Creative Deflation And The Internet

The Monday Note covers the intersection between media and technology and the shift of business models. It is jointly edited by Frédéric Filloux, a Paris-based journalist and Jean-Louis Gassée, a Silicon Valley veteran currently general partner for the venture capital firm Allegis Capital in Palo Alto. Their column appears on CBS News.com each Monday.

When LG, the cell phone manufacturer, started work on far-reaching future concepts for a handset, it had two choices. The most obvious one was setting up a competition between world-class design firms, getting a stampede and a bidding war as a result, and picking one firm to work on its concept phones. The Korean electronics giant took another path: crowdsourcing. LG Mobile Phone teamed-up with CrowdSpring, a marketplace for creative works, to organize a contest, with the following pitch:

"Predict what's next. What do you think mobile phones should look like in two, five or 10 years? We are asking for your help. We're NOT looking for a long list of specs or phone ideas that already exist. We're looking for a cool new concept or "big idea" supported by usage scenario illustrations."

LG is looking for cool sketches that could ultimately lead to production designs. To steer way from concepts too far removed from feasibility, LG and CrowdSpring enrolled Autodesk, the creator of the leading CAD (Computer Assisted Design) software for designers and engineers. Autodesk is a sponsor of the program and offers a 15-day free trial of its Sketchbook Pro application.

Let's see who makes money and who doesn't. Altogether, LG is going to spend $75,000, to be distributed among 43 awards ($20,000 for the winner, $10,000 for second best, $5000 for the third and $1000 for the remaining 40 contestants - they rounded it to $80k by adding a bunch of phones). Let's face it: for a company such as LG, seventy-five grand for what could lead to a revolutionary phone design is pocket change. For a tenth or a fiftieth of the cost of a classical business-to-business competition, LG will end up with a vast array of proposals.

For Autodesk, this is a great (and free) marketing coup: they manage to get all participants to the contest (thousands of designers pros or would-be) to download a free copy of its software, play with it, test it. Here, Autodesk can expect a high rate of trial to purchase conversion.

As for CrowdSpring, this is business as usual, their fee is 15% of the amount committed by LG. $11,250 for a link and a page of text (provided by the client) is easy money by Internet standards. The Chicago startup is built on a clever idea: matching designers and clients on a single, easy-to-use and transparent marketplace. You want submissions for a design job, you commit an amount of money - capped, no hidden stuff here. You provide a brief and you're in. The minimum commitment is $200, CrowdSpring takes its 15% cut, but nothing if your brief yields less than 25 proposals. The creatives are reasonably protected (the client's money is in an escrow account, security features prevent stealing ideas, etc.). In its first year of operations, CrowdSpring handled 3,700 projects generating 270,000 proposals (that is, on average, 73 proposals per project).

The company's financials are not disclosed. Why is that? Simply because CrowdSpring is a powerful deflation engine for the design world. Granted, it gives their chances to a pool of 25,000 designers scattered in 140 countries, but the process prices traditional design firms out, it weakens their erstwhile pricing power. Among these firms, only the lightest structures will agree to bid for the LG design job in the hope of winning and thus being able to establish a direct contact with the cell phone maker.

Other, bigger firms, are used to ask for stratospheric retainers (in the tens of thousands of dollars) simply to consider the brief. Such entities are definitively out of the game; they will stare in desperation as an increasing number of saving-obsessed big companies migrate to a new genre: CrowdSpring and its soon-to-blossom competition.

Just to put things in perspective. I still have on my shelf a nine kilogram container detailing the entire visual identity of the French film company Pathé. Landor, a San Francisco-based design firm did outstanding work rejuvenating a century-old brand. At the time, 10 years ago, I was told that Landor's fee was tied to a percentage of Pathé's revenue (the company, by the way, did very well). Of course, design firms such as Landor cannot seriously be threatened by a small bug like CrowdSpring. In theory, thanks to a strong portfolio of brands that includes FedEx, Danone or Pepsi, to name but a few, Landor is shielded. In theory only, because when you see other big brands such as LG or even ConAgra Foods interested in tapping into the CrowdSpring army, something is really brewing here.

Advertising won't be spared either. Take OpenAd.net for instance. This two-year-old company, with clients in eight countries, claims to have the biggest creative team in the world: 11,000 people in 125 countries. Theirs is a simple concept: a brand issues a brief; creative people (freelancers or staffers from agencies) submit ideas - a billboard visual, a TV commercial script, a viral campaign; the winners get paid.

Before looking down their bulbous noses at the fledgling startup, big ad agencies ought to think twice: OpenAd.net has landed big brands such as DaimlerChrysler, MTV, Etam, Virgin Atlantic, Emap or LastMinute.com. Although none of these brands is likely to shift large parts of its creative briefs to crowdsourcing outlets, they are all driven by the same rationale. With the standard way of doing business, they pay 100 to a big agency's creative team; in the process, they contribute to Range Rovers and Armani suits for the top exec they will rarely see, while legion of staffers do the actual work. Instead, by relying on crowdsourcing, not only do they pay a lower 40 or 60, but they will also get a much broader range of ideas coming from a immense reservoir of people - some really talented ones in the multitude.

I wonder: Does the navel-gazing advertising community fully comprehend the magnitude of what's looming? They missed the search-ad train, they might miss this one too.

Coming back to newsmedia, we now see large segments of the cost structure experiencing massive deflation. Compared to five years ago, a company willing to launch a serious professional news site will now see many budget lines drastically reduced. Let's name a few:

- Design and visual concept down to a fraction of what it was used to be, as we just discussed. (Another example: Twitter, which purchased its logo for $6 on iStockPhoto, plans to crowdsource the logo for its photo sharing service TwitPic).

- Marketing and ad campaigns with good creation and execution for a fraction of the cost.

- Public relations using dedicated social media outlets. For instance, Pitchengine defines itself as a "dynamic blend of traditional PR and a more progressive, conversational method". It has been tested by Mattel, IBM, Dove, Xerox (with unknown results, the company is still in infancy - still.)

- Production systems built using blog platforms with add-ons and plug-ins, most of them free, and polished by zillions of users/testers/ developers. (French readers can go to the story I wrote on the business site E24.fr.)

- Traffic management, statistics, ad serving enjoy a complete ecosystem of free tools, as good as the best ones sold for big bucks just two years ago.

- Photography, cartoons, illustrations of all forms relying on "stock", that is items licensed for cheap - €8 for good picture from iStockPhoto against €150 from Corbis for the comparable quality. Cost can even go to zero by legally tapping on the Creative Commons on Flickr (free license with some restrictions on uses).

- Text content follows the same trend as improving semantic engines extract scores of relevant consumer reports, reviews, from a corpus of good blogs.

Is the glass as half empty or half full? On the one hand, I'm not ready to show much compassion towards advertising agencies losing their fat margins to more agile crowdsource interlopers. As always, only greed and mediocrity will be affected, outstanding services and competency will always justify substantial fees. But, on the other hand, I'll feel sorry for the professional photographers or graphic artists whose business is eaten alive by crowd-powered competition. Many talented people won't be able to extract decent prices from the market and they will be the casualties of this deflationist trend.

Let's focus on the upside. Journalism in all forms and good editorial work, is, in essence, expensive to produce. Therefore, the duty of the editors is to cut every possible cost - yes, by relying on crowdsourcing as much as they reasonably can; their mission is to focus on core professional values. It is only by doing so that editors will enable a good product (web site, print or a combination of both) to shine and rise above the crowd.

By Jean-Louis Gassée and Frederic Filloux
Special to CBSNews.com