Caso TCoder

9 - 61 0 - 032

J ANUA RY 1 5 , 20 10

KA RI M R. L A KH ANI

DA VI D A. GA RV IN

ERI C L ON ST E I N

TopCoder (A): Developing Software through

Crowdsourcing

In December 2009, Jack Hughes, CEO and founder of TopCoder Inc., entered his company’s

headquarters in

Glastonbury,

Connecticut, eager to

review a

particularly

complex software

development project for an energy firm’s dynamic power pricing system. Eight years after founding

TopCoder, Hughes still enjoyed detailed

project reviews. He was particularly proud that his

company could produce high-quality software solutions for which his own employees did not have to write a single line of code. Instead, the firm nurtured a global community of more than 225,000 programmers who competed to design and create software modules for TopCoder clients, a process that the popular press called crowdsourcing.1

Hughes smiled at the project’s success. The resulting software code was bug-free and operational on its first day, a rarity in the software industry. Especially impressive to Hughes was that in four months, 65 participants from 11 countries in 6 continents had competed in 57 contests to create this

critical pricing system for the

client (see

Exhibit 1).

As of 2009,

TopCoder routinely produced

software solutions for over 45 clients, including AOL, Best Buy, Eli Lilly, ESPN, GEICO, and the

Royal Bank of Scotland.

In the past eight years, Hughes had refined TopCoder’s business model to accommodate ongoing

changes in the software industry, while

also pursuing its unique competition-based software

development approach. He had transitioned his business from a model that helped other software firms identify “top coders” to a company that developed custom software through a combination of traditional IT consulting services and competitions, pitting developers world-wide to solve clients' problems.

The shift to

a greater emphasis on

competitions, encompassing all aspects of software

development, however, meant that project volume was a "growing" issue--for TopCoder. Hughes had to think through how a competition-based business model, which increasingly stressed contests

as an organizing,

as well as

money-making approach, could handle increases in numbers of

competitions, clients, and participants. Hughes considered his own goal: attaining $200 million in revenue from a high of just over $18 million in 2008. He fundamentally believed that contest demand would spur the supply of TopCoder participants who would in turn create high quality software

1 Jeff Howe, “The Rise of Crowdsourcing,” Wired Magazine, Issue 14.06, June 2006.

Professors Karim R. Lakhani and David A. Garvin and Research Associate Eric Lonstein prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

Copyright © 2010 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication may not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.

solutions. But, was $200 million in revenue a reasonable goal? Did his assumptions make sense? If so, what would it take to increase revenues by over an order of magnitude?

Background and Current Operations

Before he founded TopCoder in 2001, Hughes had built a custom software development2 company, Business Data Services, in 1985; renamed Tallan in 1991. Tallan employed some 600 people before being sold to CMGI in 2000.3 As he was completing the transaction, Hughes reflected on what he had learned from his experiences at Tallan--these experiences would inspire the core tenets of the TopCoder business model. Although Hughes enjoyed his time at Tallan, there were areas in which the company struggled. For example, recruitment was an expensive and frustrating process because finding qualified programmers was time consuming and talent was difficult to assess. Due to constantly evolving technologies, programmers’ skill sets often became obsolete after only a few years of productive service, leading to high levels of employee turnover. Furthermore, despite Tallan’s goal of maximizing billable hours, Hughes believed there were opportunities to save clients time and money by, for example, reusing computer programs’ basic components instead of building each application from scratch.

Drawing upon these and other insights, Hughes set about creating a new kind of organization that would build a "community" of programmers to help address the issues he had identified. These programmers would compete--as well as affiliate—by building and using components that had already been tested and found workable. The idea of reusing software components for new projects would become the core of the solutions the new company, called TopCoder, provided. Hughes envisioned the company as a “two-sided platform” for software development. One side of the platform would be clients, firms that needed software developed, who would work with his staff to specify programming challenges. The other side would be community members who would compete in contests to create solutions to the challenges for money and skill ratings. TopCoder would be in the middle as the platform host, designing and enforcing the rules of engagement between clients and the community members. Pete Bourdon, TopCoder’s CFO, explained the company needed to excel at five core tasks: breaking down large client software projects into components, taking in and processing client project specifications, determining appropriate contest prizes, having a consistent and unbiased way of picking contest winners, and fixing bugs at the back end of development.

Setting out to amass an initial collection of highly skilled programmers, from

...