Monday, August 01, 2005

Contribution economy

Prior to the internet, the only businesses built around donated products were thrift shops. For decades, generous people have donated goods (mostly clothing and furniture) to community storefronts where the products can be purchased by consumers. To my knowledge, the thrift shops collect money mostly to ensure they are self-sustaining, and less fortunate consumers get great deals on other people's used stuff. It's a great model, but nobody ever got rich from it (nor did they intend to do so).

The internet has introduced many new businesses built on donations. Fortune's David Kirkpatrick refers to the whole industry as the "contribution economy" in his recent article. It appears that consumers are willing to donate quite a bit of their time.

There are thousands of open source software projects that represent literally millions of donated programming hours from developers around the globe.

The Wikipedia is another great example. It started in 2001 but already includes more than 600,000 English-language articles and rapidly growing versions in nine other languages are not far behind. It will not be long before the Wikipedia turns the Encyclopedia Britannica from a crucial library staple into an obsolete relic. The cost of producing the 1M+ articles in 10 languages: $0.

Even more curious to me, though, are for-profit businesses that simply could never have been born without the generosity of countless free laborers. Companies like Redhat and XenSource, for example, make money by packaging and supporting open source software (Linux and Xen, respectively) . The software they "sell" would have cost them tens of millions of dollars to develop, and yet most of their R&D was contributed for free.

Another example is Gracenote, which is one of my Bessemer investments. Countless consumers manually entered the meta-data (artist, song name, genre, etc) for more than 50 million music tracks into Gracenote's CDDB over the last decade. Gracenote now licenses that data to many consumer electronics and software publishers. A free version of the data still exists from FreeDB, but much like Redhat and XenSource, Gracenote supplies the support and service level agreements critical for commercial offerings.

There are many other money-makers built on the backs of the contribution economy. A couple of additional examples that jump to mind include Blogger and TripAdvisor.

There is an emerging crop that has recently attracted my attention. They are focused on the local search problem by using user contributions to rate things such as restaurants and service providers. RateItAll, Yelp, and Tribe are early contenders.

I'm trying to figure out how to predict which of these contribution economy startups will succeed. Any ideas?

6 comments:

Anonymous said...

Excellent Blog. Stumbled here via David Cowan's blog. BTW some of the links in this post appear to have broken links. e.g. link for Gracenote is http://www.blogger.com/www.gracenote.com. Could be a blogger.com problem.

Jeremy said...

Thanks. I think I fixed the link problem.

lawrence said...

Nice summary of the space.

Couple of comments on what I see as success factors in the "contribution economy":

Transparency - the ability for readers of the review to drill down and learn more about the person who left that review. Their interests, their history, their trustworthiness, their "likemindedness" to the reader, etc.

Reviewer Recognition - stuff like accreditation, loyalty programs, featured posts, featured reviewers - the ability for sites to put the spotlight on their reviewers and not themselves will be key.

Breadth of Content - I think the temptation is for companies to see the market opportunity related to local search and charge after it with the belief in this "curious" phenomenon that Jeremy mentions will drive people to contribute monetizable reviews of things like dry cleaners and mortgage companies. But I think this misses the point. The real question is to figure out why these folks want to contribute their opinions? Is it because writing about dry cleaners is fun? I don't think so. I think it's because people like sharing their opinion about all sorts of things online, including dry cleaners. I believe the site that wins in the local search / user review space, is going to be the site that understands that user reviews of local merchants is just a small piece of a larger puzzle - giving folks a mechanism to sound off about the things that are important to them, whether those things be movies, politics, religion, beer, products, travel, or local businesses.

Anonymous said...

Great blog! I think collaberative filtering of web content has to be the next big thing,

Nivi said...

Jeremy, I wrote an intentionally provocative piece on this topic:

http://tinyurl.com/dhsox

Anil Patel said...

Have you seen what Zipingo is doing? It is a property of Intuit, Inc. which exists in Beta form at http://www.zipingo.com but also as an add-on to the latest version of Quicken, so that one can easily rate local businesses from a familiar interface. I imagine that a tool such as Google Earth or Maps could be integrated with a local rating engine such as Zipingo to produce an easily navigable and actionable local search. Perhaps being actionable in a user-friendly way may be a differentiator in the space.

There is clearly a "critical mass" or even a "tipping point" phenomenon at work in the contribution economy - in this case, the more users and opinions a local rating site gets, the more valuable it becomes (we've seen this network effect before many times, and in particular in the online auction space). So one possible predictor of success will be the motivation for contributions - is there a model that relies on more than just the consumer's inherent need to tell the world his/her views on a product or service? Maybe there's a promotional, coupon, loyalty points or sweepstakes angle?

Another thought: this space may admit of aggregation. What if I could syndicate/publish my opinion to multiple sites, becoming a sort of editorial Reuters? On the demand side, there could be a meta-rating search engine similar to mySimon or shopping.com in which I enter a zip code and business type, and I get ratings results from all of these sites.