‘Managed Crowdsourcing’ Threatens Traditional Outsourcing Business Model

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    When you think of crowdsourcing, you probably think of a whole bunch of people performing menial online tasks, and getting paid for their work in everything from phone minutes to online game points. So you might be surprised to learn that an enterprise-class crowdsourcing model has emerged, and it’s starting to give traditional outsourced services providers—the purveyors of business process outsourcing, or BPO—a run for their money.

    This “managed crowdsourcing” model is being championed by Lionbridge, a Waltham, Mass.-based company that was founded in 1996 as a provider of translation and localization services. In the past year, it’s made an aggressive move into what it calls “business process crowdsourcing”—adding governance and high quality to the traditional crowdsourcing model to make it compelling for the enterprise. The idea is to provide a BPO-like experience at a significantly lower cost.

    I spoke last week with Dori Albert, Lionbridge’s enterprise crowdsourcing practice manager, who divided the managed crowdsourcing services provided by her company into three buckets: The data services bucket includes data capture and data normalization in the data analytics space; the testing services bucket typically involves usability and functionality testing of new products, mobile applications and websites; and the language services bucket harks back to Lionbridge’s roots. In fact, Albert said that language services heritage is the enabler that’s upending the traditional outsourced services market:

    Because we’re a language company, one of our biggest value propositions, and what I think will be the biggest disrupter in BPO, is our ability to do global and multilingual work. One of the limitations of BPO is you’re limited by location. [A traditional outsourcer] might have multiple locations—typically what you see with Indian firms is they might open an office in China, but they’re typically shipping Indians to the China office to do the work. So some of these companies do have global offices, but it doesn’t necessarily give them the opportunity to do multilingual. One of the things we’re finding to be really powerful in the data space is our global, multilingual ability. So we can do research and translation in local markets—having in-country, local researchers is really important for some of these folks. They want to keep the local sentiment, and they want to use local people, but they don’t want to open an office in every country. That’s a big difference from the BPOs, and it’s somewhere that they simply can’t compete right now.

    Another disrupter is that in contrast to traditional outsourced services, which are charged at an hourly rate based on headcount, Lionbridge offers true output-based pricing with a fixed cost that’s agreed upon up front. Albert explained it this way:

    Everything we do is priced by task—that’s where we really drive a lot of the cost savings. We look at what the process is that we’re going to take on, and we redesign that process before we turn it into crowdsourcing—we break it down into a task model, and charge our clients by task. The real value proposition for clients is that they’re truly getting output-based pricing now. You’re going to pay me x, and you’re going to get y. And we have guaranteed quality metrics so that they get what they’re looking for. We do have overhead from a governance and project management perspective, but it’s much leaner than you find in a BPO facility.

    Albert went on to explain that savings for clients are typically in the range of 30 percent, and that the operating costs of Lionbridge’s enterprise crowdsourcing division are probably around 50 percent less than those of the typical outsourced services provider. So does that mean that Lionbridge’s margin is 20 percent higher than the margins of its competitors in the traditional space? “I don’t want to say yes to that, because I don’t know,” Albert said. “I will say it’s a more profitable business than BPO.”

    I asked Albert if she thinks traditional outsourced services providers will eventually be inclined to add crowdsourcing to their delivery portfolio as a cost-saving mechanism. She said she “absolutely” does:

    I think our biggest competition is the outsourcing providers themselves moving into crowdsourcing, for sure. In my mind, it’s the next evolution of outsourcing. There’s really nowhere else for the outsourcers to go—they’ve already gone global; they’ve already played with output-based pricing. I think the next thing they’re going to have to do is to embrace the crowd, and to figure out how to either partner with firms like ours, or create it themselves. The challenge might be—it’s like anything else—you’re cannibalizing your own revenue. So they’re going to have to figure out that delicate balance. But we already see some of the outsourcing providers looking into this, creating think-tanks to think about how they would move in there. … What I feel very passionate and excited about is that the opportunity for this to really disrupt the outsourcing industry is extreme. It’s truly a new way to look at providing global work to the enterprise customer, and now is our chance to capitalize on it before those outsourcers catch up to us. I think it’s going to revolutionize outsourcing, just like moving offshore did.

    Albert also provided a fascinating look behind the Lionbridge curtain at how it manages and compensates its private crowd. I’ll cover that in a future post.

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