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Jason Spector recently touched on an issue that is beginning to have an impact on the crowdsourcing industry, but could easily apply to other B2B services: Insourcing by clients.  As the tools of crowdsourcing have become easy to deploy and the practice’s efficacy proven, companies now have an incentive to (possibly) bring the practice in-house.  I wrote a lengthy comment on the post and decided to post it here:

I think this reflects a general dynamic where companies will experiment with taking services that they buy and attempt to build because it is (or appears to be) either a) cheaper and/or b) possible to improve upon if brought under the auspices of internal resources.  I also think crowdsourcing is ripe for this type of experimentation since the same properties that make it relatively easy for a start-up to create a platform also make it (potentially) easy for a firm with sophisticated internal resources to duplicate (if not improve upon) the commercialized version.

The key to firms that will continue to monetize their service and thrive, rather than be replaced by firms’ internal resources, will be their ability to provide differentiated and proprietary value. Three areas that come to mind that likely would tip the balance from “build” to “buy”:

1) Crowd: it could be that crowdsourcing firm has access to a larger, more diverse, higher quality crowd given the area of interest–one that cannot easily be duplicated by a buyer. I would think that the more specialized the task you are trying to crowdsource, the more likely that buying may be the better option.

2) Platform: possibly the platform for accessing the crowd is beyond what a firm could create in-house. Maybe the bells and whistles include proprietary technology for efficiently managing crowds and projects, providing payment, ensuring QA amongst the crowd in general and for a particular project, etc.

3) Cost: if the crowdsourcing firm has created a platform that allows for more cost-effective crowdsourcing (even with their profit margins and mark-up) then most firms will choose to buy, unless their technology need is so specific (and difficult to produce) that no vendor can provide it. Firms always have to take into account the opportunity costs of building vs buying, so it isn’t just the raw costs of contracting with a vendor, but also what the internal bandwidth will (or will not) allow.

In some cases, it may make entirely more sense for firms to insource the management and engagement of crowds. But I am willing to bet that in most cases, it doesn’t, and internal resources will likely reap greater rewards if they are focused on product development. Organizations that specialize in crowd management and engagement should be (and, for those that want to stick around, better be) able to bring greater value to the table.