I have been in looking into crowdsourcing business models for the last couple of months. Personal and professional interest. As often the case, when a subject is on your mind, you stumble upon it. So, when ads like this one started popping up on my Facebook page I clicked through.
The ads send you to Logo tournament (LT), a crowdsourcing play on logo design services. It’s quite straightforward. Company needs a new logo, it submits a “contest” to LT and sets a price. Designers send in one or more designs. The best design wins and the designer gets paid.
I tried to figure out how a business model like LT’s would look like.
LT charges designers a 15% transaction fee. Companies set the price they are willing to pay in advance, with a minimum allowed of $250. Paypal transaction fees are passed on to customers.
Note that LT will take the money from companies in “escrow” and select and pay a winner at the end of the contest even if a company does not select a winning design. That means that if a contest is listed, the money will be paid and the commission earned.
LT lists all open and closed contests at any given time. I counted about ~165 open concurrent contests with an average age of 5.1 days and ~1,800 closed contests. I sampled 100 contests at random and calculated an average prize amount of ~$315. Assuming a steady flow of contests, that means about ~1000 contests a month (i.e. 30/5.1*165=971).
With commissions at 15%, that adds up to a monthly revenue of close to $50,000. The estimate is obviously highly sensitive to the monthly contest count estimate. Here’s a back of the envelope revenue estimate (with lower and higher estimates to test for sensitivity).