Businessweek has an article on why the Midrange.com model succeeds.
this online business model has Americans happily toiling for attention on
for-profit sites that don't pay them money. Yahoo even hired microeconomists
and sociologists from Harvard and Columbia to maximize Yahoo's ability to
exploit free labor.
http://www.businessweek.com/technology/content/dec2008/tc20081228_809309.htm
*Will Work for Praise: The Web's Free-Labor Economy*
This online business model has Americans happily toiling for attention on
for-profit sites that don't pay them money
By Stephen Baker <
http://www.businessweek.com/print/bios/Stephen_Baker.htm>
It's dawn at a Los Angeles apartment overlooking the Hollywood Hills. Laura
Sweet, an advertising creative director in her early 40s, sits at a computer
and begins to surf the Net. She searches intently, unearthing such bizarre
treasures for sale as necklaces for trees and tattoo-covered pigs. As usual,
she posts them on a shopping site called ThisNext.com. Asked why in the
world she spends so many hours each week working for free, she answers:
"It's a labor of love."
Later this morning, a half-hour's drive to the west, a serial entrepreneur
named Gordon Gould strolls into the Santa Monica offices of ThisNext. Gould
has managed to entice an army of volunteers, including Sweet, to pour
passion and intelligence into his site for free. Traffic on ThisNext is
soaring, with unique visits nearly tripling in a year, to 3.5 million
monthly. What's in it for the volunteer workers? "They can build their
brands," Gould says. "In their niches, they can become mini-Oprahs."
Here's how it works. Entrepreneurs like Gould build meeting places that
provide visitors with tools to express themselves, mingle with friends and
strangers, and establish their personal "brands." The result, when it works,
is an outpouring of creativity. It has produced not only ThisNext, but also
YouTube and even *American Idol*.
*ABUNDANT NONFINANCIAL REWARDS*
You might think that with the economy crashing, the free-labor business
model would be crashing, too. Will people continue to invest in their
personal brands during hard times? Gould is betting they will. Between
investor visits during a late November trip to New York, he sips a soy latte
and speculates. During the downturn, he says, firings are sapping loyalty to
companies and steering people toward goals of self-sufficiency. In Gould's
acerbic phrasing: "The only person I can rely on not to screw
me—hopefully—is myself."
Beyond brand-hungry strivers, masses of free laborers continue to toil
without ever seeing a payday, or even angling for one. Many find
compensation in currencies that predate the market economy. These include
winning praise from peers, earning an exalted place within a community,
scoring thrills from winning, and finding satisfaction in helping others.
But how to monetize all that energy? From universities to the computer labs
of Internet giants, researchers are working to decode motivations, and to
perfect the art of enlisting volunteers. Prahbakar Raghavan, chief of Yahoo
Research (YHOO<
http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?symbol=YHOO>),
estimates that 4% to 6% of Yahoo's users are drawn to contribute their
energies for free, whether it's writing movie reviews or handling questions
at Yahoo Answers. If his team could devise incentives to draw upon the
knowledge and creativity of a further 5%, it could provide a vital boost.
Incentives might range from contests to scoreboards to thank-you notes.
"Different types of personalities respond to different point systems," he
says. Raghavan has hired microeconomists and sociologists from Harvard and
Columbia universities to match different types of personalities with
different rewards.
*VIRTUAL FOCUS GROUPS*
To date, he says, most of the research on recruitment and incentives comes
from far simpler domains such as frequent-flier programs and cell-phone
subscription campaigns, where goals and incentives are usually aligned. But
the volunteer economy has many more variables. What are the signs that a
participant will be enthusiastic and well-informed? How do leadership
qualities manifest? Do recruits bring in networks of potentially productive
friends? Researchers comb through petabytes of network behavior searching
for telltale patterns. One of the current studies rates the probability that
a person who's gifted in one domain is likely to perform well in another.
Communispace, a market research company near Boston, conducts similar
studies as it enlists volunteer marketing consultants. The company invites
targeted people to join hundreds of social networks organized around certain
products and services, from airlines to weight-loss medications. These are
virtual focus groups. The volunteers provide insights on advertising
campaigns and suggestions for new products. Manila Austin, a psychologist
who heads up research at Communispace, says that 86% of the participants
contribute to discussions and nearly 1 in 3 adds a fresh post each week.
When Austin and her team experimented with financial incentives, they
discovered that volunteers appreciated the gesture, but didn't want payment.
Participation rose when volunteers received a token $10 gift certificate as
a thank-you. But raising the value of the certificates made no difference.
"People want the validation that they are being heard," Austin says.
*SHARING THE WINNINGS*
Financial payments can, in fact, create tensions. For centuries humans have
learned to distinguish between two different economies—the social and the
market. Dinner guests, for example, satisfy social obligations by offering
their hosts a bottle of wine. But, says Dan Ariely, professor of behavioral
economics at Duke University and author of *Predictably Irrational: The
Hidden Forces That Shape Our Decisions*, it would be a jolting intrusion of
the market economy if guests instead handed their hosts a check. "It's a
very delicate line," Ariely says, "and the modern workplace is right in the
middle."
Bo Peabody, founder of Tripod, one of the earliest networking sites, and now
a venture capitalist at Village Ventures in New York, points to a constant
tension between free-labor entrepreneurs and their volunteer workers.
Initially, users are "driven by a desire to express themselves," he says.
"But there's a limit to how much they'll do for free." At some point,
businesses have to figure out how to share their winnings with the
volunteers. One of his portfolio companies, a software startup called
Kluster, assembles people to brainstorm on everything from new inventions to
corporate logos. Those with winning ideas claim a share of earnings if the
project ever makes money. Devising ways to reward free workers "is a very
difficult jump," Peabody says. "This is a theme running through our entire
portfolio."
In the summer of 2006, Gordon Gould didn't spend much time worrying about
how to split ThisNext's winnings with volunteer workers. Far more pressing
was the need to lure thousands of volunteer workers to his new site. Here,
like most free-labor entrepreneurs, he faced a chicken-or-egg dilemma: how
to entice people to perform for a crowd that doesn't yet exist? His answer
was to create one. He and his team went out and interviewed a few hundred
people—fashion designers, athletes, and activists—and then seeded ThisNext
with their thoughts and recommendations. "When the first visitors came,
there was a there there," Gould says. The content on the site, he adds, had
to be good. "If people come and see it's lowbrow and ghetto, it's going to
stay that way."
*GOAL: NO. 1 MAVEN AT THISNEXT*
Laura Sweet was an ideal candidate for the site. She had been laboring for
free before she discovered it two years ago. Friends would long come to her
house, point to things, and ask, "Where did you find that?" Sweet—who
double-majored in fine arts and art history at University of California,
Berkeley—wound up creating and lending out binders with details about her
finds. Later, when she began locating strange and lovely things on the
Internet, she showcased them in long lists of Web links and sent them out in
bulk e-mails. She loved to share her discoveries, no matter how much work it
took. Her blog's motto, which could have been custom-crafted for Gould: "All
the money in the world can't buy taste."
Sweet's first hit on ThisNext was a $400 fishbowl from Red Dot Design. When
she posted it on the site, it quickly became one of the most popular items.
She hunted for more finds to post. As other visitors to the site found her
gems, they gave them high marks, driving Sweet up in the site's contributor
rankings. She was becoming a star—what Gould calls a maven. On a recent
afternoon, she clicked on the site to check her status. "I'm No. 1 in San
Francisco, No. 1 in Washington, No. 2 in Denver," she announced proudly.
The unwritten quid pro quo between Gould and Sweet amounts to a boilerplate
contract for much of the free-labor economy. Gould provides a stage for
Sweet to strut her stuff, a platform to reach millions of shopping fanatics
around the world. This is the key to his business. It draws advertisers to
targeted sites populated with shopping enthusiasts; ThisNext gets paid for
each click. He's happy to give Sweet a boost by putting her in touch with
media (including *BusinessWeek*). His team also sends mavens such freebies
as skin cream and HaberVision sunglasses, which list at $200, Sweet notes.
With this blend, Gould and other entrepreneurs manage to cash in on free
labor—while glossing over the issue of financial remuneration.
*NEEDED: A HANDFUL OF BLACK SWANS*
Making money is up to Sweet, who has a full-time job as a designer. She
thinks that she might cash in on her stardom somewhere else—on blogs, books,
TV, or even at a new job. (Her blog,
http://ifitshipitshere.blogspot.com,
gets tens of thousands of hits per week but has yet to make much money.)
As far as Gould is concerned, Sweet is a freak, statistically speaking—and
just the kind of freak he was banking on. Gould, who studies network theory,
believes much of the free-labor economy would crash and burn if it relied on
average people to handle the work. He's looking instead for what the author
Nassim Nicholas Taleb calls Black Swans—statistical anomalies. In his view,
a mere handful of people rise to the top through a combination of smarts,
good timing, and hard work.
This elite is then thrust into superstardom by the links and recommendations
of a large network. The select soar in the rankings, which leads them to
produce ever more free product. As a result, fewer than 1,000 of the
millions of visitors to ThisNext contribute the lion's share of the work.
(In graphic representations of this phenomenon, which is called the Power
Law, they form the tiny head. Everyone else settles into what statisticians
call "the long tail.") The superstars are the mavens, and Gould owes his
success to them.
*ALWAYS A SURPLUS OF FREE LABOR*
Like most free-labor companies, ThisNext has a paid staff to keep the mavens
happy. The employees' job is to encourage, cajole, and direct the site's
elite contributors. Staffers are also responsible for policing the site. But
in the most successful free-labor companies, the paid staff takes it one
step further: They enlist volunteer laborers akin to a posse of sheriff's
deputies to take over their jobs, too. The message is that volunteers aren't
just workers. They can run the place.
These days, Sweet has begun to wonder about payment, the real kind. Gould
has called her and picked her brain, she says, asking her questions that she
usually gets a "day rate" to answer. "I figure," she adds, "that he at least
owes me a sandwich one of these days."
But Gould, who tends to view his labor force statistically, has a theory. He
thinks his superstars rise from the pack and then—with time—fall. Maybe they
get tired or bored, or others get bored by them. In any case, mavens tend to
revert to the mean. This means that one day Sweet will tumble down those
charts in San Francisco, Washington, and Denver. Her reign can't last
forever. The trick in the volunteer economy is less to keep a superstar from
quitting than to make sure that plenty of eager volunteers are ready to work
to take her place.
midrange.com
