Netflix and the Art of Crowdsourcing Innovation

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Netflix, the online DVD rental service announced last October that they were going crowdsource their innovation for the princely sum of $1,000,000. Here’s a look at the economics of the proposal and the art of crowdsourcing.
The contest that was officially started on October 2, 2006 and will at least run through October 2, 2011, provided the participants with massive amounts of anonomyzed user data on movie ratings and asked them to build a system that would improve the Netflix rating system by at least a 10% margin. The company acknowledges that the 10% improvement is a tough feat but it can be achieved, and after all, $1,000,000 is a lot of money. And then there is the case of the yearly ‘Progress Prize’ of $50,000 for the team that gets the most improvement from year to year.
But Netflix isn’t the only one offering money for innovation. The New York Times points out the $10 million Ansari X Prize for a reusable spacecraft in 2004, the Defense Advanced Research Projects Agency’s $2 million prize for robotic vehicles, and NASA’s $5 million prize for “building equipment including lunar excavators and solar sails.”

Computer scientists say that after years of steady progress in this field, there has been a slowdown — which is what Netflix executives say prompted them to offer the problem to a wide audience for solution.

And crowdsourcing – which is a way to open up a task that would traditionally be performed by an individual or a small group of people to a much larger audience in the hope that the larger group will be able to find a better solution and in a more efficient and quicker manner – is perfectly aligned with Netflix’s goal.

About 18,000 teams from more than 150 countries — using ideas from machine learning, neural networks, collaborative filtering and data mining — have submitted more than 12,000 sets of guesses.

Although no one has reached the goal yet, people are getting close.
It would probably not have been the most time or cost efficient use of Netflix’s resources to tackle this 10% increase on their own, but with an army of thousands of people, all with their eyes on the prize and almost no barriers to entry (all you need is a computer, some skill, and some time), we most likely won’t have to wait till 2011 to see some promising results. What may not be the most efficient use of your time could be the perfect opportunity for someone else, and the ability to link the opportunities with those most willing (and best able) to participate is where the true beauty of crowdsourcing lies.

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