Crowdfunding vs. Crowdsourcing

A lot of people confuse crowdfunding with crowdsourcing. We clear up the differences and explain the benefits of each.

April 19th, 2018   |    By: Emma McGowan

A lot of people confuse crowdfunding with crowdsourcing. While they are similar in that they both allow people to primarily leverage mass-community collaboration, they relate to two different things entirely.

Crowdfunding vs. Crowdsourcing

So, what’s the key difference?

The short answer:

Crowdfunding is the process of sourcing money or funds from a group or groups of people.

Crowdsourcing is the process of sourcing information or skills or end products from a group or groups of people.

The long answer:

What is crowdfunding?

In a crowdfunding campaign, a person, business, or organization raises a relatively small amount of money from a large group of people. Crowdfunding is a method of raising capital through the collective effort of friends, family, customers, and individual investors.

This approach taps into the collective efforts of a large pool of individuals — primarily online via social media and crowdfunding platforms — and leverages their networks for greater reach and exposure.

Crowdfunding is an excellent way for groups and people who don’t have access to sources of or need for large amounts of capital — like big investors or bank loans — to raise money.

Crowdfunding usually offers “rewards” in exchange for money. Rewards can include anything from small items to services to early bird specials on products to equity in a company.

For crowdfunding campaigns that are specific to health needs or charities — which fall under the category of donation-based crowdfunding — rewards aren’t usually offered.

Just like there are many different kinds of capital round raises for businesses in all stages of growth, there are a variety of crowdfunding types. Which crowdfunding method an entrepreneur selects depends on the type of product or service they offer and their goals for growth.

The three primary types are donation-based, rewards-based, and equity crowdfunding.

The most common place people see crowdfunding is on social media, when friends and acquaintances share campaigns that they’re trying to support.

Modern crowdfunding started in 1997 with a site that helped artists raise money, but now there are a huge range of crowdfunding platforms, serving different markets.

Some examples of well-known crowdfunding platforms include:

  1. Fundable (business crowdfunding)
  2. Indiegogo (product crowdfunding)
  3. Kickstarter (project crowdfunding)
  4. GoFundMe (cause crowdfunding)

For more information about crowdfunding, please see our complete guide to crowdfunding.

What is crowdsourcing?

The term “crowdsourcing” is from two other words: crowd and outsourcing. Outsourcing is defined by Google’s dictionary as “obtain (goods or a service) from an outside or foreign supplier, especially in place of an internal source.”

While crowdfunding is pretty straightforward, crowdsourcing is more varied. At the most basic level, crowdsourcing is using the knowledge and power of the crowd to speed up a process.

That process could be anything from a survey to a website to a certain skill that a company or individual is seeking. While any “crowd” could theoretically be used for crowdsourcing, the term is generally used to mean sourcing from crowds online.

It’s possible to crowdsource such a huge range of things that it would be difficult to list them all in one article. But here are some examples of crowdsourcing:

  • Finding a logo on the website 99designs, were users submit options and the client picks their favorite one.
  • Wikipedia is a crowdsourced encyclopedia, with thousands of people from around the world contributing every day.
  • Asking a Facebook community for opinions on which bank to use is an example of crowdsourcing.
  • The hugely popular technology development site GitHub often utilizes crowdsourcing to solve technology problems.
  • Journalists and bloggers use crowdsourcing to gather a wide range of opinions or viewpoints, sometimes on sites like HARO.

Benefits to crowdsourcing include:

  • Less time working on a product
  • Reduced time to market
  • More cost-effective solutions to big problems
  • Access to a huge range of talent; and access to a flexible workforce

It’s truly one of the great things about the internet: The ability to harness the skills and time of such a wide variety of people has never really been seen before in human history.

So what is the difference between crowdfunding and crowdsourcing?

The difference between crowdfunding and 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.

About the Author

Emma McGowan

Emma McGowan is a full time blogger and digital nomad has been writing about startups, living with startup people, and basically breathing startups for the past five years. Emma is a regular contributor to Bustle, Startups.co, KillerStartups, and MiKandi. Her byline can also be found on Mashable, The Daily Dot's The Kernel, Mic, The Bold Italic, as well as a number of startup blogs.

Follow her on Twitter @MissEmmaMcG.

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