Gustavo Ballvé on September 22nd, 2009
Corporate Strategy, Food for thought, Media, Retailing

Two years ago, Netflix wanted to improve its movie recommendation system and decided on an experiment: let people have a go at it. The rules and official proposal are here, but the main idea was that if you could improve Netflix’s recommendations by 10%, you’d get a cool US$ 1mm. That contest ended on July 27th, 2009 with huge success – not just for the winners, but for other contestants as well who claim that the internal payoff of the learning efforts involved was already over the US$ 10mm figure. It’s a great example of crowdsourcing, and there are other examples of so-called “Open” business models (Innocentive jumps to mind).

But that’s not all that matters: is crowdsourcing then a substitute for companies’ R&D demands? Does it always work? How open do you really want to be? Some people are looking at it and saying “hold your horses”. That’s always a good advice in our book.

As for Netflix, they’re happy enough to have a Netflix Prize 2 on the works. Very smart: it keeps the ball rolling and takes advantage of the community they built. The press coverage doesn’t hurt, either.

But there’s more. We’d argue that the benefits of the Netflix Prize in terms of research in statistics/ data mining/ etc. in large data sets may be felt for years. It’s interesting to consider this in terms of efficiency gains for many different types of companies. It’s something companies all around the world should be paying attention to.

Here’s a video interview with Reed Hastings, Netflix’s CEO, at the time of the award.

Links:

Crowdsourcing page on Wikipedia

Jeff Howe’s classic article on Wired, his book and his blog

The teaser for Netflix Prize 2

Winning the Netflix Prize – NY Times, October 2008 (huge article with a video that apparently can’t be embedded here).

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