Since last year, I have been paying special attention to existing business models within the creative & cultural industries as I joined A+C+C CoCreación. I was especially interested in business models related to crowdsourcing/open innovation because they lean on “participation”, which is the focus of our investigation. I would like to sum up in this post the existing business models that use crowdsourcing and draw a parallel with the level of participation. I will refer then to the different levels of participation detailed in a previous post.
Donation-based business model enables users to donate money to help sustain a project or enterprise, like Wikipedia or Radiohead. The key to make it a sustainable business model is the community: having a strong community of fans is necessary to live only thank to its donations. The organization must find the right correlation between the community volume and the average sum of money received per person for the project or enterprise. It was the first time a band, Radiohead, direct sold via its Web its music to its fans, without intermediary. It was probably a mixed success as the last album “the king of limbs” is actually selling via online prepayment on the official Web of the band. In addition to the official Web site, the band uses the other distribution channels of the music industry. It is the first level of participation on our scale. This model allows an interaction with the public who can only react to the content.
Wikipedia is slightly different. There is a double condition for the business model to be sustainable: donations from the community to keep maintaining the project alive and user-generated content.
A donation-based business model alone is probably too limited for a project to live. The community needs to engage itself in another way in addition of donations. If the community is not actively engaged, the project will need extra earnings on the side or change business model. That explains why Wikipedia can only live on donations: the community is engaged at the highest level of participation via co-creation. The community is then stronger and more keen to sustain the project.
Crowdfunding business model enables citizens or entities to contribute to an enterprise or project by becoming stakeholders. The contribution, usually via an online platform, takes the form of an investment prior to the work being created, a micro o macro credit, or donations. Four categories of crowdfunding business models exist:
The Direct Crowdfunding enables a project to receive donations via its personal online platform to promote itself, engage the community in the production in exchange of merchandising, exclusive goodies, etc. The key in this model, as the one above, is the community. You need to have you own community of fans, important enough, to be able to reach your funding goal to complete your project.
Crowdfunding of non-existing project platform: Kickstarter is the most eloquent exemple of this model. Creators present to the community their project and the funding needs they are looking for on a crowdfunding platform (along with other projects). When the funding campaign becomes active on the platform, direct donations are possible. The funds collected are visible on the platform. If the project meets its funding goals, the producers commit themselves to reward his founders via, merchanding, etc… Similar exemples in Spain are Lánzanos y Verkami.
Crowdfunding existing project (also blogs and websites) business model is a donation system based on voting the sites you wish to support. The user registers to the online platform and set the amount of money which will be distributed among all the projects that he will click on. Always loged on, the user clicks on the platform’s button everytime he wants to fund a site. The money is then distributed to these clicked sites according to the number of clicks per site during a predetermined period of time. Kachingle and Flattr are two exemples.
This business model, in comparison to the previous ones, takes into account the reality of the browsing activity of the cybernaut and reflects better what his/her interests are.
Prefunded project: The platform allows institutions and artists to produce cultural projects together which will later be exhibited in said institutions. The institution is active in the creation process as it contributes to its completion. This model allows artists to freely develop their projects and do not rely on intellectual property to get paid for their work. Goteo is an exemple of this type of business model category.
The key for direct crowdfunding, crowdfunding of non-exhisting project and crowdfunding of existing projects is again the community. Platforms need to have developed, prior to go online, a community that will be strong enough to fund the projects.
These business models are lightly participatory: the community affects the project creation by supporting it financially, giving feedbacks and opinions.
One negative point of these models is, I think, that they only support the initial stage of a cultural project: the funds to produce it but not the rest of the process: distribution, marketing, communication and sales. In a future, these platforms, I believe, must go beyond and try to assist via the crowd participation the creators in the entire cultural process.
To go further, these platforms will need to know the profile of its community to understand why it supports the projects in order to reinforce the values and beliefs of the community. Following are few questions that will need to be answered: to make the community stronger, rewarding it by giving away merchandising, exclusive gifts, etc. is enough on the long term? When the hype around these new platforms will fade away, does the community will be strong enough to keep funding projects only giving away money? Is giving money a level of engagement strong enough to make sustainable these platforms on the long run? The crowdfunding comes from the US as the charity business being quite developped. Will it work as well in Europe as people give less in general and will it last on the long run?
The prefunded project seems to me the most interesting from a participatory point of view and complete: the artist is free to create his/her work after having designed the outlines of his/her project with the institution and is guaranteed to have an earning for his/her work. On the other side, the institution gets the chance to have a tailor-made exposition for its premises and collaborates with the artist in the design process of the exhibition from inception to realisation. The collaboration brings an equal interest for both sides and the artist is accompanyed during the entire process of his/her work: production, implementation, marketing, communication, sales. Both parties brings their respective community. It is the highest level of participation: co-creation.
In most cases, Free as a business model consists in generating revenue via advertising. The companies using this model create an online platform to enable users to generate content so advertisement can be placed on the platform.
There are subcategories for this model that require the participation of the users:
The Freemium business model is a mix of free and paid offers for the users via an online platform. The small percentage of clients that subscribes to the paid service subsidizes the large base of users that do not pay. Flickr, the photo-sharing site of Yahoo! is a well-known exemple: users enjoy a free basic account while users who pay for a pro account benefit from additional features.
The Open-Source Fremium business model enables the customers to enjoy a free product while this one has been developped for free in open source by experts. The entity that serves both parties earns money by offering paid subscription to companies that want a full professional service of the product (client support, maintenance, etc..). Red Hat is an example of this business model. In this business model, the keys are the platform and a strong community of users-creators whom a small percentage will transform as clients by subscribing to the paid service.
In the case of Flickr, the user participates in the content-generation of the platform but not from a co-creation point of view. The content-generation is for its personal use. For Red Hat, there is co-creation from the users as they work together to build a product. It uses the philosophy of open source.
The companies that use Open business model open up its research process to collaborate with outside parties in order to create and capture value. There are two subpatterns recognized for this business model: The Outside-in approach brings in external partners to leverage internal R&D resources. Procter & Gamble is the first to have exploited this method successfully. The Inside-out approach consists in offering the results of intern R&D to organizations in other industries that may need it. GlaxoSmithKline made use if this last pattern.
The company Innocentive uses both methods thank to its online platform by connecting the companies in need of solving a problem with experts willing to solve this problem.
The open source philosophy is the best exemple of co-creation.
The last type of business model that calls on external participation is the multi-sided platform business model. The platform is the intermediary that connects two interdependant groups of customers. Both groups’ interests must be served simultaneously. Nintendo used this pattern to create its Wii video game console. They earn money from the sales of its consoles and also from game developpers who create games for its console via pockets royalties. The App Store of Apple would be a similar exemple.
The challenge for the platform is to attract sufficient customers on each side, one side being able to answer to the needs of the other and vice versa.
It’s a participatory business model as the platform invites creators to build a product.
We notice that the more participatory the business model is, the more rewarding it is for the community. Some business models are still very capitalists as they take advantage of the knowledge of the crowd but do not give back all the fruits of the collaboration (they keep the revenues within the company and the impact of the success for their brands). For participation to be a learning experience, to last and be beneficial for the society in a whole, it will have to be a co-creation process and no less.
Credits of photographies: Blausaure http://www.flickr.com/search/?w=all&q=people+together&m=text Sources: - FCForum http://fcforum.net/sustainable-models-for-creativity/declaration - Javier Megias http://www.javiermegias.com/blog/2010/08/algunos-modelos-de-negocio-innovadores/ - Book Business Model Generation of A.Osterwalder & Y. Pigneur