First identified by journalist Jeff Howe in a June 2006 Wired magazine article, "crowdsourcing" describes the process by which the power of the many can be leveraged to accomplish feats that were once the province of the specialized few.

Howe reveals that the crowd is more than wise -- it's talented, creative and stunningly productive. Crowdsourcing activates the transformative power of today's technology, liberating the latent potential within us all. It's a perfect meritocracy, where age, gender, race, education and job history no longer matter, where the quality of work is all that counts and every field is open to people of every imaginable background. If you can perform the service, design the product or solve the problem, you've got the job. But crowdsourcing has also triggered a dramatic shift in the way work is organized, talent employed, research conducted and products made and marketed. As the crowd comes to supplant traditional forms of labor, pain and disruption are inevitable.

When the original article was published, crowdsourcing still constituted a nascent business model. A few small companies had achieved limited successes with it, and large companies had only begun to test the waters. In this excerpt, Howe argues that in just two years crowdsourcing has revolutionized an entire industry -- stock photography -- and may well be poised to create disruption in other fields as well.

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Adapted from Crowdsourcing: How the Power of the Crowd is Driving the Future of Business, by Jeff Howe.

More at Howe's Crowdsourcing Blog.

Chapter 7: The Canary in the Coal Mine

There's a story people like to tell about Bruce Livingstone. In late 2005, Getty Images, the world's largest photo agency, was looking to acquire Livingstone's company, iStockphoto, the world's most successful crowdsourcing company. Long before the contracts were drawn up, Livingstone, to show his commitment to the deal, tattooed the word "Getty" in cursive across the tender flesh on his inner wrist. Then he e-mailed Getty CEO Jonathan Klein photos of the tattoo under the message: "Don't make me write another word after this!" It's just the kind of tale -- emblematic of determination and just the right amount of quirky eccentricity -- that tends to burnish the reputation of its subject. In Livingstone's case, it has the added benefit of being demonstrably true.

With his penchant for muscle cars, rockabilly haircuts and, yes, tattoos, it's tempting to call Livingstone an unlikely CEO. But I prefer to think of Livingstone as a perfectly reasonable chief for some corporation from, say, the year 2020. A company not unlike iStockphoto. Located in a single, cavernous room inside a former factory in downtown Calgary (Alberta, Canada), iStockphoto houses a tiny fraction of its actual workforce. And Livingstone, dressed in T-shirt and jeans, occupies a desk -- chosen, it would seem, at random -- in the middle of the floor. The corner office clearly loses significance in a company that thrives on decentralization.

Jeff Howe explains crowdsourcing, which activates the transformative power of today's technology, liberating the latent potential within us all.

Westeel Rosco built the factory in 1925 to manufacture nails, screws and other bits of hardware. Unlike Westeel Rosco, iStock's products -- stock photos, illustrations and videos -- aren't manufactured on-site. They're created by a global, fluid workforce of 60,000 part-time photographers and artists, only a fraction of whom make a living from the work they sell on iStock. Yet they have a devotion to the company matched by few traditional firms. The full-time staffers who spend their days in the old Westeel Rosco plant play a support role for the community -- and community is the only applicable word -- that is making the product iStock brings to market every day. And that community has been very, very good to Livingstone and his investors. In the course of several years iStock has grown from a hobby to the third-largest purveyor of stock images in the world. When Getty purchased iStock in early 2006, Livingstone took home more than half of the $50 million Getty paid for the company.

The first stock photo agency was founded in 1920, and for most of the 20th century the industry was an afterthought, trafficking in the outtakes from commercial magazine assignments. Very few photographers tried to make a living off the market in preexisting images alone. This changed after the desktop publishing revolution of the mid-1980s led to a rapid growth in the publishing industry, and to a commensurate demand for images. Suddenly photographers were making six figures a year selling photos they'd already been paid to shoot. It was like minting money. Stock photography is, in relative terms, a tiny industry. The annual global gross for the entire business is estimated to be around $2 billion, which makes it a bit bigger than the market for gift baskets, but a little smaller than the annual sales of orchids. But this little industry has undergone big changes, and could well be a case study in how the crowd will impact much larger businesses.

In just the last few years the influx of talented amateurs armed with inexpensive, high-resolution digital cameras has upended the economics of stock photography. Five years ago, a professional-quality image was still a scarce resource. No more. This isn't to say the market for high-end photographs has disappeared. A gifted photographer will always find work. But the professional no longer has a lock on the middle and lower ends of the stock photo business. With a modicum of training, just about anyone can take a decent shot. Sophisticated cameras and photo-editing software do the rest. iStock exploits this fact. Design firms and other small companies working on a budget quickly embraced what became known as the "microstock" model. One graphic designer told me he went from paying hundreds of dollars an image to less than $10. "I pass on some of the savings to my clients and keep the rest. We're both delighted."

iStock might be great for buyers, but it's caused all sorts of headaches for professional stock photographers. In my original Wired article about crowdsourcing I quoted a Los Angeles-based photographer, Mark Harmel, saying that this influx of cheap images had caused a slight decline in his income from stock photo sales, which had dropped to $60,000. But in the two years since that decline has fallen off a cliff, to $35,000 in 2007. "If I look at the trend line, it just keeps going down. I'm really concentrating on getting assignments now," says Harmel. "I recently came back from London with 70 really wonderful shots. I'll probably use them on my website, but it's not worth my time to bother submitting them to a stock agency. They won't sell."

Harmel's far from alone. In fact, Getty's other businesses have struggled in the crowdsourced era. In the year I spent writing this book the company's stock slid 60 percent, falling to just under $22 by February 2008. That month Getty was acquired by the private equity firm Hellman Friedman for $2.4 billion, a considerably lower figure than the company had originally sought. According to a report released at the time of the sale, Goldman Sachs estimates that Getty's core business -- the sale of rights-managed, professionally produced images -- will continue to suffer an irreversible decline, falling to just 29 percent of its revenues by 2012. In the same period the investment bank projects iStock to continue its rapid rate of growth. iStock sold $72 million worth of images in 2007, a figure expected to jump to $262 million by 2012.

In this light, paying $50 million for a crowdsourced photo company looks like the smartest decision Getty ever made. The company is in the midst of transforming its business, from one reliant exclusively on professionals to one that is at least equally reliant on amateurs. As the Goliath of the industry, where Getty goes its competitors are sure to follow, which is to say, stock photography itself has been utterly transformed through crowdsourcing, in which a once-scarce commodity has become abundant. The question to ask is whether the upheaval roiling stock photography is only a leading indicator, like the minor volcanic eruptions that can precede a catastrophic earthquake.

Already the trend is migrating to other fields. Most immediately, the same dynamics that made the stock photo ubiquitous -- affordable digital SLR cameras and burgeoning communities of enthusiastic amateurs -- are affecting other markets for visual images. So-called "citizen paparazzi" use cellphone cameras to snap impromptu shots of stars and then sell them to new photo agencies such as Scoopt, which specialize in buying up and marketing their work. Amateurs can beat professional paparazzi for the simple reason that they vastly outnumber them. It's a question of probability: The throng of pedestrians in Greenwich Village, for instance, have a much better chance of catching an unkempt Gwyneth Paltrow than a single paparazzo.

And photography may well be just the beginning. iStock itself is doing a burgeoning business in the sale of stock video footage, and the crowd is also making commercials, collaborating on TV scripts, and recording and distributing their own music. They're writing political analysis, creating their own video games, and making feature-length movies. For the time being, all this activity has taken place in something of a parallel universe, without causing any of the economic upheaval visited on the stock photo or pornography industries. But those universes are beginning to collide as more companies attempt to package all this outpouring of creativity into a marketable product.

While crowdsourcing has already emerged as a potent force in the media and entertainment industries, it's also profoundly influenced the way even Fortune 100 companies like Procter & Gamble do business. Once famous for its insular culture, Procter & Gamble now crowdsources much of its R&D process, using global networks of scientists such as InnoCentive and NineSigma, which boast a combined membership of 2 million professional and amateur researchers. Even companies operating in a conventional field such as mining have found crowdsourcing applications. The Canadian gold-mining group Goldcorp put geological survey data online and offered a $575,000 prize to anyone who could identify likely areas for exploration. Goldcorp says the contest produced 110 targets that yielded $3 billion in gold. Following its lead, the mining giant Barrick Gold Corporation recently offered $10 million to anyone who could improve its silver-extraction process. The open call of crowdsourcing is also being used by companies such as Google (to develop applications for its Android mobile platform) and Netflix (to improve its recommendation system). The question is whether the iStock secret sauce can be applied to industries like television and journalism and, possibly, even beyond to any business that traffics in bits and bytes. To answer that question, it helps to know what's in the secret sauce.

The Community Is the Company

iStock has been compared to a cult, and the analogy isn't entirely unfair. It's no accident that the most successful companies in the web's second coming -- most of whom traffic in the crowd's creative output -- are led by outsize personalities. "Bruce is to iStock what Tom is to MySpace," notes Garth Johnson, iStock's VP of Business Development. (Johnson resigned his position after this book went to press.) For those readers over the age of 30, Tom is Tom Anderson, the president of the social networking behemoth MySpace and the first "friend" to greet any new user. Under this new archetype of a company -- in which the community, as much as the customer, comes first -- the cult of personality plays a crucial role in community building, and Livingstone has been as essential to the growth of the iStock community as Anderson has been to MySpace's. "Bruce has a really strong, extremely charismatic personality online," says Johnson. "And that's really helped us build the community."

It's safe to say that iStock has left the community-building phase behind: Sixty-thousand people have combined to create an enormous portfolio of over 3.5 million images and 100,000 videos. By contrast, Getty's other divisions combined only use 2,500 photographers. The iStockers offer the company their artwork, and in return iStock goes to extraordinary lengths to keep the iStockers happy. The site offers the budding photographer all manner of free tutorials, and the forums buzz -- at a rate of 38 posts per minute -- with questions about lens sizes, polarized filters and F-stop settings. iStock doesn't offer a chance to get rich. It offers the chance to make friends and become a better photographer.

"We don't own anything, the community does" says Johnson. "Everything we do affects these people, whether they're just earning enough to pay for their equipment, or they're making mortgage payments from their photo sales. They all want a voice, and we have to give it to them, because really, the community is the company."

The upside to this state of affairs should be obvious -- a dedicated, efficient workforce with no expectation of receiving a living wage -- but there are downsides as well: Even the smallest changes can roil the fickle, passionate community of iStockers. In March 2006, iStock launched a new feature on its web forums, a "forometer" which measured an iStocker's popularity through "bafflingly complex scientific methods" including the date and number of posts to the forum. The forometer displayed its results through a set of red, yellow or green bars. It did not go over well. The community questioned the principles behind the feature, as well as its functionality. Not long after its launch, the feature had been removed. Employees may be hell on overhead, but they're paid to accept all but the most draconian policies with a polite nod. Communities, on the other hand, aren't paid to stick around, and nothing stops them from selling their photos to one of iStock's many competitors. "They don't work for us," Livingstone laughs. "We work for them." If the iStocker feels a sense of ownership over the site, that's understandable: The iStock community predates iStock the company.

Livingstone didn't set out to revolutionize an industry, he just wanted to fill a personal need and help a few friends at the same time. In 2000 Livingstone was running a small graphic design and web-hosting firm in Calgary. Bruce is an avid photographer himself, and over the years he had developed an extensive network of photographers and designers. Early in the year he took 2,000 of his images and put them online. Anyone could download his photos in exchange for giving him an e-mail address. Livingstone's friends decided they wanted to share their images with the public, too. That June the budding community instituted a credit system: A user could download one image for every image of theirs that had been downloaded by someone else.

It was a classic example of the gift economy, the non-monetary exchange that grew up alongside the internet. During iStock's early years, everyone took something and gave something in turn. "The feeders and the eaters were the same people," as Livingstone puts it. Everyone profited by acquiring new images, though no one made (or spent) a dime. Soon friends of friends heard about Bruce's nifty idea and started uploading their images, too. Then around 2002 a wider public got wind of iStock, and the site began to hit critical mass. Soon Livingstone was paying $10,000 a month for the bandwidth to support it. He could have taken advertising to cover the cost of hosting, but he felt that would violate the spirit of the site. "The focus was on the community, and good design. Advertising would have cluttered the site," says Livingstone.

Instead, he started charging a quarter for each image, and he opened the system up to the public. This proved to be a momentous decision. Word quickly spread among publishers that there was a site offering cheap, usable images, and photographers began flocking to iStock to upload their portfolios. Traffic to the site skyrocketed, and soon Livingstone raised the price to $1 per image. "I thought it might become a sideline business," he says. It quickly became much more than that. The quality of the images wasn't always as high (or as consistent) as a traditional stock agency's, but the differences were indiscernible to the general consumer, and after all, you couldn't beat the price. By 2004 a host of other so-called "micro-stocks" had sprung up with strategies similar to iStock's. The professionals panicked. Microstock photos, they charged, were flooding the market with subpar images. At first, the industry aligned itself against iStockphoto and other microstock agencies such as ShutterStock and Dreamstime.

Then in early 2006, Getty announced it would buy iStockphoto for $50 million. "If someone's going to cannibalize your business, better it be one of your other businesses," Getty CEO Jonathan Klein told me shortly after the sale. Smaller magazines, nonprofit organizations, and all manner of websites have continued to flock to iStock's high-volume, low-cost model. As of February 2008, iStockphoto had 2 million regular customers purchasing photographs, video footage, illustrations and animations. "Bruce's brilliance," Jonathan Klein once told me, "is that he turned community into commerce." Livingstone uses a slightly different formulation: "I turned commerce into community,"

iStockphoto has perfected the Jedi Mind Trick that's at the heart of crowdsourcing. It's an incredibly cost-effective strategy -- iStock boasts a 55 percent profit margin. And yet, Livingstone stumbled into this business model by creating a context -- a community of like-minded enthusiasts -- in which financial measures take a backseat to considerably less tangible concerns. Ask someone in the office, and they'll tell you: It's not about the money. Ask an iStocker and they'll tell you the same thing. In fact -- would-be crowdsources take note: If it is about the money, it won't work. It will fizzle, not sizzle, as one of iStock's designers put it. "What's funny is, the money people, they pretty quickly get pulled aside in the forums by the core people. Or they just don't have a voice. People will ignore them, like 'Oh, that's just so and so, they're just here to make money.'"

That doesn't mean the iStockers are unmotivated by self-interest. The more a photographer's images are downloaded, the more recognition they receive in the community, and the more credits they earn to download other people's photos to use in their own designs. And the additional income is also welcome, of course. Unlike other cases in which large corporations have attempted to monetize community, iStock does reward its contributors. It paid out $21 million in 2007. It's significant that people in online communities like iStock's react with great hostility to the idea that crowdsourcing is a form of cheap labor -- despite the fact it demonstrably is. After all, no one wants to feel exploited. In the end, what iStock provides is an invaluable if impossible-to-measure currency: meaning. The crowd will give away their time -- their excess capacity -- enthusiastically, but not for free. It has to be a meaningful exchange.