Join the crowd: Why do multinationals use amateurs to solve scientific and technical problems?

The Jakes didn't set out to democratise the world of graphic design; they just wanted to make cool T-shirts. In 2000, Jake Nickell and Jacob DeHart, as they're more formally known, were college dropouts living in Chicago, though neither had found much work putting his abbreviated educations to use. Both were avid members of a burgeoning subculture that treated the lowly T-shirt as a canvas for visual flights of fancy. So when they met after entering an online T-shirt design competition, they already had a lot in common. For starters, both thought it would be a good idea to start their own design competition.

But instead of using a jury, they would let the designers themselves pick the winner. That November a company was born – the product of equal parts youthful idealism and liberal doses of beer.

The pair launched Threadless.com a few months later with a business plan that was still in the cocktail-napkin stage: people would submit designs for a cool T-shirt. Users would vote on which one was best. The winner would get free T-shirts bearing his or her winning design, and everyone else would get to buy the shirt. At first the Two Jakes, as people called them, ran Threadless from Nickell's bedroom. But the company grew. And grew.

And grew yet more. People liked voting on T-shirts, and the designs were less staid and less formulaically hip than those sold by Urban Outfitters or Old Navy. The winning designs started appearing on hit TV shows and on the backs of hip-hop artists. The company has nearly doubled its revenue every year since. Threadless receives some 1,000 designs each week, which are voted on by the Threadless community, now 600,000-strong. The company then selects nine shirts from the top 100 to print. Each design sells out – hardly surprising given the fact Threadless has a fine-tuned sense of consumer demand before they ever send the design to the printer.

Design by democracy, as it happens, isn't bad for the bottom line. Threadless generated $17m in revenues in 2006 (the last year for which it has released sales figures) and by all accounts has continued its rapid rate of growth. Its best sellers (such as "Communist Party", a red shirt featuring Karl Marx wearing a lampshade on his head) are on regular view at coffee shops and nightclubs from London to Los Angeles.

The Jakes now enjoy a certain degree of notoriety themselves.

Nickell and DeHart have become heroes among the do-it-yourself designer set, and even have given lectures to MBA students at MIT's Sloan School of Management.

Aspiring executives spent much of the time explaining all the basic business tenets the Jakes had broken in building Threadless. Good thing they weren't there when Nickell and DeHart were first launching their company. Nickell and DeHart are smart enough to know a good idea when they stumble on it. They created a parent company, skinnyCorp, which includes not just Threadless but a spin-off division that takes a similarly democratic approach to the creation of everything from sweaters to tote bags to bed linens. "Next we're thinking of doing housewares," says Nickell.

In late 2005, the Pew Internet & American Life Project released a paper called "Teen Content Creators and Consumers". The study, which consisted of interviews with more than 1,100 Americans between the ages of 12 and 17, drew little attention when it was published, but the findings were extraordinary: there were more teens creating content for the internet than there were teens merely consuming it. At the time it was commonly assumed that television had created a generation of consumers characterised by unprecedented passivity. Yet now it seemed the very opposite was the case. In his book, The Third Wave, the futurist Alvin Toffler predicted that consumers would come to exercise much more control over the creation of the products they consumed, becoming, in a word, "prosumers". In 1980, the year Toffler published his book, this seemed like mere fodder for bad science-fiction novels. From the perspective of 2005, it seemed stunningly prescient.

Pew's conclusions confirmed my own experience. A few months before the study was released, I had been hopscotching across the country attending concerts on the Warped Tour, a carni-esque collection of punk bands and the hangers-on that followed them from town to town. I was writing about the social networking site MySpace, which was known – to the degree it was known at all – as a grassroots-marketing venue for emo bands, off-colour comedians and Gen Y models. In the hours I spent with the performers and their fans, I noticed that very few defined themselves as musicians, artists or any other such label. The singers were publishing books of poetry; drummers were budding video directors; and the roadies doubled as record producers. Everything – even one musician's pencil portraits – was posted to the internet with minimal attention to production quality.

These were what Marc Prensky, a game designer and educator, calls the "digital natives". The rapidly falling cost of the tools needed to produce entertainment – from editing software to digital video cameras – combined with free distribution networks over the web, had produced a subculture unlike anything previously encountered: a country within a country quite capable of entertaining itself.

Next I heard about the Converse Gallery ad campaign, in which the shoemaker's ad agency solicited 24-second spots from anyone capable of wielding a camcorder. The shorts had to somehow convey a passion for Chuck Taylors, but that was it. You didn't even have to show the shoe. The best of the spots were very, very good – electric with inventive energy, yet grainy enough to look authentic, as indeed they were.

Within three weeks the company had received 750 submissions, a number that climbed into the thousands before Converse discontinued the campaign in early 2007. It was viewed as a smashing success by both the company and the advertising industry, as well as a seminal example of what is now called user-generated content. This was the new new media: content created by amateurs.

A little research revealed that amateurs were making unprecedented contributions to the sciences as well, and it became clear that to regard a kid making his own Converse ad as qualitatively different from a weekend chemist trying to invent a new form of organic fertiliser would be to misapprehend the forces at work. The same dynamics – cheap production costs, a surplus of underemployed talent, and the rise of online communities composed of like-minded enthusiasts – were at work. Clearly a nascent revolution was afoot, one that would have a deep impact on chemistry, advertising and a great many other fields to boot.

In June 2006, I published a story in Wired magazine giving that revolution a name: crowdsourcing. If anything, I underestimated the speed with which crowdsourcing could come to shape our culture and economy, and the breadth of those effects. As it happens, not just digital natives, but also digital immigrants (whom we might define as anyone who still gets their news from a newspaper) would soon be writing book reviews, selling their own photographs, creating new uses for Google maps and, yes, even designing T-shirts.

As I've continued to follow the trend, I've learnt a great deal about what makes it tick. If it's not already clear, Threadless isn't really in the T-shirt business. It sells community. "When I read that there was a site where you could send in designs and get feedback, I instantly thought, this is really cool," says Ross Zeitz, a 27-year-old Threadless designer who was hired to help run the community after his designs won a record-breaking eight times. "Now I talk to other designers, and they're motivated by the same things I was. It's addictive, especially if you're at a design school or some corporate gig, where you're operating under strict guidelines," says Zeitz. The only restriction at Threadless, by contrast, is that the design has to fit onto a T-shirt.

Threadless, its founders have noted, is a business only by accident. None of the Threadless founders set out to "maximise profits" or "exploit the efficiencies created by the internet". They just wanted to make a cool website where people who liked the stuff they liked would feel at home. In succeeding at this modest goal, they wound up creating a whole new way of doing business.

Enterprises like Threadless aren't novelty acts. They are part of the first wave of a business and cultural revolution that will change how we think about the internet, commerce and, most important, ourselves. Over the past several years, people from around the world have begun exhibiting an almost totally unprecedented social behaviour: they are coming together to perform tasks, usually for little or no money, that were once the sole province of employees. This phenomenon is sweeping through industries ranging from professional photography to journalism to the sciences.

Crowdsourcing had its genesis in the open source movement in software. The development of the Linux operating system proved that a community of like-minded peers was capable of creating a better product than a corporate behemoth such as Microsoft. Open source revealed a fundamental truth about humans that had gone largely unnoticed until the connectivity of the internet brought it into high relief: labour can often be organised more efficiently in the context of community than it can in the context of a corporation. The best person to do a job is the one who most wants to do that job; and the best people to evaluate their performance are their friends and peers who, by the way, will enthusiastically pitch in to improve the final product, simply for the sheer pleasure of helping one another and creating something beautiful from which they all will benefit.

There's nothing theoretical about this. Open source efforts haven't merely equalled the best efforts of some of the largest corporations in the world; they have exceeded them, which explains why IBM has pumped $1bn into open source development. Analysts at IBM know that open source produces results. From the Linux operating system to Apache server software to the Firefox web browser, much of the infrastructure of the information economy was built by teams of self-organised volunteers. And now that model of production is rapidly migrating to fields far and wide.

This migration isn't made up of just design students, shutterbugs and programmers. Crowdsourcing has profoundly influenced the way even Fortune 100 companies like Procter & Gamble do business. Until recently, P&G's corporate culture was notoriously secretive and insular: if it wasn't invented in-house, then it didn't exist. That worked fine for the first 163 years of P&G's history, but by mid-2000 the company's growth had slowed and its ability to innovate and create new products had stagnated.

In the six months between January and June of that year, its stock lost 50 per cent of its value. The board responded by bringing in AG Lafley as CEO with a mandate to right the listing ship. The former head of P&G's global beauty care division, Lafley issued an ambitious challenge to his employees: open up. Tear down the internal walls that separated sales from R&D and engineering from marketing, as well as the walls that separated P&G from its suppliers, retailers and customers.

When Lafley took over, only 15 per cent of its new products and innovations originated outside the company. Lafley created an initiative called "Connect and Develop", with the goal of raising that figure to 50 per cent by 2007. P&G has now exceeded that mark, an accomplishment largely built on one of the more compelling turnarounds in corporate history. Lafley writes in a book about his experiences leading P&G, entitled The Game- Changer: "P&G has about 8,500 researchers; and we figured there are another 1.5 million similar researchers with pertinent areas of expertise. Why not pick their brains?" To reach them the company has either created or partnered with what Lafley calls "internet-based engines" capable of tapping the collective brainpower of scientists around the world. In order to leverage the expertise of retired scientists from P&G as well as from other companies, Lafley helped create YourEncore, a website through which these scientists can work part-time on projects posted by companies such as P&G. Recognising that vital intellectual capital is increasingly found overseas, from eastern Europe to China and India, P&G also uses a network of 140,000 scientists called InnoCentive.

When the in-house R&D staff gets stumped, it can post the problem to InnoCentive's website. If one of InnoCentive's scientists can come up with the solution, P&G pays them a reward (and keeps the intellectual property). P&G has realised that tens of thousands of talented scientists are willing to put in the time and effort in their own jerrybuilt labs for the satisfaction of solving a puzzle and coming up with a practical solution – and, not unimportantly, of earning additional cash. The value of Lafley's strategy can be seen in the sustained growth in both P&G's revenue and its profitability. Since Lafley took over the company, its stock price has surpassed its former highs and net profits tripled to $10bn in 2007. The Connect and Develop initiative has also led to some of P&G's most innovative products, including the now-ubiquitous Swiffer duster, among others.

Despite their obvious differences, Threadless and and P&G have one thing in common. They embody a central truth that was first articulated by Bill Joy, co-founder of Sun Microsystems. "No matter who you are," Joy once said, "most of the smartest people work for someone else." Given the right set of conditions, the crowd will almost always outperform any number of employees – a fact that companies are becoming aware of and are increasingly attempting to exploit.

While crowdsourcing is intertwined with the internet, it is not at its essence about technology. Technology itself consists of wires, chips and abstruse operating manuals.

Worse yet for a writer, it's boring. Far more important and interesting are the human behaviours that technology engenders, especially the potential of the internet to weave the mass of humanity together into a thriving, infinitely powerful organism. It is the rise of the network that allows us to exploit a fact of human labour that long predates the internet: the ability to divvy up an overwhelming task – such as the writing of an exhaustive encyclopedia – into small enough chunks that completing it becomes not only feasible, but fun.

We can see this principle at work in, of all things, the search for alien life-forms. The University of California at Berkeley has been looking for aliens for nearly 30 years. Berkeley's SETI (Search for Extraterrestrial Intelligence) project scans data gathered by radio telescopes such as the Arecibo observatory in Puerto Rico (made famous by the 1997 movie Contact). Radio waves constantly bombard Earth's atmosphere. By recording and analysing them, scientists hope to identify anomalies – signals amid the noise – that would betray the presence of intelligent life on other planets. Rush Limbaugh, in other words, could have an extraterrestrial counterpart, and if we listen hard enough we might be able to hear him.

Berkeley had been using powerful computers to analyse all that data. Then in 1997 a handful of astronomers and computer scientists proposed a novel solution: recruit the public to donate computer time to the task. Volunteers would download a simple screen saver, which would kick into gear whenever the user stopped using his or her machine. Once a computer finished scanning a chunk of data, it would automatically send it back to a central server, which would then give the computer a new chunk to work on. The project was called SETI@home, and it launched in May 1999 with what seemed like an ambitious goal: get 100,000 people to help.

That turned out to be a very modest target. By 2005, 5.2 million users had downloaded the SETI@home screen saver, logging nearly 3 million years of computing time. The Guinness Book of World Records recognises it as "the largest computation in history". While SETI@home has failed to find any proof of extraterrestrial life, it has conclusively succeeded in proving that the many can work together to outperform the few.

Around the time the internet was first making its way into mainstream culture, The New Yorker ran a now-famous cartoon: a dog sitting in front of a PC says to his canine companion, "On the internet, nobody knows you're a dog." With crowdsourcing, nobody knows you don't hold a degree in organic chemistry or that you've never shot photographs professionally or that you've never taken a design class in your life. It has the capacity to form a sort of perfect meritocracy. Gone are pedigree, race, gender, age and qualification. What remains is the quality of the work itself. In stripping away all considerations outside quality, crowdsourcing operates under the most optimistic of assumptions: that each one of us possesses a far broader, more complex range of talents than we can currently express within current economic structures. In this sense crowdsourcing is the antithesis of Fordism, the assembly-line mentality that dominated the industrial age. Crowdsourcing turns on the presumption that we are all creators – artists, scientists, architects and designers, in any combination or order. It holds the promise to unleash the latent potential of the individual to excel at more than one vocation, and to explore new avenues for creative expression. Indeed, it contains the potential – or alternately, the threat – of rendering the idea of a vocation itself an industrial-age artefact.

Crowdsourcing capitalises on the deeply social nature of the human species. Contrary to the foreboding, dystopian vision that the internet serves primarily to isolate people from each other, crowdsourcing uses technology to foster unprecedented levels of collaboration and meaningful exchanges between people from every imaginable background, in every imaginable geographical location.

It engenders another form of collaboration as well, between companies and customers. Toffler was right: people don't want to consume passively; they'd rather participate in the development and creation of products meaningful to them. Governments have slowly moved toward democracy; the enormous promiscuity of information facilitated by the internet is catalysing the same movement in business, enabling a movement toward decentralisation that has begun to sweep across every imaginable industry.

Crowdsourcing has revealed that, contrary to conventional wisdom, humans do not always behave in predictably self-interested patterns. People typically contribute to crowdsourcing projects for little or no money, labouring tirelessly despite the absence of financial reward. This behaviour seems illogical viewed through the lens of conventional economics, but rewards can't always be measured by the dollar or the euro. People derive enormous pleasure from cultivating their talents and from passing on what they've learnt to others.

It is a flattering portrait of the human race. We are more intelligent, more creative and more talented than we tend to give ourselves credit for. I've seen cases in which electricians solve complex industrial chemistry problems, and forklift operators show a knack for investing in the stock market. We see something similar on YouTube, in which budding comedians and filmmakers have been able to secure first a cult audience, then industry contacts and finally paying gigs and mainstream recognition.

What we may well see in the not-distant future are people experiencing crowdsourcing as a fish does water – the stuff we swim in day after day. Although we're unlikely to see, say, UPS put it to use in the shipping of freight, we could well see that company use crowdsourcing to divine new logistical solutions or design a more compelling corporate identity.

The short-term growing pains that will surely accompany such a transition will be outweighed, I believe, by the long-term benefits of a flattened environment in which we will all become valuable contributors. The amount of knowledge and talent dispersed among the numerous members of our species has always vastly outstripped our capacity to harness those invaluable quantities. Crowdsourcing is the mechanism by which such talent and knowledge is matched to those in need of it. It poses a tantalising question: what if the solutions to our greatest problems weren't waiting to be conceived, but already existed somewhere, just waiting to be found, in the warp and weave of this vibrant human network?

'Crowdsourcing' by Jeff Howe (Random House, £17.99); £16.19 (free p&p) through Independent Books Direct, 0870 079 8897