Appraisal Podcasts

I usually get off-track on Wired’s website and find a new gadget I must have. But in this case there was a great article related to a new phenomenon called “crowdsourcing”. Kind of a take off on the Wisdom of Crowds.

From Wikipedia, crowdsourcing is defined as … “Crowdsourcing” is a term coined by Wired magazine writer Jeff Howe and editor Mark Robinson in June 2006. It describes a business model akin to outsourcing, but relying upon unpaid or low-paid amateurs who use their spare time to create content, solve problems, or even do corporate R&D. Crowds targeted for crowdsourcing include garage scientists, amateur videographers, freelancers, photo enthusiasts, data companies, writers, smart mobs and the electronic herd.”

Crowdsourcing attempts to replace selectively hired, trained and managed workforces with mass volunteer participation and self-organization. While not a new idea, it is becoming mainstream.

Types of crowdsourced work

• Procter & Gamble employs more than 9000 scientists and researchers in corporate R&D and still have many problems they can’t solve. They now post these on a website called InnoCentive, offering large cash rewards to more than 90,000 ’solvers’ who make up this network of backyard scientists. P&G also works with NineSigma, YourEncore and Yet2.
• Amazon Mechanical Turk co-ordinates the use of human intelligence to perform tasks which computers are unable to do.
• YRUHRN used Amazon Mechanical Turk and other means of crowdsourcing to compile content for a book published just 30 days after the project was started.
• iStockphoto is a website with over 22,000 amateur photographers who upload and distribute stock photographs. Because it does not have the same margins as a professional outfit like Getty Images it is able to sell photos for a low price. It was recently purchased by Getty Images.
• A Swarm of Angels is a Cinema 2.0 project to utilize a swarm of subscribers (Angels) to help fund, make, contribute, and distribute, a £1 million feature film using the Internet and all digital technologies. It aims to recruit earlier development community members with the right expertise into paid project members, film crew, and production staff.

All of this got me thinking..how does this impact appraisers? Take a look at the first portion of the full article and see what lies behind Door Number 3 for us.

Wired 14.06: The Rise of Crowdsourcing

Remember outsourcing? Sending jobs to India and China is so 2003. The new pool of cheap labor: everyday people using their spare cycles to create content, solve problems, even do corporate R & D.

“Claudia Menashe needed pictures of sick people. A project director at the National Health Museum in Washington, DC, Menashe was putting together a series of interactive kiosks devoted to potential pandemics like the avian flu. An exhibition designer had created a plan for the kiosk itself, but now Menashe was looking for images to accompany the text. Rather than hire a photographer to take shots of people suffering from the flu, Menashe decided to use preexisting images – stock photography, as it’s known in the publishing industry.

In October 2004, she ran across a stock photo collection by Mark Harmel, a freelance photographer living in Manhattan Beach, California. Harmel, whose wife is a doctor, specializes in images related to the health care industry. “Claudia wanted people sneezing, getting immunized, that sort of thing,” recalls Harmel, a slight, soft-spoken 52-year-old.

The National Health Museum has grand plans to occupy a spot on the National Mall in Washington by 2012, but for now it’s a fledgling institution with little money. “They were on a tight budget, so I charged them my nonprofit rate,” says Harmel, who works out of a cozy but crowded office in the back of the house he shares with his wife and stepson. He offered the museum a generous discount: $100 to $150 per photograph. “That’s about half of what a corporate client would pay,” he says. Menashe was interested in about four shots, so for Harmel, this could be a sale worth $600.

After several weeks of back-and-forth, Menashe emailed Harmel to say that, regretfully, the deal was off. “I discovered a stock photo site called iStockphoto,” she wrote, “which has images at very affordable prices.” That was an understatement. The same day, Menashe licensed 56 pictures through iStockphoto – for about $1 each.

iStockphoto, which grew out of a free image-sharing exchange used by a group of graphic designers, had undercut Harmel by more than 99 percent. How? By creating a marketplace for the work of amateur photographers – homemakers, students, engineers, dancers. There are now about 22,000 contributors to the site, which charges between $1 and $5 per basic image. (Very large, high-resolution pictures can cost up to $40.) Unlike professionals, iStockers don’t need to clear $130,000 a year from their photos just to break even; an extra $130 does just fine. “I negotiate my rate all the time,” Harmel says. “But how can I compete with a dollar?”

He can’t, of course. For Harmel, the harsh economics lesson was clear: The product Harmel offers is no longer scarce. Professional-grade cameras now cost less than $1,000. With a computer and a copy of Photoshop, even entry-level enthusiasts can create photographs rivaling those by professionals like Harmel. Add the Internet and powerful search technology, and sharing these images with the world becomes simple.

At first, the stock industry aligned itself against iStockphoto and other so-called microstock agencies like ShutterStock and Dreamstime. Then, in February, Getty Images, the largest agency by far with more than 30 percent of the global market, purchased iStockphoto for $50 million. “If someone’s going to cannibalize your business, better it be one of your other businesses,” says Getty CEO Jonathan Klein. iStockphoto’s revenue is growing by about 14 percent a month and the service is on track to license about 10 million images in 2006 – several times what Getty’s more expensive stock agencies will sell. iStockphoto’s clients now include bulk photo purchasers like IBM and United Way, as well as the small design firms once forced to go to big stock houses. “I was using Corbis and Getty, and the image fees came out of my design fees, which kept my margin low,” notes one UK designer in an email to the company. “iStockphoto’s micro-payment system has allowed me to increase my profit margin.” Welcome to the age of the crowd. Just as distributed computing projects like UC Berkeley’s SETI@home have tapped the unused processing power of millions of individual computers, so distributed labor networks are using the Internet to exploit the spare processing power of millions of human brains. The open source software movement proved that a network of passionate, geeky volunteers could write code just as well as the highly paid developers at Microsoft or Sun Microsystems. Wikipedia showed that the model could be used to create a sprawling and surprisingly comprehensive online encyclopedia. And companies like eBay and MySpace have built profitable businesses that couldn’t exist without the contributions of users.

All these companies grew up in the Internet age and were designed to take advantage of the networked world. But now the productive potential of millions of plugged-in enthusiasts is attracting the attention of old-line businesses, too. For the last decade or so, companies have been looking overseas, to India or China, for cheap labor. But now it doesn’t matter where the laborers are – they might be down the block, they might be in Indonesia – as long as they are connected to the network.

Technological advances in everything from product design software to digital video cameras are breaking down the cost barriers that once separated amateurs from professionals. Hobbyists, part-timers, and dabblers suddenly have a market for their efforts, as smart companies in industries as disparate as pharmaceuticals and television discover ways to tap the latent talent of the crowd. The labor isn’t always free, but it costs a lot less than paying traditional employees. It’s not outsourcing; it’s crowdsourcing.

It took a while for Harmel to recognize what was happening. “When the National Health Museum called, I’d never heard of iStockphoto,” he says. “But now, I see it as the first hole in the dike.” In 2000, Harmel made roughly $69,000 from a portfolio of 100 stock photographs, a tidy addition to what he earned from commissioned work. Last year his stock business generated less money – $59,000 – from more than 1,000 photos. That’s quite a bit more work for less money.

Harmel isn’t the only photographer feeling the pinch. Last summer, there was a flurry of complaints on the Stock Artists Alliance online forum. “People were noticing a significant decline in returns on their stock portfolios,” Harmel says. “I can’t point to iStockphoto and say it’s the culprit, but it has definitely put downward pressure on prices.” As a result, he has decided to shift the focus of his business to assignment work. “I just don’t see much of a future for professional stock photography,” he says.”

How does this example play into the appraisal world? Zillow and the many other free “appraisal” sites come to mind. Are we far off? Is there a moral in here about specialization leaving the cookie cutter assignments to the AVM’s?

From another article linked on the Wired site. Far-flung laborers do everything from grunt work to lab work, but some common principles apply to all of them:

1. The crowd is dispersed
People spread around the world can perform a range of tasks – from the most rote to the highly specialized – but this would-be workforce needs to be able to complete the job remotely.

2. The crowd has a short attention span
These new workers find time after dinner and on weekends. So jobs need to be broken into “micro-chunks.” Most tasks on Amazon Mechanical Turk, for example, take less than 30 minutes to complete.

3. The crowd is full of specialists
For Procter & Gamble, the crowd is the world’s scientific community; for VH1 it’s any ham with a camcorder; for iConclude it’s the handful of professionals with experience troubleshooting Microsoft’s server software.

4. The crowd produces mostly crap
Networks like InnoCentive, Mechanical Turk, and iStockphoto don’t increase the amount of talent – they make it possible to find and leverage that talent. Any open call for submissions – whether for scientific solutions, new product designs, or funny home videos – will elicit mostly junk. Smart companies install cheap, effective filters to separate the wheat from the chaff.

5. The crowd finds the best stuff
Even as a networked community produces tons of crap, it ferrets out the best material and corrects errors. Wikipedia enthusiasts quickly fix inaccuracies in the online encyclopedia. Viewers of Web site YouTube find the one tastelessly funny amateur video from the 10 that are merely tasteless.

This entry was posted on Tuesday, October 17th, 2006 at 9:28 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.