Terrie's Take: Crowdsourcing in Japan, Earthquake, Oklahoma Cell Phone, Lion Jeans, and Benesse Data Leak

Terrie's Take - AkihabaraNews.com

Terrie’s Take is a selection of Japan-centric news collected and collated by long-time resident and media business professional Terrie Lloyd. AkihabaraNews is pleased to present Terrie’s learned perspective; we all could use another take on the news - here’s Terrie’s:

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Terrie’s Take on July 14, 2014

Feature:

  • Crowdsourcing Just Getting Started in Japan

Briefs:

  • Shallow 6.5 earthquake hits Fukushima
  • Oklahoma farmer gets phone back from Japan
  • May orders slump badly
  • Genuine lion-ripped jeans
  • Hell to pay for Benesse leak

Crowdsourcing Just Getting Started in Japan
This last week we had the good fortune to be invited to participate in an expert panel for crowdsourcing at the Foreign Correspondent's Club of Japan (FCCJ) in Yurakucho. We were invited to appear alongside two major players in the crowdsourcing industry in Japan: executives of Crowdworks and Lancers. Of the two, although Lancers got started earlier, in 2008, it's Crowdworks that has been getting the media's attention recently, largely due to the speed with which it raised JPY1.4bn from some of the leading VC firms in Japan, as well as its tie-up with Yahoo Japan at the start of 2013.

After a short presentation by your's truly, Crowdworks CEO Koichiro Yoshida told the audience how he has a somewhat unique background -- being a failed entrepreneur, twice, before hitting the big time with Crowdworks. An OK story, but what came after was more interesting, in that he has set himself the goal of growing into the "next Softbank of Japan". Pretty big footsteps to follow, given that Masayoshi Son is still going strong, but no doubt fueled by the incredible 800% year-on-year growth that Crowdworks has enjoyed since the company's foundation in 2011. The company says it has so far mediated jobs worth more than JPY12bn, and has 129,000 registered workers. Not bad for 3 years from zero.

The other speaker was a board member and the Biz Dev manager of Lancers, Kazuhisa Adachi. He pointed out that even as Crowdworks is growing strongly, Lancers is still the more experienced and larger of the two organizations. Lancers claims to have handled about JPY30bn in projects and has about 355,000 registered freelancers. We tend to agree with Adachi that his company is the more experienced of the two, not just because of size but also because he talked about the transitioning of the company from a pure marketplace to an outsourcing consulting firm with a crowdsourced front end. More about this later.

For those readers trying to remember what crowdsourcing is, basically it's the use of unstructured crowds to get office/creative work done remotely. It's basically this decade's answer to what used to be called outsourcing, but unlike outsourcing it doesn't require the managing company to know the workers at all. In fact, generally speaking, crowdsourcing companies are marketplaces providing the tools for buyers and sellers of services to meet each other, rather than being employers of people -- although this might change.

Both competing leaders in the crowdsourcing space emphasized that crowdsourcing is a positive phenomenon for society and workers. No doubt this position is prompted by the fact that many in Japan (and elsewhere) decry crowdsourcing as a means of cheap labor and disenfranchisement of people having the right to a regular job. Certainly these are fair comments:

1. As the Crowdworks presentation showed, customer companies can enjoy massive savings from crowds -- rates around 1/3 to 1/4 of the going commercial rate.
2. Jobs are typically project based, and once completed, the worker no longer earns income.
3. Marketplace operators do not pay the social contributions normally required for regular employees and so have little interest in them.

So are crowdsourcing companies taking unfair advantage of their members? Given that crowdsourcing is still in its infancy in Japan, you couldn't say that a significant segment of the population is being forced/coerced into working through crowdsourcing platforms -- yet. But with the speed of growth of both companies, there certainly does seem to be the potential for some radical job-work expectation shifts in the future.

Right now just 0.5% of the working population have chosen to register with both companies, and their motivators seem to the following:
1. Arubaito. Most crowdsourced workers have a regular job or alternative form of employment and are working from home after 21:00 or in the weekends -- so members are typically those who are moonlighting.
2. Quality of Life. The sectors where crowdsourcing is most active are typical of remote working, being software, design, writing, and data entry -- meaning that they can be done far from the place of sale/consumption. We heard of a number of examples from Yoshida and Adachi, telling of people choosing to live in the countryside and who work online to supplement income from rural jobs -- such as the new-to-the-land farmer who is also a designer in the evenings.
3. Convenience. According to Lancers, many workers operating from home are mothers with pre-school children. These ladies choose not to take a regular job yet and want to do something to maintain their skills and earn pocket money after the kids go to sleep.
4. Work Access. We also heard both companies say they have many retired people as members. Lancers mentioned one gentleman who is 85. Without crowdsourcing, he would be very unlikely to get work through traditional channels.

Apart from the cheap labor question, there are two other negatives that we can see with crowdsourcing. Firstly that crowdsourcing leads to job insecurity, which will negatively impact knowledge workers in the future. This actually came up as a question after the main presentations. The responses given were interesting. Yoshida mentioned that his company is going to provide job security to its remote workers. He didn't go into specifics, but he appears to be planning to introduce some form of benefits that will help remote workers in the same way that social insurance does for regular workers. Sounds difficult to do and expensive.

Adachi on the other hand said that his company will probably pivot from being just a marketplace to becoming an outsourcing vendor with a crowdsourcing front end. This sounds a lot more pragmatic to us. Either way, we think it's obvious that the model needs to change because it appears that neither company is making money, even as they grow dramatically. We understand that this is a similar problem with crowdsourcing sites abroad as well. Apparently as of the end of last year, out of Crowdwork's 40,000 projects handled at that point only 0.05% were worth more than JPY500,000 in income to members (at 10% commission, JPY50,000 to Crowdworks). Lancers has already realized this growth trap and is going to try to increase the revenues per project by taking control of the incoming work. Of course this also means that the remote workers won't be making 90% of revenue any more. As a guide, regular outsourcing companies take between 20%-30% of revenues.

The second negative of crowdsourcing as it exists in Japan currently, is the fact that it matches unknown buyers to unseen (and often unknown) sellers in the crowd. So you are never quite sure what you are buying. In TT-749 we discussed the unfortunate event of a young Yokohama-based mother who handed over her two children to an online child minding service for the weekend, only for her two year-old to die of neglect at the hands of the 26-year old male minder, who was an otaku based up in Saitama. At the time we pointed out that while an extreme example, this is a problem with crowdsourcing as it exists in its current incarnation -- essentially crowdsourcing is online matchmaking and hasn't moved far from deai (dating) sites in terms of morals and self-control. Incidentally, the incident is probably going to spur the authorities to start regulating the sector, which will be problematic while it is still in its infancy.

Our take is that crowdsourcing is going to both grow in prevalence and evolve because it does offer compelling advantages, such as highly efficient use of labor, proper matching of skills to need, and access jobs that irregular workers may not otherwise have. Yes, there is for now and for a while will continue to be a seller's market, whereby there are more workers than jobs and therefore the hourly rates will be low. However, as Lancers, Crowdworks, and their 200 domestic competitors are learning, taking advantage of your crowd is pointless if you can't make money yourself, so they are going to have to find a better model -- which for both of them appears to becoming a hybrid of online market and traditional outsourcing.

But we would posit that there is another way for these firms -- which is to stay faithful to the original value proposition of crowdsourcing, and instead allow the market to set its own prices for skills and eventually let it work itself out. What is likely to happen is that those people with desirable skills will get the lion's share of the work, and those who do not will understand that they need to start adult education and/or specialize in areas where there is not so much competition. This will lead to an increase in knowledge quality and scope, and allow companies to find a better spread of competent vendors to choose from.

It will also cause, perhaps over 3-5 years, those remote workers possessing sufficient skills and differentiation to become the equivalent of bestselling authors and musicians today, and thus achieve status and a lifestyle which would not have been possible with a regular job. Of course, like the writing and music fields, it also means there will be lots of hopefuls who will fall by the way, and one wonders how deep to the core of Japanese values this will strike. If the potential for failure is accepted and not regulated into obscurity, such marketplaces will ensure that in the workplace of the future, performance will be the main determinant of success, not just showing up to the office and getting older, and Japan probably needs a good dose of that.

Shallow 6.5 earthquake hits Fukushima
If like us you were woken up at 04:30am on Saturday by your cell phone going off with an earthquake alert, you'll have been happy to learn later that morning that the tremor wasn't as bad as was initially feared, nor was the ensuing tsunami. The warning came from the Japan Meteorological Agency and was issued because the 6.5 magnitude earthquake epicenter was so shallow, just 11km down -- meaning that severe surface shaking in the off-shore location was expected to cause a 1m tsunami. Experts warn that there will be more aftershocks of similar magnitude over the coming months. ***Ed: What concerns us most is not the earthquakes, but the potential effect on the facilities where they are transferring fuel rods at Fukushima. The last thing we want is for the cooling tank, which is still just under half full, to tip over...** (Source: TT commentary from ktla.com, Jul 11, 2014)

Oklahoma farmer gets phone back from Japan
As a nation, the Japanese are famous for their honesty, but usually the anecdotes only get heard in Japan. However, readers of a newspaper in Oklahoma got a surprise to learn that a local farmer who'd lost his phone in a grain elevator had it posted back to him 8 months later by a friendly grain worker at a company in Japan. The farmer was unloading grain from a truck into the silo when his phone slipped out of his shirt pocket. Given how enormous these silos are, he knew that he'd probably lost it for good and was disappointed to lose the photos of his daughter's wedding that it contained. Imagine his surprise when the phone was returned to him by a grain depot worker based in Hokkaido, in full working condition...! (Source: TT commentary from huffingtonpost.com, Jul 08, 2014)

May orders slump badly
A key economic indicator, that for capital spending, fell by a record 19.5% in May, the worst drop in machinery order forecasts since records started. The dramatically bad data indicates that Japan may not have the post-consumption tax soft landing it was hoping for, and that in fact the Q4 spending surge prior to the consumption tax increase was opportunistic and not a sign of positive Abenomics. Prior to the numbers coming out, economists were generally expecting a 0.7% increase in the indicator. ***Ed: Market discussion now centers on whether the drop really was due to the post-tax blues, or a deeper malaise with the nation's export markets and therefore companies are cutting back accordingly.** (Source: TT commentary from reuters.com, Jul 10, 2014)

Genuine lion-ripped jeans
Yes, you read that title right. Fashion label Zoo Jeans is offering jeans that have been "aged" by actual zoo animals, such as lions, tigers, and bears. The label is working in conjunction with the Kamine Zoo in Hitachi City to raise funds for the zoo. They are advertising the animal-sculpted clothing as the "the only jeans on earth designed by dangerous animals." The way it's done is that sheets of material are attached to tires and balls that the animals then play with and chew on. One clothing retailer said the tears were too irregular to be fashionable -- but we don't imagine that will detract from the unique value proposition being offered shoppers. A bit like saying a Picasso doesn't look right to be considered art. ***Ed: What a great PR idea...! (Source: TT commentary from adweek.com, Jul 10, 2014)

Hell to pay for Benesse leak
Of all the sectors that you wouldn't want to have a customer data leak in, after banking, home education for children would have to be near the top of the list. So it must be with a sense of crisis that Benesse is having to confront the issue of its massive 20.7m customer leak. The data was apparently stolen by an employee of Okayama-based Synform Company, an IT outsourcing company, and sold on to list brokers. The list was then sold to at least one well-known customer, Tokushima-based software company, JustSystems, which used the data to solicit customers for its own distance learning services. ***Ed: A lot of speculation about the heat that the new CEO Eiko Harada must be facing over this huge problem. However, we think that given the timeline, probably Benesse and Harada knew BEFORE he was hired that they had a data leak problem. Instead, we wouldn't be surprised if he was brought in as the new outside CEO so that the company would have a chance of surviving the fall-out.** (Source: TT commentary from the-japan-news.com, Jul 12, 2014)

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That was Terrie's Take.

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