This online business model has Americans happily toiling for attention on for-profit sites that don't pay them money
It's dawn at a Los Angeles apartment overlooking the Hollywood Hills. Laura Sweet, an advertising creative director in her early 40s, sits at a computer and begins to surf the Net. She searches intently, unearthing such bizarre treasures for sale as necklaces for trees and tattoo-covered pigs. As usual, she posts them on a shopping site called ThisNext.com. Asked why in the world she spends so many hours each week working for free, she answers: "It's a labor of love."
Later this morning, a half-hour's drive to the west, a serial entrepreneur named Gordon Gould strolls into the Santa Monica offices of ThisNext. Gould has managed to entice an army of volunteers, including Sweet, to pour passion and intelligence into his site for free. Traffic on ThisNext is soaring, with unique visits nearly tripling in a year, to 3.5 million monthly. What's in it for the volunteer workers? "They can build their brands," Gould says. "In their niches, they can become mini-Oprahs."
Here's how it works. Entrepreneurs like Gould build meeting places that provide visitors with tools to express themselves, mingle with friends and strangers, and establish their personal "brands." The result, when it works, is an outpouring of creativity. It has produced not only ThisNext, but also YouTube and even American Idol.
Abundant Nonfinancial Rewards
You might think that with the economy crashing, the free-labor business model would be crashing, too. Will people continue to invest in their personal brands during hard times? Gould is betting they will. Between investor visits during a late November trip to New York, he sips a soy latte and speculates. During the downturn, he says, firings are sapping loyalty to companies and steering people toward goals of self-sufficiency. In Gould's acerbic phrasing: "The only person I can rely on not to screw me—hopefully—is myself."
Beyond brand-hungry strivers, masses of free laborers continue to toil without ever seeing a payday, or even angling for one. Many find compensation in currencies that predate the market economy. These include winning praise from peers, earning an exalted place within a community, scoring thrills from winning, and finding satisfaction in helping others.
But how to monetize all that energy? From universities to the computer labs of Internet giants, researchers are working to decode motivations, and to perfect the art of enlisting volunteers. Prahbakar Raghavan, chief of Yahoo Research (YHOO), estimates that 4% to 6% of Yahoo's users are drawn to contribute their energies for free, whether it's writing movie reviews or handling questions at Yahoo Answers. If his team could devise incentives to draw upon the knowledge and creativity of a further 5%, it could provide a vital boost. Incentives might range from contests to scoreboards to thank-you notes. "Different types of personalities respond to different point systems," he says. Raghavan has hired microeconomists and sociologists from Harvard and Columbia universities to match different types of personalities with different rewards.
Virtual Focus Groups
To date, he says, most of the research on recruitment and incentives comes from far simpler domains such as frequent-flier programs and cell-phone subscription campaigns, where goals and incentives are usually aligned. But the volunteer economy has many more variables. What are the signs that a participant will be enthusiastic and well-informed? How do leadership qualities manifest? Do recruits bring in networks of potentially productive friends? Researchers comb through petabytes of network behavior searching for telltale patterns. One of the current studies rates the probability that a person who's gifted in one domain is likely to perform well in another.
Communispace, a market research company near Boston, conducts similar studies as it enlists volunteer marketing consultants. The company invites targeted people to join hundreds of social networks organized around certain products and services, from airlines to weight-loss medications. These are virtual focus groups. The volunteers provide insights on advertising campaigns and suggestions for new products. Manila Austin, a psychologist who heads up research at Communispace, says that 86% of the participants contribute to discussions and nearly 1 in 3 adds a fresh post each week.
When Austin and her team experimented with financial incentives, they discovered that volunteers appreciated the gesture, but didn't want payment. Participation rose when volunteers received a token $10 gift certificate as a thank-you. But raising the value of the certificates made no difference. "People want the validation that they are being heard," Austin says.
Sharing the Winnings
Financial payments can, in fact, create tensions. For centuries humans have learned to distinguish between two different economies—the social and the market. Dinner guests, for example, satisfy social obligations by offering their hosts a bottle of wine. But, says Dan Ariely, professor of behavioral economics at Duke University and author of Predictably Irrational: The Hidden Forces That Shape Our Decisions, it would be a jolting intrusion of the market economy if guests instead handed their hosts a check. "It's a very delicate line," Ariely says, "and the modern workplace is right in the middle."
Bo Peabody, founder of Tripod, one of the earliest networking sites, and now a venture capitalist at Village Ventures in New York, points to a constant tension between free-labor entrepreneurs and their volunteer workers. Initially, users are "driven by a desire to express themselves," he says. "But there's a limit to how much they'll do for free." At some point, businesses have to figure out how to share their winnings with the volunteers. One of his portfolio companies, a software startup called Kluster, assembles people to brainstorm on everything from new inventions to corporate logos. Those with winning ideas claim a share of earnings if the project ever makes money. Devising ways to reward free workers "is a very difficult jump," Peabody says. "This is a theme running through our entire portfolio."
In the summer of 2006, Gordon Gould didn't spend much time worrying about how to split ThisNext's winnings with volunteer workers. Far more pressing was the need to lure thousands of volunteer workers to his new site. Here, like most free-labor entrepreneurs, he faced a chicken-or-egg dilemma: how to entice people to perform for a crowd that doesn't yet exist? His answer was to create one. He and his team went out and interviewed a few hundred people—fashion designers, athletes, and activists—and then seeded ThisNext with their thoughts and recommendations. "When the first visitors came, there was a there there," Gould says. The content on the site, he adds, had to be good. "If people come and see it's lowbrow and ghetto, it's going to stay that way."
Goal: No. 1 Maven at ThisNext
Laura Sweet was an ideal candidate for the site. She had been laboring for free before she discovered it two years ago. Friends would long come to her house, point to things, and ask, "Where did you find that?" Sweet—who double-majored in fine arts and art history at University of California, Berkeley—wound up creating and lending out binders with details about her finds. Later, when she began locating strange and lovely things on the Internet, she showcased them in long lists of Web links and sent them out in bulk e-mails. She loved to share her discoveries, no matter how much work it took. Her blog's motto, which could have been custom-crafted for Gould: "All the money in the world can't buy taste."
Sweet's first hit on ThisNext was a $400 fishbowl from Red Dot Design. When she posted it on the site, it quickly became one of the most popular items. She hunted for more finds to post. As other visitors to the site found her gems, they gave them high marks, driving Sweet up in the site's contributor rankings. She was becoming a star—what Gould calls a maven. On a recent afternoon, she clicked on the site to check her status. "I'm No. 1 in San Francisco, No. 1 in Washington, No. 2 in Denver," she announced proudly.
The unwritten quid pro quo between Gould and Sweet amounts to a boilerplate contract for much of the free-labor economy. Gould provides a stage for Sweet to strut her stuff, a platform to reach millions of shopping fanatics around the world. This is the key to his business. It draws advertisers to targeted sites populated with shopping enthusiasts; ThisNext gets paid for each click. He's happy to give Sweet a boost by putting her in touch with media (including BusinessWeek). His team also sends mavens such freebies as skin cream and HaberVision sunglasses, which list at $200, Sweet notes. With this blend, Gould and other entrepreneurs manage to cash in on free labor—while glossing over the issue of financial remuneration.
Needed: A Handful of Black Swans
Making money is up to Sweet, who has a full-time job as a designer. She thinks that she might cash in on her stardom somewhere else—on blogs, books, TV, or even at a new job. (Her blog, http://ifitshipitshere.blogspot.com, gets tens of thousands of hits per week but has yet to make much money.)
As far as Gould is concerned, Sweet is a freak, statistically speaking—and just the kind of freak he was banking on. Gould, who studies network theory, believes much of the free-labor economy would crash and burn if it relied on average people to handle the work. He's looking instead for what the author Nassim Nicholas Taleb calls Black Swans—statistical anomalies. In his view, a mere handful of people rise to the top through a combination of smarts, good timing, and hard work.
This elite is then thrust into superstardom by the links and recommendations of a large network. The select soar in the rankings, which leads them to produce ever more free product. As a result, fewer than 1,000 of the millions of visitors to ThisNext contribute the lion's share of the work. (In graphic representations of this phenomenon, which is called the Power Law, they form the tiny head. Everyone else settles into what statisticians call "the long tail.") The superstars are the mavens, and Gould owes his success to them.
Always a Surplus of Free Labor
Like most free-labor companies, ThisNext has a paid staff to keep the mavens happy. The employees' job is to encourage, cajole, and direct the site's elite contributors. Staffers are also responsible for policing the site. But in the most successful free-labor companies, the paid staff takes it one step further: They enlist volunteer laborers akin to a posse of sheriff's deputies to take over their jobs, too. The message is that volunteers aren't just workers. They can run the place.
These days, Sweet has begun to wonder about payment, the real kind. Gould has called her and picked her brain, she says, asking her questions that she usually gets a "day rate" to answer. "I figure," she adds, "that he at least owes me a sandwich one of these days."
But Gould, who tends to view his labor force statistically, has a theory. He thinks his superstars rise from the pack and then—with time—fall. Maybe they get tired or bored, or others get bored by them. In any case, mavens tend to revert to the mean. This means that one day Sweet will tumble down those charts in San Francisco, Washington, and Denver. Her reign can't last forever. The trick in the volunteer economy is less to keep a superstar from quitting than to make sure that plenty of eager volunteers are ready to work to take her place.