The Rise of the Crowds

People all over the world regardless of where they reside are able to connect and engage with each other.

‘Crowds’ connecting to the web from their mobile phones and sharing knowledge with others on social media are changing some critical aspects of our civilization noticeably. In this essay, I would touch upon how the many ‘small’ people empowered by technology are coming together and are impacting two areas:
1. Politics and social systems
2. Business and Business Models

The Rise of the Crowds in Politics and Social Systems

New technologies have enabled the ‘Rise of the Crowds’ in the 21st century. I single out three ‘technology enablers’ that have this ‘coming together of ordinary people’ far more than anything else – ubiquitous internet connectivity, the mobile phone and social media.

There are more than 3 billion unique internet users in the world (40% of the world’s population)1. They own 2 billion smartphones and 83% of internet usage will come from these phones2. Being many times less expensive than other computing devices, the smartphone is key to plugging in the people to the internet and enable them to ‘come together’. There are around 1.39 billion monthly active facebook users and 1.19 billion of these users login via mobile3. More than 500 million tweets are sent per day4!!! Making dialogue possible, more than 1.5 billion people speak the English Language (native and non-native)5.

The Arab spring was heavily impacted by Social Media like Facebook and Twitter. A 2011 study by Prof. Philip Howard6 found out that “social media carried a cascade of messages about freedom and democracy across North Africa and the Middle East, and helped raise expectations for the success of political uprising”. For example, during the week before Hosni Mubarak’s resignation, the total number of tweets ballooned to 230,000 per day6. Imagine a country full of ‘walkie-talkies’ but better than those available with the state police. Moreover, these talkies could broadcast to and receive from everybody!

Facebook also played a vital role in the overthrow of Dictator Ben Ali’s incredibly corrupt government in Tunisia. Why did Ben Ali just not shut down facebook? Because so many people were using it that shutting it down might create more problems than leaving it alone.

The Mobile is as inexpensive a passport to the internet. The internet is a key which you use to unlock information and opinions (close to 152 million blogs7). The social network is the tool to broadcast those opinions unhindered by any borders.

The hashtags feature of Twitter has been used for campaigns, most recently the #BringBackOurGirls campaign protesting the kidnapping of over 230 Nigerian girls by Boko Haram.

Due to social media, the new normal in the political climate and civil society are as follows:
1. Someone is going to express dissent if they are not happy
2. If an ‘influencer’ (someone with many followers) ‘shares’ a dissent it is going to be amplified.
3. Politicians cannot overlook critical issues and are in a pressure to respond quickly.

The third point above may probably be the greatest contribution of social media creating checks and balances in the Government and shifting power to the crowds. Change.org is a website that ‘small’ people use to create petitions and pass around in social media to collect signatures. Laxmi, an acid attack survivor in India had to go through the horrid experience of having her face disfigured at the age of 15. She created a petition in 2013 to regulate the sale of acids in the country8. Over 27,000 people signed the petition. The Government intervened and implemented her suggestions. How long did it take? 7 days!

Mancur Olson, the great economist gave the classic equation for collective action:

Per Capita Benefit of Collective Action = Pbi – C/n

Where P = Probability of victory, bi = benefit to the individual, C= Cost of collective action and n = number of people
The Internet and Social Media have decreased the ‘C’ in the above equation by a huge amount (able to collect hundreds of thousands of signatures in a few days) and hence we see the crowds rising like never before.

We may need to rewrite the popular proverb for this age: “The ‘Share’ and ‘Retweet’ buttons are mightier than the sword!”

The Impact of Crowds on Business and Business Models

Amazon gave customers the power to rate and review products (primarily books) in the late 1990s which was heralded as something progressive. But no one could have anticipated the impact crowds would have on business a decade later.

New technologies are empowering the crowds to actively disrupt ‘taken-for-granted’ business models – Internet, Mobile, Social Media, Big Data, 3D Printing being the chief among them.

“Wikipedia is like a public toilet seat because you don’t know who used it last”9, said an Encyclopaedia Britannica editor about one of the most visited websites that is almost entirely managed by the Crowd. But a study by Nature magazine in 2005 pointed out that the accuracy of Wikipedia was approaching that of Britannica10 – an encyclopaedia founded in 1768 and has entries by 110 Nobel Prize winners and 5 US Presidents11! The Crowd had won. In 2012, Encyclopaedia Britannica announced that they were stopping the print edition.

Take Stackoverflow – a popular Q&A site on computer programming. You no longer need to flip through expensive expert books to get the answer to a ‘bugging’ problem (pun intended). Just ask the crowd. Founded in 2008, the website has more than 8.7 million questions12. 92% of questions have been answered in a median time of 11 minutes13!

I would point out four inferences about ‘crowds’ from the experience of Wikipedia and Stackoverflow:
1. There is a large pool of high-skilled and knowledgeable talent in the crowd that can be accessed and tapped
2. You can always find someone with an answer to every question.
3. People will create and share knowledge/insights for free
4. Money may not be the primary motivator to share knowledge. There can be motivators like Fun (Wikipedia) and Reputation (like in Stackoverflow).

The startup Hackerone which connects a crowd of ‘hackers’ with companies to fix security vulnerabilities in their system and get paid to do so. Companies like Twitter, Airbnb and Dropbox which hire the best of tech talent are among its customers.

Many internet platforms have done a great job in tapping the crowds. Starbucks has a dedicated website ‘My Starbucks Idea’ to crowdsource new ideas. Free wi-fi, recyclable cups, recyclable ice-cubes were all suggested by the ‘crowd’14. Quora connects the members of the crowd with each other and is building a huge repository of human knowledge on the internet that otherwise would have stayed locked in the brains of individuals. Innocentive, a knowledge market connects companies with hordes of ‘innovators’ or ‘solvers’ to help them create breakthrough innovations. You can potentially tap more than 250,000 solvers from 200 countries15!

The Internet has broken down the ‘access barrier’ and the improvements in adjacent technologies in the digital ecosystem like payments, data analytics etc. have created a new set of businesses.

Some very provocative questions: Do we need a school to get educated? Do we need a bank to borrow loans? Do we need hotels to stay in other places? Do we need to haggle with taxis companies to go to a place? Does a startup need to raise money from a traditional investor like a Venture Capital firm?

The answer to all of the above is a resounding no. I call these new set of businesses the ‘Crowd-is-King businesses’. In these businesses, the traditional service provider is not only made less influential but it is made non-essential. With Udemy people learn skills from each other – the school is made non-essential. With Lending Club you can lend and borrow to each other – your traditional bank is made non-essential. With Airbnb, members of the crowd stay in other members’ homes – the hotel is made non-essential. Lyft and Sidecar lets you drive in a car of another member of the crowd – the taxi companies are made non-essential. Kickstarter lets startups raise funding from the crowd (crowdfunding) – the VC is made non-essential.

The above are peer-to-peer models that make the crowd the king.

DIY (Do-It-Yourself) approaches also make the crowd the key stakeholder. Chocri runs a website called Createmychocolate.com that lets you customize chocolates based on recommendations and insights from the crowd. Threadless is a t-shirt company where the crowd is the ‘employee’. The company conducts design competitions and the best designs are printed on t-shirts and are sold online.

The Crowd is not only making an impact on the digital front (the world of bits) but also on the ‘real world’ (the world of atoms). 3D printing has given the crowd the power to manufacture at a low cost highly customized objects. In a decade, probably you may be able to ‘print’ anything you want. The advantage of 3D printing is unlike traditional manufacturing, there is no penalty on manufacturing just one item (conversely scale in 3D printing does not bring down the cost). So you can dream of creating customized superhero lines or your own ‘Hot Wheels’ and popularize it (Mattel beware!). Techshop, a pioneer of the ‘Maker Culture’ in the United States is a chain of member based workshops. Members can access manufacturing tools like 3D Printers, Laser Cutters, Computer terminals loaded with Autodesk design software for a subscription fee.  As its chief executive Mark Hatch says, “When you move something from $1 million in development costs, or $250,000 in development costs, down to $2,000, $5,000, you now enable anyone in the middle class to innovate. And that is new to the world. We’ve never operated, since the beginning of the industrial revolution, in an era where the middle class had access to the same kind of tools that the big boys do, and now they do.”17 Products like Square credit card reader, Embrace baby warmers, Lightning motors were all born out of ideas at Techshop.

The Crowds have just been warming up. My prediction is that they will gradually take over.

The Crowd Takes over – Implications for Incumbents, Entrepreneurs and Government

Crowd-dependent business models will radically disrupt multiple industries. With new technologies, the logic is as follows:
1. The transaction costs to connect with multiple people are vastly reduced.
2. Many of the high fixed costs are eliminated
3. The crowd is far more inexpensive than having employees.
4. The traditional marketing advantage of incumbents is reducing. A great product can potentially be exposed to thousands of customers on the internet.

To illustrate the above point, let us compare the cost structure for a traditional bank and Lending Club (where one member of the crowd lends to another).

Lending

The cost structure at Lending Club is devoid of all the big cost components of a traditional bank. Add to this the fact that the company can run hundreds of thousands of transactions per hour (something that a traditional bank cannot) and you get a significantly less cost per transaction. The brilliant result is that via Lending Club, borrowers can borrow money (whenever they need it) and potentially at many percentage points lower than other sources and lenders receive a return higher than when they would have invested in other sources.

This era is a golden opportunity for entrepreneurs to build crowd-dependent disruptive businesses. If you are an entrepreneur, you can build a news business where the crowd are the journalists and break the story faster and investigate deeper than CNN. You can build a healthcare business where people are treated by the crowd for smaller illnesses very inexpensively. You can build an investment advisory where the best members of the crowd give top-notch advice to other members of the crowd. You can build great non-profit organizations that are dependent on the crowds like ALS which raised millions with its Ice-Bucket Challenge.

Crowd-dependent business models greatly benefit society as they ensure important services like education, financial services, healthcare etc. to ‘non-consumers’ – people who were not served by the incumbent business models.

There may be some negative consequences of crowd-dependent models though. One of them is the rise of winner-takes-all platforms – one platform dominating the entire industry. Another is the ease with which can find workers ‘on-demand’ from the crowd on the internet. While giving flexibility over work, companies can potentially circumvent employee benefits, pension, insurance and other criteria since these on-demand workers are not treated as employees. Companies like TaskRabbit have been very successful. While this expands the market for number of workers, the wages may take a hit. Venture Capital funding for these ideas has been increasing17.

venture in on-demand

The Government has a responsibility to encourage crowd-dependant models that enrich the society and must rethink regulations for the 21st century. At the same time it must monitor these models for negative consequences.

The Government itself can become more efficient by tapping the wisdom and potential of the crowds. For example, it can replace the bloated income tax department with an online platform that lists all government projects and tax payers can directly fund those projects and programs with the taxes that they owe! It can create a database of innovations all over the country and the crowd can vote on the innovations that benefit the society. We can even argue the need for Government interference in many social initiatives – imagine a platform where the crowd adopts different localities/communities, forms online communities and crowdsources problems in that locality (like funding a school, developing a website for an orphanage) and pooling in time, money and skills to solve those problems.

The Crowds and the ‘small people’ are going to have a tremendous impact on our society in the near future. We are at a unique juncture in history when technology is facilitating the whole of humanity to come together to solve each other’s problems. It is hardly surprising that the future looks pretty great!

References:

1 http://www.internetlivestats.com/internet-users/

2 http://dazeinfo.com/2014/01/23/smartphone-users-growth-mobile-internet-2014-2017/

3 http://newsroom.fb.com/company-info/

4 http://www.internetlivestats.com/twitter-statistics/

5 http://en.wikipedia.org/wiki/English-speaking_world

6 http://www.washington.edu/news/2011/09/12/new-study-quantifies-use-of-social-media-in-arab-spring/

7 http://www.wpvirtuoso.com/how-many-blogs-are-on-the-internet/

8 https://www.change.org/p/stop-selling-acid-stopacidattacks

9 Commentary: The Prodigious Growth and Maturation of Wikipedia by Graham R. Parslow

10 http://blogs.nature.com/nascent/2005/12/comparing_wikipedia_and_britan_1.html

11 http://corporate.britannica.com/about/contributors/

12 https://stackoverflow.com/questions

13 http://www.cs.berkeley.edu/~bjoern/projects/stackoverflow/

14 http://www.starbucks.com/coffeehouse/learn-more/my-starbucks-idea

15 https://www.innocentive.com/faq/Solver#26n1253

16 http://www.washingtonpost.com/news/capital-business/wp/2014/04/06/maker-movement-begins-rise-washington/

17 http://www.economist.com/news/briefing/21637355-freelance-workers-available-moments-notice-will-reshape-nature-companies-and

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