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A lot of people don’t see the difference between Crowdfunding vs Crowdsourcing. While they are similar in that they both allow people to primarily leverage mass-community collaboration, they are related to two different things entirely.
Crowdfunding is sourcing money or funds from a group or groups of people, while crowdsourcing is sourcing information or skills or end products from a group or groups of people.
What is Crowdsourcing
Crowdsourcing is the practice of engaging a ‘crowd’ or group for a common goal, often innovation, problem solving or efficiency.
It is powered by new technologies and social media. Thanks to our growing connectivity, it is now easier for individuals to collectively contribute —whether with ideas, time, expertise, or funds — to a project or cause. This collective mobilization is crowdsourcing.
It is a process of tapping into individuals or groups of people, paid or unpaid, who are linked together with a common interest to bring forward powerful increased results through their aggregated actions or activities.
How crowdsourcing works
Crowdsourcing involves seeking knowledge, goods, or services from a large group of people. These people submit their ideas in response to online requests made either through social media, smartphone apps, or dedicated crowdsourcing platforms.
Some of those involved in crowdsourcing are paid freelancers (depending on the nature of the knowledge or services requested) but most people perform these tasks on a voluntary basis.
A great example of crowdsourcing is online reviews. If you’ve ever reviewed a restaurant, gym, or bar on Google, you’re a productive crowdsourcing contributor.
The Top 5 advantages of Crowdsourcing
No matter how much they work to contribute to the common good, every company is concerned about its bottom line. There’s a clear profitability aspect that drives many companies to choose crowdsourcing.
Consider how much you would spend on hiring a new team of experts specifically for a new project. You would have to pay wages, provide office space, and cover health insurance. With crowdsourcing, you can simply offer a one-time reward for finding the solution.
2. Hands-off approach
CEOs and company managers may have lots of resources at their disposal, but time is typically not one of them. When conducting a project, the manager needs to constantly supervise it and ensure the team is working efficiently and meeting deadlines.
When relying on crowdsourcing, the “only thing” the management team has to do, is create the challenge and then sit back while the worldwide innovators do their thing. No need to check in on individuals during the process.
3. Fresh perspective
Unlike your employees, the crowd does not have a bias towards your company. They can bring a new perspective to the problems your team has been struggling with for ages. Sometimes all it takes is a new pair of eyes to find the missing piece you’ve been looking for all along.
One of the huge benefits of the crowd is their diverse backgrounds. They come from different countries, different socioeconomic statuses, different experiences, and different worldviews.
4. Brand promotion
There’s nothing wrong with using your crowdsourcing challenge as an opportunity to build your brand image. People love to hear about companies taking an innovative approach. You may be surprised to see how much great PR your company gets from launching a crowdsourcing challenge.
5. New hires
Most companies find it quite difficult to recruit creative and innovative employees to work for them. Participating in crowdsourcing challenges gives people an opportunity to showcase their talents.
If you’re impressed by the solutions that the winners come up with, you might invite them to join your team. Their problem-solving skills could be a huge asset to your company again and again.
The Top 5 Disadvantages of Crowdsourcing
As you might guess, crowdsourcing doesn’t leave much room for confidentiality. Crowdsourcing challenges can be accessed by almost everyone. This is a concern for companies who have highly sensitive information linked with the problem they’re trying to solve.
The best way to avoid this potential risk is to be cautious with what you choose to share. Make sure the information you include portrays your company in a positive light and does not give competitors the opportunity to take advantage of you.
With crowdsourcing, there’s always the possibility that a few bad apples try to play the system by plagiarizing someone else’s work or ideas in order to win the prize. For example, if a company is looking for help designing a new logo, a challenge participant may suggest a logo that already belongs to another company without realizing it.
It’s extremely important to check all entries (or at least the top 10) for possible plagiarism before making your final decision, using legal help in certain cases.
3. Intellectual property rights
This disadvantage has the potential to become disastrous if not managed properly. Typically, intellectual property rights belong to the inventor of the idea. That means companies need to ensure the intellectual property rights of the winning idea are transferred to them upon completion of the challenge.
The best way to do this is to construct agreements with carefully articulated terms and conditions between your company and the other parts involved.
It may seem like crowdsourcing mostly relies on amateurs, and that is partially true. There are many amateurs who participate in crowdsourcing challenges, but there are experts as well.
Usually, it’s not about the money. People long to contribute something that will make a difference in the world, and many support the causes and companies behind the contests they choose to participate in. And let’s face it, it’s pretty cool to be able to say something like, “I helped NASA fix one of the biggest challenges facing space travel.”
5. Potential for failure
What if you put lots of time and effort into conducting a crowdsourcing challenge and then end up with nothing to show for it? That would be devastating, especially if the problem is time-sensitive and you’re out of options.
So be sure to choose a company that has an amazing success rate in finding a winning solution. Work with those who have access to some of the brightest minds in the world. You’ll have lots of help from the challenge experts every step of the way.
What is Crowdfunding?
Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors. This approach involves the collective efforts of a large pool of individuals – primarily online via social media and crowdfunding platforms – and leverages their networks for greater reach.
How is Crowdfunding Different?
Traditionally, if you want to start a business or launch a new product, you would need to pack up your business plan, market research, and prototypes, and then shop your idea around to a limited pool or wealthy individuals or institutions. These funding sources included banks, angel investors, and venture capital firms, really limiting your options to a few key players.
Crowdfunding platforms, on the other hand, gives you, the entrepreneur, the way to build, showcase, and share your pitch resources.
Years ago, you’d spend months sifting through your personal network, vetting potential investors, and spending your own time and money to get in front of them. With crowdfunding, it’s much easier for you to get your opportunity in front of more interested parties and give them more ways to help grow your business.
Advantages of Crowdfunding
- It can be a fast way to raise finance with no upfront fees
- Pitching a project or business through the online platform can be a valuable form of marketing and result in media attention
- Sharing your idea, you can get feedback and expert guidance on how to improve it
- It is a good way to test the public’s reaction to your product/idea. If people are keen to invest it is a good sign that your idea could work well
- Investors can track your progress. This may help you promote your brand through their networks
- Ideas that may not appeal to conventional investors can often get financed more easily
- Your investors can become your most loyal customers through the financing process
- It’s an alternative finance option if you have struggled to get bank loans or traditional funding
Disadvantages of Crowdfunding
- It will not necessarily be an easier process compared to the more traditional ways of raising finance. Not all projects that apply to crowdfunding platforms get onto them
- When you are on your chosen platform, you need to do a lot of work in building up interest before the project launches.
- If you don’t reach your funding target, any finance that has been pledged will usually be returned to your investors and you will receive nothing
- Failed projects risk damage to the reputation of your business and people who have pledged money to you
- If you haven’t protected your business idea with a patent or copyright, someone may see it on a crowdfunding site and steal your concept
- Getting the rewards or returns wrong can mean giving away too much of the business to investors.
How Crowdsourcing and Crowdfunding work together for projects
Crowdsourcing and Crowdfunding work together for projects. Entrepreneurs reach out to the crowd through crowdfunding platforms such as Kickstarter, Indiegogo, Angels Den Funding o Primus Finance to raise funds that enable them to implement their innovate ideas.
But such ideas cannot be brought to fruition with funds alone. You need to have the best team of talented individuals too. Using crowdsourcing platforms such as Upwork, 99 designs, or Top coder, you can outsource the most talented and knowledgeable on-demand freelancers to help you implement different parts of your project and create better products or provide outstanding services.
That way, Crowdsourcing and Crowdfunding work together through mass collaboration to tap into the crowd for talent and capital to get things done by making the implementation of difficult projects possible.
So, what’s the difference between Crowdfunding vs Crowdsourcing?
The difference between Crowdfunding vs Crowdsourcing lies mainly in the end result. With crowdfunding, people are looking specifically to raise money from the crowd. With crowdsourcing, people are seeking pretty much anything else: information, work, talent, skills, etc.
As you can see, crowdsourcing is a great way to source talent, innovative ideas, products, or services, while crowdfunding helps raise funds needed to bring such innovative ideas and creative products to life.
Don’t forget that Finnovating helps you tap into the power of crowdfunding by offering you valuable crowdfunding expertise and fulfillment tools.