Chapter 5: The Rise and Fall of the Firm: Turning Community Into Commerce

For anyone who hasn't been following the blog these past few months, I've been posting excerpts of the book in order to elicit critical comments, or supplementary material I might have overlooked. These will be published as an appendix in the hardcover version of Crowdsourcing, and may even make it into the margins of later editions. Full credit given, naturally, to the commenter. Here is the beginning of Chapter 5:

If the means of production and distribution are now within the grasp of the individual, if the line between producers and consumers is blurring, where does that leave the “firm,” the organizational structure that has governed how people make and deliver goods and services. What constitutes an “employee” or a “manager” or “president” in a crowdsourcing environment? Of course, corporations aren’t candidates for the endangered species list quite yet. But it’s useful to recall that the firm, that most conspicuous icon of the industrial era, is hardly immutable, and even of fairly recent vintage.

We’re not accustomed to thinking of communities in economic terms. But this wasn’t always the case. Originally humans gathered into communities for reasons of survival. Larger groups made for better hunting and provided greater security against rivals. The industrial revolution changed all that. The company organized labor into a paid workforce, and the community became the social space in which we rested from work—a respite from economic production and competition, engaging instead in religious, philanthropic or purely social activities. Now the Internet has started to turn this paradigm on its head. The company clearly offers advantages when productivity is weighed by the pound—You’ll always need a factory to produce steel. But in the realm of information production, the community is beginning to rival the corporation for primacy.

Four developments created a fertile ground in which crowdsourcing could emerge. The rise of an amateur class was accompanied by the emergence of a mode of production—open source software—that provided inspiration and practical direction. The proliferation of the Internet and cheap tools gave consumers a power once restricted to companies endowed with vast capital resources. But it was the evolution of online communities—with their ability to efficiently organize people into economically productive units—that transformed the first three phenomena into an irrevocable force. 

What does the crowd (a slippery concept, especially in the context of economic production) have to do with this? First, the crowd is not composed of every living human on the planet. Because crowdsourcing is, in almost every instance, made possible by the Internet, I’ve come to use a synonym that reveals a bit more about the constitution of the crowd: The Billion. This is because there are a little more than one billion people online across the globe. In crowdsourcing terms, that’s one billion people with the potential to contribute in some way to any given crowdsourcing project. But of course that’s not how we encounter the billion. In reality the billion are dispersed among innumerable overlapping online communities, composed of people whose interests align, however temporarily. These communities aren’t so different from those we know from the offline world. They impose a set of social norms of behavior on their constituents, and they offer rewards, in the form of enhanced reputation, for conforming to those norms or excelling at skills the community deems valuable. And in the information age, that makes for a tremendously powerful economic force. The community is the basic organizing force behind crowdsourcing.

In the past communities formed along geographical lines. But in the decades after World War II, a number of factors conspired to break the bonds that held these communities together. Freeways, airplanes, telephones and television all played their part in eroding geography’s dominant role in organizing human affairs. Membership in social institutions like bridge clubs and Elks lodges plummeted . People found themselves increasingly isolated—islands in a suburban sea. Robert Putnam, a Harvard political scientist, argued in his best-selling book, Bowling Alone: The Collapse and Revival of American Community, that as communities disintegrated, so did our collective stock of “social capital,” the difficult-to-quantify but very real economic value derived from borrowing a cup of sugar from a neighbor or helping a friend find a job.

In this context, the spread of the personal computer seemed like one more nail in the coffin of a robust civic life. But just under the radar screen something magical was occurring. Communities were re-forming. By the late 1990s the Internet was beginning to foster entirely new communities organized along lines of affinity. Sailing enthusiasts from Bangkok to Bangor could meet, become friends and wind up engaging in all the gossip, chatter and general exchange of information that goes into building social capital. More recently, new types of communities have materialized that are both local and wired at the same time.

Turning Readers into Writers

To see her at work, you wouldn’t think Retina Carter represented the future of journalism. For one, Carter doesn’t practice journalism full-time. Her days are spent designing new diapers for Procter & Gamble. She works for The Cincinnati Enquirer in her spare moments, usually at lunch and during the evenings from the home office in the modest three-bedroom colonial she shares with her husband and baby daughter. Carter writes for CincyMoms.com, a job she “adores,” and for which she gets paid $25 a week.

The Carters had been in Cincinnati for a year when Retina’s husband Daryl read a small advertisement printed in the back of The Enquirer: “Writers Needed for a Local Mom Site.” It was January, the long Ohio winter had set in, and neither Retina nor Daryl had made many friends since their arrival from Georgia. “You should do this,” Daryl said, showing her the advertisement. “You’d be writing”—something he knew she loved—“and you’d be getting paid for it.”

Carter applied for the position, though she had no experience in online communities or professional journalism. To her surprise, she was chosen to be one of ten “moderators” on the CincyMoms site. That meant she was responsible for seeding the site with content. With the site’s so-called “soft launch” scheduled for later that month. The Enquirer wanted to give the staff time to work out the kinks and fill the site with articles before visitors started showing up. The CincyMoms thread followed the standard recipe for an online forum. Chatter is organized into categories—like “Pets” or “Giving Back”—and then further divided into topics—“Puppy Classes on the East Side!”—on which users can post their thoughts and opinions. Every week Carter was supposed to create 10 new topics and write 20 posts of her own, so that other moderators’ topics would look lively.

Before The Enquirer even had a chance to publicize the site, word spread through the daycare centers and soccer fields of Cincinnati. In the first few weeks, traffic to the site doubled, then doubled again. CincyMoms doesn’t look radically different from other parenting sites on the Internet. The front page consists of photographs submitted from some of the moms and, just below that, the forums. CincyMoms offered its readers something unique—local knowledge. “A lot of what women are looking for from us isn’t general advice,” says Carter. “They want to know the best local pizza parlor to take their kids to after a gymnastics meet, or the best pediatrician in Montgomery.”

CincyMoms offers all the pleasures of the Internet—such as the ability to exchange gossip at any time of the day or night—without sacrificing the particularlities of place. Unlike a bridge club or coffee klatch, however, it also provides a commodity for sale. Working for The Enquirer’s parent company, Gannett, Retina Carter and her friends create content for their hometown newspaper. And while Carter and nine other “discussion leaders” receive a miniscule wage for their efforts, the rest of the CincyMom community receives less tangible forms of compensation—information, personal satisfaction, social engagement. The Enquirer, in turn, receives a considerable amount of advertising revenue. It’s not a bad trade-off, and for better or worse it’s come to characterize a new and increasingly common relationship in the information economy.

The Internet facilitated the formation of new communities, but in the last several years companies like Yahoo and MySpace, to name but two, have managed to convert the mundane warp and weave of community interaction into a commercial good. In a sense of course, newspapers have always been commercializing communities. What else is the classified advertising section but a monetization of the virtual flea market? But Gannett, the publisher of USA Today, The Cincinnati Enquirer and 84 other daily newspapers is going much further, fostering communities in order to direct them to perform a specified function from which it directly benefits through the sale of advertising. The crowd that powers crowdsourcing, after all, isn’t organized into anything we would recognize as a firm or company or even loose affiliation of freelancers. In cases running the gamut from science to journalism to product design, the crowd takes the form of a community.

Within weeks of its launch, CincyMoms was receiving 50,000 page views a day, and advertisers were beating down the door to get onto the site. In just over two months, the site brought in $275,000—$75,000 more than it was projected to earn in its entire first year of operation. Better yet, the moms constitute a new readership for The Enquirer (less than 20 percent of young females in Cincinnati market previously read the paper) and more to the point, the new advertisers that follow them.

CincyMoms, The Enquirer hopes, is a sign of a heartbeat in an otherwise chronically ill patient. In case you missed the headlines—and if you’re like an increasing number of Americans, the odds are good that you have—newspapers have entered the beginning of a painful and seemingly irreversible descending spiral. Fewer people read them, which means businesses pay less to advertise in them, which leads to diminished profits and falling stock prices. This causes publishers to make deep cuts in staff, which means that fewer people find anything to read in their local paper, which causes even further drops in readership.

After decades of attempting to compete on its own terms by, for instance, simply recreating their primary product—the newspaper itself—online, the industry looks to be finally ready to mold itself to the new medium. In many cases, that means accepting a role of diminished importance. Prior to the Internet, a newspaper spoke directly to its audience. That role has started to fade, but now the Internet once again provides the opportunity for a two-way conversation between the paper and its readers. “We really had to train our newsrooms to accept that they didn’t have a monopoly on ideas and opinions,” says Michael Maness, the architect of Gannett’s crowdsourcing strategy. One sees that dialogue in the comment sections that appear after the story when it’s published on a paper’s Web site. But CincyMoms, Maness notes, takes that evolution much further. The paper becomes—and here’s an even larger slice of humble pie—merely the room in which the conversation takes place. Or, to use Maness’ word for it, newspapers have entered the age of the “polylogue.” It’s better than going bankrupt. Can CincyMoms compete with a big social networking site like MySpace? Maybe. Even though a site like MySpace has the almost limitless resources of Rupert Murdoch’s News Corporation behind it, MySpace still can’t tell you the best pizza parlor to go to in Montgomery.

CincyMoms is just one plank of a larger plan on the part of The Enquirer’s owners, and the people in HQ couldn’t be happier with the success of CincyMoms, which itself is based on an equally successful trial effort in Indianapolis (called, naturally, IndyMoms). Gannett hopes it’s caught lightning in a bottle, and over the course of 2007 began throwing up Mom sites at 30 of its other papers.

Gannett’s mom sites represent the leading edge of a radical overhaul: The company is rethinking nearly every aspect of the way it gathers, writes, and distributes the news. The Web has become the primary vehicle for news, with frequent, round-the-clock updates. Photographers have been trained to shoot video. Reporters and editors are expected to draw from the well of ideas expressed in the reader forums. Readers themselves are being put to work as watchdogs, whistle-blowers and researchers in large, investigative features. And everyone, it seems, is offered a chance to write a blog. All this is transforming Gannett’s papers into online repositories of vital local information, overflowing with data about everything from potholes to public officials’ salaries to property values. Anyone interested can dig into the treasure trove. “We must mix our content with professional journalism and amateur contributions,” reads the PowerPoint presentation Gannett showed its newsrooms when launching its crowdsourcing initiative.

Welcome to the newspaper in the age of the polylogue—written for—and increasingly by—the community. There are considerable advantages to what Gannet’s trying to do. For instance, if they were full-time employees, such part-time contributors as Retina Carter would need to be hired and evaluated and managed, their output directed and accounted for. But to the great satisfaction of papers like The Enquirer, such contributors operate autonomously. There’s a trade-off for this autonomy—paid employees can be told what to do, online communities do what they want, but it’s often a price well worth paying.

But not everyone at Gannett has been happy about the changes. “It’s adapt or die,” says Tom Callinan, The Enquirer’s squat, gruff, no-nonsense editor. “And not everyone wants to adapt.” Some of the Enquirer’s staff took early retirement buyouts or simply quit. But many—“more than I expected,” says Callinan—chose to change with the times.  Linda Parker, as it happened, was happy to adapt. A onetime metro editor at The Enquirer’s crosstown competitor, The Cincinnati Post, Parker is now The Enquirer’s “online communities editor.” The words “GetPublished” feature prominently on every Enquirer Web page. The results land in Parker’s queue, and they almost never resemble anything commonly considered journalism.

“It used to read, “Be a Citizen Journalist,” Parker says. “And no one ever clicked on it. Then we said, ‘Tell Us Your Story,’ and still nothing. For some reason, ‘GetPublished’ were the magic words.” The Enquirer considers the feature to be an unequivocal success. Parker, a cheerful woman in her mid-50s, pores over several dozen submissions from readers every day. These range from a local custom car builder trumpeting his upcoming appearance on a BET show to an emotional notice for a play being held to raise funds for a fifth-grader’s bone marrow transplant. Parker either rejects or approves the submission (“I almost never reject one,” she says), scans it for “the F-word,” and posts it to the sites. “A few years ago these would have come across the transom as press releases and been ignored.”

There’s a valuable lesson here: People want a voice, but that doesn’t mean they’ll use the vernacular of journalism. “One of our most popular categories is called ‘First-Person,’ People really love to reminisce about the 1937 flood,” the worst flood in Cincinnati history, says Parker. “We got great stories on that.” The reader submissions do more than provide The Enquirer with additional content to sell ads against. “Our suburban papers”— The Enquirer publishes 12 of these, in addition to 10 community inserts and 4 regional magazines—”could never fill their pages without this material.” Some hyper-local stories, it turns out, have legs. One of the common criticisms levied against Gannett is that it’s crowdsourcing in order to cut staff, but this misses the point entirely. Crowdsourcing actually enables the papers to expand: more Web pages, more niche publications, more ads.

But church picnics and school closings aren’t the only things readers like to cover. They’re also contributing to serious journalistic investigations, breathing new life into a genre that is increasingly considered an endangered species at metropolitan newspapers. In summer, 2006, The News-Press, a Gannett paper in Fort Myers, Florida, heard that readers from a new housing development were being charged up to $45,000 to connect to the sewer system. The standard procedure would be to assign one or more investigative reporters to the story, says Kate Marymont, News-Press editor. The findings would come out months later in an article that, more likely then not, would go largely unread. Instead, Marymont says, “we asked our readers to help us find out why the cost was so exorbitant.”

The response overwhelmed the paper, which had to assign additional staff just to deal with the volume of tips, phone calls, and emails that came in. The News-Press posted hundreds of pages of documents to its site, and readers organized their own investigations: Retired engineers analyzed blueprints, accountants examined balance sheets, and an inside whistle-blower leaked documents showing evidence of bid-rigging. The editors couldn’t have been happier. Not only did the paper unearth government malfeasance (the kind of thing that makes a reporter go all warm inside), but for six weeks the story generated more traffic to the News-Press Web site than it had ever received for any event other than a hurricane. In the end, the city cut the utility fees by more than 30 percent, one official resigned, and the fees became the driving issue in a city council special election.

Gannett exported this new approach to investigative journalism to its other papers. In March 2007, in response to an article about the city’s contaminated drinking water, readers of the Rochester Democrat and Chronicle in upstate New York unearthed locations in which toxic waste is stored. The Gannett paper Florida Today has set up a permanent “Watchdog Page,” with a “Blow the Whistle” button that led to a series on insurance companies inflating their estimates for hurricane coverage. The “Watchlist” draws more traffic than any other page on the paper’s Web site. The cure for what ails the newspaper may lie within the community it serves. It isn’t simply that there’s wisdom in the crowd, it’s that the crowd—be it a crowd of amateur photographers, NASA groupies, concerned residents in Florida or gabby moms in Cincinnati—coalesces into a community, and self-organize into a highly efficient workforce.

Comments

[Alan Booker]

Another great read Jeff.

Your use of “social capital” is so important and yet not often enough alluded to by social commentators.

A few quibbles!

“The company organized labor into a paid workforce, and the community became the social space in which we rested from work—a respite from economic production and competition, engaging instead in religious, philanthropic or purely social activities.”

For the majority of working class people that statement might sound a tad simplistic or even outdated. Economics, over the past decade, have changed the clarity of the work, free time line and most certainly time to wallow is not a commodity that exists in my strong middle class neighborhood. In the Shirky link I posted he talks about cognitive surplus as a driving force but he equates changed life habits as the point of entry. I wonder if the state of being first in importance you mention also originates in non traditional time slots of activity rather than traditional free time from a work schedule.

The jump from this sentence, “More recently, new types of communities have materialized that are both local and wired at the same time,” to the next chapter was a bit of a radical jump. Inwardly I was waiting for an example or two about the more recent new types of communities. I felt like I was left in the lurch. Are you referring to communities newer than the sailing enthusiasts, or as yet undefined communities?

“One of the common criticisms levied against Gannett is that it’s crowdsourcing in order to cut staff, but this misses the point entirely.” Your focus is upon the ability of Gannett to expand makes you sound like the journalist you are or the employer. “There’s a trade-off for this autonomy.”

You might have touched upon this question more deeply somewhere else in the book.

Are you putting any focus on the darker sides of the trends you discuss in the book? The loss of Medical benefits and pensions, the inability of workers to unionize, just to mention the most obvious, are certainly by-products.

These concerns have become overriding for the average worker and presumably many of The Billion. More recent economic policies are driving the traditional employee, employer relationship into the ground and the imperatives once held sacred in those relationships have been cast to the wind.

The resulting loss of humanity resulting from such damaged relationships might indeed be another factor in a younger generations desire to move into a crowd that seeks freedom from a dehumanizing process.

Unclear intention for this sentence, “paid employees can be told what to do, online communities do what they want, but it’s often a price well worth paying.” Are they paying the price of not getting paid because they are doing what they want there fore its well worth it?

“have managed to convert the mundane warp and weave of community interaction into a commercial good.” Personal comment here, could it be warp and weft? Can the fabric of society ever be called mundane?

Well Jeff that’s my attempt to be a sheep leading the shepherd. Here’s hoping there is no precipice anywhere close.

Warm regards, Alan

[Roshan2008D@gmail.com]

I link posted he talks about cognitive surplus as a driving force but he equates changed life habits as the point of entry.

.....................

Roshan

Wow, check out this site called http://www.fluc.com
Free SMS and free mobile ads!! Its fantastic

[Monica Hamburg]

I believe my comment was blocked by the spam filters (I am obsessive about posting links). If you don't encounter it, please let me know & I will re-post.

- Monica Hamburg
http://www.monicahamburg.wordpress.com

[Monica Hamburg]

Hi Jeff,

I am reposting with fewer links. (Any posts referenced herein are now bookmarked on Del.icio.us:
http://del.icio.us/mhamburg/rejhch5 )

Much great information here. Thanks.

Possible technical error: Paragraph 14 which begins “The internet facilitated” has a line which includes the comment “firm or company or even loose affiliation”. I think it needs an article there, e.g. “or even a/the loose affiliation”.

The line “if means of production and distribution are now within the grasp of the individual” assumes that this is generally the case. It is not, not even in crowdsourcing. This statement is too dogmatic - something like “… production and distribution being more accessible” is more truthful.

Also, while it is important to acknowledge the general lack of a hierarchical structure in Crowdsourcing, Crowdsourcing is not operated by crowds - and some argue that without leadership, the entire structure isn’t possible. Assignment Zero needed editors, AskSpace needed direction/directors, and all sites require moderation in one form or another. (Rob May emphasizes the necessity of leadership in this excellent post on Business Pundit).

I would also agree with Alan (that tends to happen) that our society has very, very little spare time. I would argue that with stronger workplaces demands (in terms of time and output), accessibility (via cell phones, internet etc.) and many parent’s schedules of shuttling their children from after-school/weekend sports/clubs etc., time has never been a more scarce commodity.

I was saddened, however, by your simply dismissing the peanuts Retina Carter is being paid as “It’s not a bad trade-off”. Yes, it most certainly is. Your words may be coming back to haunt you here... You have stated re: Crowdsourcing that “the model does contain the potential for inequity (a safer word, perhaps, than exploitation)”.

The example you provide about Cincymoms could not be a more perfect example of this statement.

Yes, Carter is a willing participant but her compensation is clearly not being valued. “In just over two months, the site brought in $275,000—$75,000 more than it was projected to earn in its entire first year of operation.” And Ms. Carter received around $215 dollars for her essential work during that period...

If that isn’t inequity – I don’t know what is.

I wax on about crowdsourcing and exploitation in part 4 of my One Degree article and on my blog – here is the gist of it:

“When claims of exploitation are brought up with regards to Crowdsourcing (and they are, frequently) often the counter argument is that because people willingly participate, there is no mistreatment. While “exploitation” is not exactly the word I would use, it is wrong to assume that because people contribute out of passion rather than necessity, this logically translates into balance and equity. People (especially in artistic fields) are expected to take unpaid work to establish themselves, to gain exposure etc. – and Web 2.0 has by no means ‘started the fire’, it can just make it spread more quickly and exponentially. For any rate that is offered, there will be takers. A person who, for instance, wants to start work again after having children, or needs a break from a uncreative job may jump at the chance to write a blurb or do a Mechanical Turk Task. Many agree to accept low rates because there comes a time where the rate (free or nearly free) becomes the standard. And there comes a point where so many people are offering their work for free that the mindset for buyers becomes: “well, why would we bother to pay more if we don’t have to”. Make no mistake that people who give into this system and offer their services for little in return are agreeing with it. They in are merely reflecting the low value placed on what they do."

Your point about communities and their evolution is a good one and one that Harold Rheingold goes into in-depth at his TED talk. Very interesting - especially his statement re big companies sharing: “They are doing this because they are learning that a certain kind of sharing is their self-interest.”

And I was excited about your discussion about the loss of communities, something that I addressed in a post on my blog awhile back, though with a less economic focus (“Moreover, on a large scale, social networking truly fulfils the role that our old (read: non-virtual) communities used to prove. This has sorely been lacking for most of us. Now we are only several connections away from others, only a few friends away from a new friend. Here we offer assistance to each other and ask for help.”)

Re: your “people want to have a voice”. Very true, but I think that the general intention is even more exaggerated than that: People want to be famous, or at least recognized for their expertise (e.g. Wikipedia, business blogs), personality (personal blogs) or contribution. The internet gives them that platform, and, yes, allows them to have a voice.

Re: the sewer system investigation by readers for “News-Press”. The large response could be attributed additionally to the fact that the readers had a vested interest in uncovering the scandal – it wasn’t simply a matter of everyone wanting to play detective.
And on a related note, Wikileaks is also a good example of society beginning to police via Crowdsourcing (though I’m guessing such policing may form the basis of a later chapter of your book… )

As always, Excellent work, Jeff.

- Monica Hamburg
http://www.monicahamburg.wordpress.com

[Alf Rehn]

There is one thing that is missing from your attempt to deconstruct the company, namely the notion of transaction costs. Yes, the internet and the ubiquity of the personal computer has radically decreased the transaction costs in organizing e.g. text-production. But they haven't eradicated them. It is still easier to own things such as copyeditors and servers than it is to buy them piecemeal on the market. The firm is efficient in corralling things, but you seem to assume that this corralling cannot change. If e.g. the production function would indeed move to the crowd, it is possible that firms will opt to corral editors and "sifters" instead. Production (not to speak of distribution) is a tricky matter, and the corporation has been very good at finding new ways to benefit from it.

Further, you are leaving out one aspect of what firms actually do. The old tripartite image of the economy, made popular by Marx, is production-distribution-consumption. We often think that the last part is outside the firm, that consuming is a free activity. But isn't the consumer really the greatest product of the corporation? As Peter Drucker pointed out, the first order of business is "Create a client/consumer". Firms, through marketing and PR (and other mechanisms) are still preeminent in doing this well...

[Patrick]

As I am busy, lazy and just looking for a quick score (hoping for my 15 seconds of fame), but still have something interesting to say: here's my brief comment ;-)

What I very often see is companies trying to catch the web2.0 / community ride and building very fancy websites 'above the flow', in stead of using the already ongoing (offline) activities 'in the flow'.

Resulting in:
- fancy websites without content (they also forget that a core team should at least in the beginning actively add content),
- and with little users,
- since the site is not built around an already existing bond/experience/interest,
- but built from a technology solution driven aspect (e.g. blogs, movies, communities, etc)

cheers
Patrick