Digital Service Providers: Do They Require Your Attention and Why? (Part 2)

In Part 1 of this series, we described and unpacked the topic of digital platform-based service providers, which represent a modest but growing spend category far outside of the scope of contingent workforce and services (CW/S) procurement programs. While they are not on procurement’s radar, Spend Matters believes these providers will increasingly become a significant part of organizations’ services consumption and spend over the next 10 years.

In Part 2, we treat crowdsourcing, arguably the most successful sub-segment of digital service providers, and we revisit the question of whether they require your attention and why.

A Most Viable Breed: Next-Generation Service Providers that Crowdsource

Digital platform-based crowdsourcing began to emerge in around 2005 and has grown in popularity among large organizations since then. Crowdsourcing platforms are being used by what may be a surprising range of large organizations, including Fortune 500s and federal agencies such as NASA and the Department of Defense.

Many digital platform service providers rely on crowdsourcing: that means that for a particular project or service event, appropriate workers are sourced and engaged to work from a substantially large population (a “crowd”). Typically, crowds are to some degree vetted and organized (e.g., by knowledge, discipline, skill, performance or location). Note that service providers that rely on crowdsourcing of some kind still have a service relationship with their clients (e.g., service agreement, pay for services/outputs — not for people as such).

Many industry observers have recognized the importance of the crowdsourcing trend. Platform providers report growth rates in mid-to-high double digits. Gartner reported in 2015 that 25% of Fortune 500 firms have already used crowdsourcing. This is borne out by the many large organizations (the likes of Google, P&G, Coca Cola, AT&T, Cisco and others) that testify to their use of crowdsourcing provider.

For example, according to one account, Cisco Systems has crowdsourced its technological innovation ideation processes. Moreover, the company has developed technologies with crowdsourcing trying to find the next million-dollar business idea with great success. Cisco Systems have calculated that crowdsourcing generates millions in profits for the company.

The most adoption and growth of crowdsourcing platform services (in terms of numbers of organizations using and completing projects) has occurred in these categories:

Next-generation platform-based service providers that rely on crowdsourcing, as suggested above, also perform a range of different functions from piecework microtask execution, at one end of the spectrum, to prize/contest-based ideation activity (e.g. branding) and solution development (e.g, software of testing), at the other end.

Spend Matters has done detailed briefs on a number of these service providers, which can be reviewed by following the links in the table below:

Because of the value that organizations are finding in this particular breed of platform-based service provider, we think it is definitely worthwhile to take account of and understand them. To learn more about crowdsourcing solutions and providers, read the Spend Matters brief Clarifying Crowdsourcing: Contingent and Services Procurement Examples, Definition and Analysis.

Next-Generation Digital Service Providers: Do They Require Your Attention?

Now we are back to the original question. The answer will likely vary based on many factors (e.g., the organization, the industry, the ability to devote time to absorbing new ideas and information within the priorities of the CW/S program). It is a tricky case, because on the one hand, this appears to be a small fish to fry. But on the other hand, the use of these providers is already happening and increasing — in particular, providers that use crowdsourcing are being utilized to such an extent, at this point, that in certain sectors they are becoming common fixtures (e.g., challenge.gov).

Procurement’s attention and focus tends to follow quantity of spend and risk. At this point, next-generation services providers do not represent big spend, and they also do not entail much risk (due size of purchases/aggregate spend, service provider relationship structure, provider’s remote online crowd workers, et al). So maybe that is reason enough to just let it all slide for the time being.

At the same time, if procurement has a mission to try to drive innovation and provide new options for the organizations to achieve outcomes more efficiently, faster or where there were none before, then maybe this is a good place to start. It’s quite possible that business users in your organization have begun to think — and probably not without good reason — that next-generation services providers are a way to go.

So these are some considerations for practitioners who may be weighing the alternatives:

• Next generation platform-based service providers are, as mentioned above, already in use and producing outcomes for major companies (mainstream for some).
• In the world where digital platform supplier models are not going to go away, for contingent workforce and services, these next-generation digital service providers may represent an easier step than marketplace and other platforms that allow direct individual worker sourcing and engagement (which can be fraught with complications including compliance, outcome assurance, visibility, etc.).
• In fact, unlike online freelancer marketplaces, these next-generation service providers actually behave like suppliers and fit nicely into an SOW procurement framework.
• Because these service provider offerings and outputs tend to be fairly standardized, one can imagine the possibility of an e-catalog of services that would not be possible with traditional service providers.
• Your own organization may already be (and should be!) using these services themselves. They may also be piloting some services themselves. Ask them about both! The same goes with your existing CW/S solutions providers and services providers.
• Artificial intelligence is going to have a major impact in many of these services categories. In some cases, the platform providers or participants may use the tools to improve their service delivery, but over time, the services might simply be served up via API and executed by software.

Spend Matters believes that next-generation service providers represent an important trend that does merit at least some attention from procurement practitioners. For many organizations, the use of these providers is no longer experimental. The economic and performance benefits are established, with apparently little downside reported. Relationships with these providers (i.e., governance, etc.) do not seem to diverge from those of other service providers, and there seems to be opportunity ahead for advantageous e-procurement models. Perhaps one important consideration that can be connected to the next-generation digital service providers is that innovation can be achieved without disruption and perhaps relatively little change management.

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