Both crowdsourcing and crowdfunding have similar underlying dynamics. Crowdfunding is derived from a wider idea of crowdsourcing. Although the two concepts are similar, there are vital differences between them. Crowdsourcing is the process of obtaining skills or knowledge or otherwise end products from a crowd or group of people.
Crowdfunding on the other hand is the process of sourcing money or capital from a crowd or group of persons. Their differences are in their meaning, objective, and approach. This article will help you discern between the two ideas and we will give you an in-depth understanding of what the two concepts are about.
Differences between Crowdsourcing and Crowdfunding
Crowdsourcing
Crowdsourcing is derived from two other words ‘crowd’ and ‘outsourcing’. A crowd is defined as a group of people while outsourcing is the payment of workers outside your business to carry out company tasks. Put together, crowdsourcing refers to the process of outsourcing knowledge and skills from a crowd or group of people. The process could be by a survey or by seeking a specific skill. It helps to save costs, time, and energy that could have been used to train in-house employees. Crowdsourcing is convenient because it allows companies to get what they do not have easily. It involves taking a huge task and dividing it into small pieces that a crowd can perform separately. Crowdsourcing helps to reduce the time working on a product as well as the time to market the product. It also helps by providing cost-effective solutions to large problems. It gives access to a wide range of skills and a flexible workforce.
The word was first introduced by a magazine writer for Wired (Jeff Howe 2006). It ultimately became the book ‘Crowdsourcing: Why the power of the crowd is driving the future of business. Crowdsourcing can come in different forms but here are a few examples:
Surveys in the form of questionnaires can be taken by companies or journalists to get an opinion or view. Upwork is a crowdsourcing platform that allows employers to hire freelancers to perform certain tasks for their respective businesses. Wikipedia is a crowdsourcing platform for the encyclopedia. The famous tech site GitHub uses crowdsourcing to solve tech problems.
Crowdfunding
To understand the concept, let us break it down. Crowdfunding is coined from the merging of two words: ‘crowd’ and ‘fund’ to become its general term ‘crowdfunding’. The term ‘crowd’ has to do with a group of people or a community while the word ‘fund’ has to do with money or finance. Hence, in simple terms crowdfunding is the obtainment of funds from a crowd. Crowdfunding’s objective is to gain money for projects or other causes that need it.
Crowdfunding may not raise large amounts of money. However, it is a solution to the conventional means of funding like bank loans or angel investors. Instead, entrepreneurs may reach out to friends and family and other target audiences to amass small amounts by obtaining a lump sum. There are four key forms of crowdfunding. They are:
Reward-based: This happens when individuals give money to a business for a type of reward in the future. Equity-based: This is when individuals invest in a company by buying shares in the company, therefore, becoming shareholders and becoming entitled to the company’s profits. Lending-based: This is when individuals provide loans to a company after which the company will pay the loan back with interest. Donation-based: This is when donations are sourced for charitable purposes.
Modern crowdfunding was introduced in 1997 with a website that aided artists to gather money. Now, there are a bunch of crowdfunding platforms for various purposes. Today, crowdfunding is revolutionized by social media and online platforms. The person or people with the idea would start a campaign on the platform and use social media to spread awareness and have a greater reach for the campaign. Examples of popular crowdfunding websites are:
GoFundMe: Since its establishment in 2010, GoFundMe has grown to be the biggest crowdfunding platform as of 2021. It has amassed over $15 billion from over 100 million funders. The site is mostly used for charitable causes. Kickstarter: Established in 2009, Kickstarter has funded more than 200,000 projects with over $6. 6 billion pledged. The site can only be used for projects and businesses that want to gain capital. Indiegogo: Launched in 2008 and created for raising money for independent films, Indiegogo is another popular crowdfunding platform. It however began allowing projects from various categories to be funded.
Conclusion
The difference between crowdsourcing and crowdfunding is primarily in the result. Crowdfunding aims to source money from the crowd to fund projects while crowdsourcing aims to source skills from the crowd.
What is Real Estate crowdfunding?
This is when people are given the chance to invest in real estate by just buying a portion of the development. It is a recent form of commercial real estate.
Do you pay back crowdfunding?
For donation-based crowdfunding, the funded cause does not need to pay back donors but companies and businesses, they may need to pay back depending on the terms and conditions.
