HARNESSING THE POWER OF THE PEOPLE
Social networks have been around for a while now and the ability to share videos, beat our BFFs at Angry Birds Friends and let our 1000 nearest and dearest in on even the smallest moments of our lives is enjoyed by all. With LinkedIn, social media migrated to business networking. At the end of the day, however, it remains more a hobby than serious business.
The winds of change have begun to blow. Software developers/entrepreneurs are discovering ways to harvest and channel the power of “the crowd” to create compelling businesses, including the business of government. We take a look at a few enterprises in Israel and Scandinavia which are building their business on crowd sourcing.
Israel: Navigating the Wisdom of the Crowd
In Israel, several start-ups rely on crowd sourcing to tackle transportation problems. The most prominent of these is WAZE, a mobile app which takes GPS to the next level. Their slogan is, “outsmarting traffic, together” and that is exactly what they do. By harvesting information from other WAZE users, this app lets drivers know not only how to get to where they’re going, but how to get there most quickly by avoiding traffic jams and other impediments on route. While timing and routing info is derived primarily from the data mined passively from the users’ smartphones, drivers are encouraged to update traffic information proactively by phoning in information regarding accidents, road works and other events. WAZE immediately relays this to other drivers.
The company recently launched new features to its app such as posting comparative gas prices at gas stations on route and one which allows people to socialize better with each other in the real world. Friends can tag friends to coordinate pickups and car pools. Founded in 2009, the Company has already raised some $50 million, primarily from venture capital funds. Last summer it announced that its user community is some 30 million strong. Monetization will come through advertising which literally places local businesses on the map appearing before millions of WAZE users. It was reported that Apple recently made a sizable offer to acquire the company, but the offer was rejected by WAZE management.
Another Israeli start-up has developed a mobile application named Moovit which does for public transportation what WAZE does for cars. It combines bus and train schedules and route maps with real-time information supplied by the app’s users to enable users to choose the fastest, most convenient or least crowded way to get from A to B and beyond on public transportation.
According to Yoav Roth, the company’s VP Business Development, the company is currently pursuing an aggressive roll-out strategy. “We are enlisting three new cities each week. In addition to Israel, Moovit has already debuted in a number of North American and European cities, including in Spain, Italy and the Netherlands. We haven’t penetrated Scandinavia yet, but we are definitely moving north.” The company is examining the best way to monetize the business, but is dedicated to keeping it free for consumers.
Yet another Israeli start-up addresses the needs of people who prefer door-to-door service. The WAYbetter Social Taxi app arranges impromptu shared taxi rides. Tell the app where you’re going and it will hook you up with others going your way. If no one is on route at the time, it will open a new ride to which others can join. Passengers pay less, taxi drivers earn more and WAYbetter shares the savings with the riders and drivers. It’s what the company likes to call a “win-win-win” situation. WAYbetter has already launched its service in Tel Aviv and will take on the rest of the world after gaining traction domestically. The company is currently seeking capital to implement its market penetration strategy.
Denmark: Cultivating Customer Commitment
Even in the age preceding social media, fan clubs and contests were part of the arsenal of marketing tactics used to promote branding, consumer engagement and customer loyalty. In the world of online interactivity, however, the ability to leverage consumer loyalty has grown exponentially. No company knows or does this better than Lego. Lego Cuusoo is a website on which Lego customers are invited to submit ideas for new products. If the idea attracts a following of at least 10,000 supporters, the idea is reviewed by the company and if selected for production, the submitter receives royalties of 1% of the total net sales of their product. Lego benefits by streamlining the product development process.
Crowd sourcing not only brings good ideas to life faster, it does so at lower cost and lower risk, since in order to be considered, a project must have a following of at least 10,000 supporters. The idea for the site was piloted in Japan as a joint project with Japanese company, CUUSOO System (CUUSOO means imagination in Japanese).
The Lego Cuusoo site was launched in October 2011 and the first regular quarterly review was held in June 2012. Since the beginning of the pilot in 2008, three CUUSOO products have been developed: the Shinkai 6500 manned research submarine, the Hayabusa asteroid exploration spacecraft and Minecraft, a physical rendition of a virtual world building game. In December the company announced its newest product, the Back to the Future™ DeLorean™ Time Machine. This was one of four products put up by popular vote for review last June. It is scheduled to be released in the summer.
Sweden: Venture Funding of, by and for the People
Crowdfunding is perhaps the most high-profile mode of crowd sourcing. To date, most activity has been limited to raising funds for non-profit causes, grass roots initiatives and cultural projects. Equity crowdfunding, which enables startups to raise capital directly from the public for their businesses, could have a significant economic impact. This type of investment is highly limited in most countries by existing securities and corporate laws which tend to restrict investment in start-ups to investment professionals and wealthy individuals. In the U.S, enactment of the JOBS Act provides a framework for legal crowdfunding but is still pending implementation. In Europe, for lack of EU-wide regulation concerning small-scale capital-raising, each country sets its own rules as to who, what, where, when, how and how much.
FundedByMe is Sweden’s (and one of the world’s) first equity crowdfunding sites. The company provides a platform for start-ups to solicit investors and invites expressions of interest by up to 200 investors per project. Entrepreneurs submit their projects to the FundedByMe portal which are reviewed by it prior to posting. Before officially opening an investment round, companies can test the waters by courting investor feedback. Daniel Daboczy, co-founder of the crowdfund site explains: “We want the companies to open smart rounds, not rounds that might fail. So in the pre-round, they test the market, valuation etc. The crowd demonstrates interest – if they want to invest and how much, if they want to work with or for the company or they just want to follow. This allows the companies to get good sound info on whether and how to open a round”. An investment round lasts up to 90 days, until the target amount is achieved, or until canceled by the entrepreneur, whichever happens first. In any case, investors are not required to make a firm commitment until 100% of the target investment is achieved.
FundedByMe opened a first round of crowdfunding offerings last October for two Swedish companies, Virtuous Vodka and Nordic Design Collective and one Norwegian company, Trampooline. Seeking a total of SEK 1 million (approx. €115,000) for a 10% stake in the company, Virtuous Vodka has already secured more than 85% of this sum from 82 investors. In December, FundedByMe decided it wanted to be funded as well and opened its own round to raise SEK 4 million for a 5% stake in the company. After a couple of weeks, the company has received expressions of interest from 34 investors for more than half the capital requested. Next stop: Denmark, Finland and Norway.
Norway: Shedding Light on Shipping Rates
For the Norwegian startup, Xeneta, “the crowd” is the source of transparency in the world of container shipping, a market which suffers from extreme volatility and low price transparency. Xeneta addresses this problem by bringing together the scores of importers, exporters, freight forwarders and shipping lines into a community that lets them systematically “share and compare” prices and other data, thus facilitating smarter and faster decision making.
When registering to the Xeneta community and uploading prices, companies gain access to the latest info on some 4,000 shipping routes worldwide – a database which grows as more members join the community. They also receive access to Xeneta’s live benchmarking tool which tracks market fluctuations continuously. This tool enables them to monitor their own and their suppliers’ cost performance relative to that of their industry peers.
By letting its members keep a historical perspective of what they have paid combined with the latest updated market development, Xeneta has made it simple for companies to measure if they are overpaying or if they are competitive compared to the market. Their services are offered on a “freemium” basis. The basic benchmarking tool is free to members for the routes for which they provide data. Premium tools and services are rendered for a fee.
Finland: Crowdsourcing a New Democracy
Finland, perhaps more than any other country on the planet, seems to be dedicated to the proposition that democracy and connectivity go hand in hand. It was the first country to make broadband a legal right and is now blazing a trail to bring direct democracy into the 21st century.
Last March, the Finnish Parliament ratified a constitutional amendment, the Citizen’s Initiative Act, which brings any legislative proposal supported by 50,000 signatures collected in a six-month period to a vote in parliament. In response to the law, a group of tech entrepreneurs developed Avoin Ministeriö or “Open Ministry”, an online “town hall” platform for people to propose, discuss and collect signatures for citizen initiatives. The project was introduced by the Finnish Innovation Fund Sitra’s New Democracy Project, which lent support. The Open Ministry came online this past October following the Finnish government’s approval of the online signature verification system.
Two types of proposal can be submitted as citizen initiatives. One asks the government to amend existing legislation. The second submits a bill formulated through crowdsourcing for new legislation. Proactive Finns have embraced the new platform; ideas for legislation have been pouring in since the platform’s launch. One initiative, with a 97% support rate, calls for a ceiling on government debt. Another would ban fur farming and yet another would require the prominent display of licences on snowmobiles.