Crowdsourcing: Now With a Real Business Model!

Venture capital is drying up, with less money flowing in fewer deals, but at least one company managed to score a tidy sum. On Tuesday uTest -- which crowdsources software testing -- announced it had secured $5 million in Series B financing.

What makes the news remarkable is that uTest is a crowdsourcing company. Hype notwithstanding, crowdsourcing hasn't yielded more than a few viable businesses in the last few years. We know crowdsourcing exists because we've seen it flourish in the wild, which is to say, a few entrepreneurs have stumbled into very profitable businesses by building vibrant communities first, and monetizing them later.

Breeding crowdsourcing in captivity -- creating instant communities for the purpose of making a quick buch -- has proven far more difficult.

So what makes uTest's investors -- the latest round was led by Longworth Venture Partners -- think it will be the exception?

Simplicity helps, as does the appeal of raw competition: The company allows its clients to post software to its community of testers, who then go about racing through the program looking for bugs. The spoils go to whoever spots a bug first.

And according to sources inside the company, it's already established an enviable track record. It stealth-launched back in February, and all ten of the pilot participants have been converted into paying clients. Its official launch came on August 19. uTest says revenues grew 150 percent over the last three months, and itscommunity now includes nearly 12,000 testers from 144 countries. 

This unique approach to quality assurance -- uTest calls it "pay for performance" -- promises to reduce the often onerous cost of that painful process. According to research firm Gartner, software testing is a $13 billion business, and bugs cost US companies some $60 billion. So is it safe to say crowdsourcing is viable? That's probably as premature as when TechCrunch declared crowdsourcing dead in the water after Cambrian House, one of the first to chart these waters, cried uncle and changed its business model.

But I think it is safe to draw a few conclusions from uTest's success:

1. Coders Make a Great Crowd: Because crowdsourcing is built from the open source template, any company looking to leverage computer professionals has the advantage of an audience already familiar with the basic idea of community production. It's no accident that another crowdsourcing success story, TopCoder, has a similar business plan to uTest, though they build software as well as test it.
2. The Downturn Will Be a Boon to Crowdsourcing: A lot of crowdsourcing models offer cost savings. This promise has often turned out to be illusory, sometimes in comic proportions. But in an era of mass layoffs and draconian cost-cutting, the prospect of dramatically reducing overhead will be too tantalizing to resist. Companies that can actually deliver, as it seems uTest can, will reap the benefits.
3. Crowdsourcing is a Global Phenomenon: Most of the crowdsourcing companies I profiled in my book boast very cosmopolitan user bases, which is to say, less than half of their community members resided inside the United States. One of the comments on the TechCrunch post about uTest Tuesday was telling: "It was just too hard to compete with countries like India who organize groups to test the available products. This means that you as an individual have to be super quick to find the bugs before they do. It is just too stressful compared to the reward."

Welcome to the Flat Earth, friend.

Crossposted from the Epicenter Blog

Comments

[Ryan Jones]

Jeff,

Tks for this article, I am reading your book (again)...that should tell you that I am deep into the topic of crowdsourcing and I believe strongly in the future of mass collaboration. The downturn will definitely make people consider the low cost benefits of sourcing quality work from the global community.

If you get a chance, go over & check out www.hugocreate.com as well...this is another fun, small (but extremely global) fragrance crowdsourcing project.

Have a great weekend,
--Ryan

[mitch]

Jeff, As of this writing, JPGmag.com is on the precipice of profitability...having now secured advertising from almost all major camera equipment companies as well as companies like H - P, Epson, Adobe, etc...and the core of our success? Keeping vigil to managing, organizing and directing the community ..so they can create work they vote as being the best...(and it is!)...and then we publish the magazine of their work thereafter...we've had some very serious interest from the big publishing companies to acquire our web platform that permits this kind of collaboration among a community...because, they can imagine what this is worth to their magazines if they could finally integrate the web in a meaningful way with their readership in to the magazine...in fact, to permit them to participate in creating it? The first one will have cracked the code on having this kind of meaningful relationship between print and web...and once one company "breaks through" the others will have to follow or be left far far behind.

[Chris Cairns]

Jeff, can you crowdsource your software development to TopCoder? I myself am trying to develop a crowdsourcing-related business -- how cool would it be to say that I crowdsourced my crowdsourcing business? In fact, I could:

- Crowdsource the design elements to 99designs.com
- Crowdsource the SW development to TopCoder (if you can)
- Crowdsource testing to Utest
- What about hosting? Can I host my web app on everyone's spare compute cycles? :)

Pretty soon the only thing I'll need is an idea, and I can just let the rest of the world take it from there. Oh wait -- I don't need to think either: globalideasbank.org.

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