CrowdSpring’s Contractual Model
Interesting new company, CrowdSpring, profiled here in Forbes. They want to create a new business model for graphic design. This story offers several lessons about the contractual component of business models.
One critical component of any business model is the contractual relationship between the customer and supplier. This contractual model not only determines who pays, but who bears which risks and what incentives drive behavior of each party.
CrowdSpring is using the Internet to enable a different contractual model between customers and suppliers of graphic design services. Instead of paying an hourly rate for design work that you may or may not like, you specify what you are willing to pay for a finished project and designers compete with real designs. You pick the design you like best. You are committed to paying assuming you receive a minimum number of designs. Note that this model is different from the other web-based competition like eLance — with eLance you can post a project but you still pick one designer to do the work.
The risk does shift from the customer to the designers. The designers risk investing time and energy to create designs that do not win, thus they do not get paid. Many designers are willing to accept that risk, since they can compete for new business opportunities that otherwise are not available to them.
Notice in the article that the traditional suppliers do not like this model at all, since it is a threat to their business. A very similar argument came from the real estate industry when new real estate services based on the Internet threatened the traditional 6% commission model. The lesson here — business model innovation is not just about product functionality, but about changing the nature of the business relationship.
