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?