On Wikipedia, crowdsourcing is defined as “the act of outsourcing tasks, traditionally performed by an employee or contractor, to a large group of people or community (a crowd), through an open call.” In describing the benefits of crowdsourcing, that same entry notes that “the community may feel a brand-building kinship with the crowdsourcing organization, which is the result of an earned sense of ownership through contribution and collaboration.”

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So, in other words, an organization that practices crowdsourcing has “happy suppliers,” right?

Not so fast!

One of the earliest crowdsourcing organizations, iStockphoto, is now being watched to see if crowdsourced suppliers are treated as firmly as traditional suppliers in economically challenging times and in certain circumstances. Yesterday, CNET published an article entitled “iStock growing pains show crowdsourcing challenge” that chronicles iStockphoto’s recent announcement that it was changing the way that it calculates contributor royalties (i.e., the amount that it pays its suppliers).

iStockphoto estimates that 24% of their exclusive contributors/suppliers will see their portion of sales decrease. Needless to say, those contributors/suppliers are not happy.

Though crowdsourcing sounds warm and fuzzy, the bottom line is that business is business. And, in this economy where most suppliers are being pressured for lower prices, employee pay cuts are common, and discretionary spending is being choked off, it’s no surprise that even crowdsourced suppliers are being pinched. Especially in iStockphoto’s situation.

What do I mean by that?

Well, iStockphoto is a subsidiary of Getty Images. Getty Images, once a publicly-held company, was purchased by private equity investment firm Hellman & Friedman, LLC in 2008.

Did Hellman & Friedman buy Getty because they love photography?

No. They bought Getty for the reasons they’ve bought other companies: to make the companies more profitable and either sell them for more than they paid for them or to take them public. I predict that Getty will be sold or will go public in 2012 or 2013.

In these private equity ownership structures, there is a lot of pressure on the executives to do the two things to increase profits: increase sales and cut costs. Like most other organizations, iStockphoto’s sales growth rate depends on the economy, so attacking costs in the form of contributor/supplier royalties isn’t an approach that is out of character for a private equity-owned firm. Typically, the management teams of private equity-owned companies face two possible fates: (a) fail to grow profitability and lose their jobs, or (b) grow profitability and get nice payouts when the company is “flipped.”

Considering all of that background, should crowdsourced supply be perceived as another cost to be attacked or should it be treated more preferentially?

To Your Career,
Charles Dominick, SPSM
President & Chief Procurement Officer
Next Level Purchasing, Inc.
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Charles Dominick, SPSM, SPSM2, SPSM3

Charles Dominick, SPSM, SPSM2, SPSM3 is an internationally-recognized business expert, legendary procurement thought leader, award-winning entrepreneur, and provocative blogger. Charles founded the Next Level Purchasing Association in 2000, oversaw its incredible growth, and successfully led the organization to its acquisition by the Certitrek Group in 2016. He continues to blog and provide advisory services for the NLPA on a part-time basis as he incubates his upcoming business innovations. Charles is also the co-author of the wildly popular, groundbreaking book, "The Procurement Game Plan: Winning Strategies & Techniques For Supply Management Professionals."

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