 million) about how companies should deal with privacy issues as they collect more and more data on their users.  The common thread in their responses: set expectations.  Mike emphasized the importance of telling consumers very clearly what you are doing with their data (a lesson learned from the Beacon fiasco).  Aaron emphasized the importance of creating a flawless customer experience (pixel-perfect website; high uptime) that boosts confidence in the organization’s ability to manage customer privacy.

As the costs of gathering consumer data goes down, and the value becomes more apparent, it’ll be interesting to watch the interplay between how organizations gain access to data (take-overs versus APIs), and privacy.

In the meantime, back to my playlist on Pandora.