Reward & Reputation Using Paid Models – Part 3

3 05 2007

This is the third installment in a series that looks at the motivation system of product or service co-creation in order to create “essential member value” and improve the membership experience.

This post looks at ideas and practices that monetize the contributions of people in the product or service development process which is called “crowdsourcing” and is different from its fully volunteer model “peer production.”

Why Pay People?

That is a question I wrestled with at one of my previous employers. Is it appropriate for a volunteer-based operating model to experiment with producing products and services using a paid model?

My personal feelings have changed about experimentation. The simple reason is that for some associations their internal processes, culture or their core competencies may not give them the capacity to develop faster or better products or services in order to respond to changing member needs.

A paid model could significantly accelerate a volunteer-based system of content and/or product development. Using a product co-creation process, financial incentives can deliver more customer-driven product quality in both design, production and distribution given the end user is engaged in this process from end to end. And as we have presented in previous posts, any organization (corporate or association) regardless of brand power will struggle in the future if they can not integrate customers in product or service development. More and more players are unleashing (and in a sense harnessing) the creativity and passion of consumers through active collaboration.

Stakeholder Vesting

One approach to crowdsourcing is by creating a financial incentive at the product concept phase and all subsequent phases as a concept moves through product development. In the first stage, (the ideation phase), you can invite your member and nonmember community to participate in a “call for ideas” that gives people the chance to contribute a product or service concept to your website. The information you capture will be posted online along with others received through a common format. Then you invite your community to review them and vote for the one’s they like best. A numerical rating scale (e.g. 1-5) and a place to capture open-ended responses as to why this concept delivers or doesn’t deliver essential value is captured from community “reviewers.”

Cambrian House (who we featured in an earlier post) makes their idea contests fun and entertaining (video). Not only is it a possible “money-making” opportunity for the participants but also it’s a really fun and entertaining way to contribute or vote on ideas. This is an excellent example of a customer experience that the NetGeneration (Millenials) would appreciate.

The winner(s) move forward from ideation phase to the business case phase to assess the concept as a marketable product or service.

“Winning idea contributors” can be given a financial “stake” in the revenue-producing product or service should it pass the business case phase. Each “winning idea contributor” could receive “royalty points” worth a share of the project for as long as it generates revenue. You determine what a royalty point is worth in phase two as you construct a pricing model.

In fact, you can take this model further by incenting “project participants” who sign up to lend their experience and expertise to develop the product or service. Each phase of product development can issue “royalty points” to those participants who demonstrate quality and quantity of effort based on project plans.

As an illustration, here is how Cambrian House (CH) does it:

Each project starts with 1500 Royalty Points. Up to 150 points are allotted to the inventor of the idea, and the remaining points are allocated to development tasks for the product. These tasks will be given different point values depending on their complexity, balanced against the current life cycle and potential profit of the finished project. Inventors are welcome to contribute work on the product themselves, increasing their share of Royalty Points. The whole idea is to tie productivity to reward. The more the community does, the more the community benefits — including you!

Cash Payout (from Gross Profits) = Your Royalty Points/Total Royalty Points

 

Some examples: logo = 10 pts, functionality = 40 pts, idea = 100, etc.

Additional product releases from the original may garner additional Royalty Points based on any new functionality/features contributed.

CH has developed an estimator of its model to show how royalty points can translate into cash based on the actual market success of the product. See it here.

Promising Results for All

So far CH has over 30 different products in the pipeline with an average six week development process before one launches. It is easy to see that royalty points can add up. Simply by submitting a winning idea can be lucrative for doing nothing more with the project. Rewarding project contributors along each phase of development keeps the team focused on results and timelines.

If you are exploring new non-dues revenue opportunities in areas where you lack the subject matter expertise or production skills or you want to accelerate your “time to market” capability, you might try experimenting with a paid model.

In our next post in this series we’ll examine some other approaches to paid contributions by community members in product development.

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