The TopCoder Business Model: Collaboration by Competition

Posted by Chris Flanagan on January 8, 2008

When Dan Pink first introduced the concept of a free agent nation back in 1997, I wonder if he imagined a world where testosterone-driven, competitive collaboration would be the engine for a new free agent business model.

BIF-3 storyteller Jack Hughes is the founder and president of TopCoder, a Connecticut-based company founded in 2002 that has institutionalized programming competitions. These software competitions are a novel way to both showcase programmers from around the world for companies seeking top-flight talent, while at the same time develop computer applications for blue-chip clients who recognize TopCoder’s ability to tap a global talent pool.

So far TopCoder has 130,000 member programmers who hail from virtually every country on Earth. Each week the company hosts online, single-match programming competitions in which developers compete for ratings and bragging rights, and hone their skills for TopCoder’s larger, multi-round tournaments, which are held biannually. Not to be underestimated, these competitions are serious business and Corporate America has taken notice. It’s like Six Sigma on steroids. The efficiencies realized when a global community of top flight programmers compete against each other is huge. (Basically, programmers write small software modules that are ultimately assembled into large programs for TopCoder’s corporate clients.)

Jack Hughes shared his story to our BIF-3 audience last October. (You can check out his video here.) Many attendees wanted to learn more and really dig into his business model. CFO magazine has written a great indepth piece. Our own Saul Kaplan is quoted in the article saying, "This is as good an example of business-model innovation as you're going to find. They've flipped the [software labor] problem on its head."

For the programmers, TopCoder is an outlet for their creativity as well as a way to win prize money that in some places can go pretty far. Even those who don’t win relish the chance to test their skills against their peers and learn from more advanced programmers. When I spoke with Jack Hughes last fall, he summed up his business model best with this: “When we put work out we’re not concerned with who’s doing it, we only care about the quality of the output. By cutting a project into smaller pieces and making the process competitive you get a whole different feel for what work is.”

The result is a process of collaboration by competition, a for-profit twist on the open-source software approach pioneered by companies like Linux and Apache. In addition, paying people on the basis of the quality of their output, rather than how much time they put into it, makes for a much happier organization.

Again from BIF Chief Catalyst Saul Kaplan:

"Companies should devote R&D to new business models just as they do to new products,. A typical CEO today will need to preside over a changed business model three or four times in his career, but no one really knows how to do it. It's not taught in business schools, and there is much to learn about how to manage a workforce that is no longer just within the four walls of the organization."

What other fields would TopCoder’s model be applicable? Financial trading is one area Jack Hughes suggests. One thing I know for sure, TopCoder is blazing a trail that others will soon follow.

BIF RELATED CONTENT

• Read my profile of Jack Hughes
• Watch Jack Hughes at the BIF-3 Summit
• Jack Hughes isn’t the only member of the BIF community using incentives as a basis for innovation. BIF research advisor Alph Bingham is the co-founder and former president and CEO of Innocentive, a Web-based community launched in 2001 that matches companies facing R&D challenges with scientists who propose solutions. You can learn more about Innocentive here and watch Alph's video from the BIF-2 summit here.

OTHER RELATED CONTENT

• Read the CFO Magazine article Gaming the System
• Visit TopCoder
• Visit Innocentive