“Crowdsourcing”—a term first coined in 2006 in an article in Wired (wired.com/2006/06/crowds/)—has been defined as “a type of participative online activity in which an individual, an institution, a non-profit organization, or company proposes to a group of individuals of varying knowledge, heterogeneity and number via a flexible open call, the voluntary undertaking of a task” (tricider.com/Crowdsourcing-Definition). The popularity of this form of research support has changed the way many projects are now undertaken.
Crowdfunding — a term which the Oxford English Dictionary only traces back to an article in Brand Strategy in 2007—has arisen quickly as a nontraditional, but often very successful, method for individuals or organizations to share their ideas and gain support (often financial) from across the global internet. In equity markets, crowdfunding new business ventures is still highly speculative and akin to gambling. The odds of investing in a company that actually achieves success are very slim. On the other hand, crowdfunding is being used as a very successful donation system for 501(c)3 tax-exempt charities and nonprofit organizations supporting grassroots causes. Croudfunding is changing the way in which even many traditional nonprofits expand their reach and their base of supporters, including higher education and research.
Earlier this year, Massolution (reports.crowdsourcing.org/index.php?route=product/product&path=0_20&product_id=54) released its annual review of crowdfunding, “2015CF Crowdfunding Industry Report,” which demonstrated the tremendous growth in the area. Including equity markets, the global crowdfunding industry was a $6.1 billion market in 2013, grew 167% in 2014 to $16.2 billion, and in 2015 doubled its market share again, now estimated at $34.4 billion. North America continues to be the largest sector, but other global markets are also adopting this new funding method.
Kick-Starting Change Over the Web
For educational institutions, community organizations, and charities dependent on voluntary donations and the development of donations to support their operation, crowdfunding has provided new avenues not just for supporting individ ual projects, but for deepening their penetration of potential do nors as well as expanding globally. Some in the funding industry refer to this as a snowball effect, as new avenues of connection are created online. It parallels what has worked for social media platforms such as Facebook and LinkedIn, systems that prompt and encourage the development of “friending” to add to the critical mass of the platforms or organizations themselves.
In a 2000 article (bricklin.com/f2f.htm), Dan Bricklin writes about the differences between peer-to-peer and friend-to-friend networks. In his analysis, grassroots types of friend- based systems (versus the more structured peer system) are built on strong decentralized relationships, making them more flexible and more adaptable to changes in access and operating models than the more formal structures. Of course trust and privacy invasion, as well as assumptions of reciprocity, are still issues, but to Bricklin, the dynamics of friend-to-friend systems and the relationships between partners, supporters, and sympathizers make fundraising or other types of support systems easier and more fluid in operation.
These relationships provide real advantages to both the crowd members and the funding applicant. The crowd receives extrinsic and intrinsic benefits in participating, and the applicant is able to develop a broad-based community of supporters who are able to provide individual, inexpensive contributions while potentially providing input/assess ment more powerful and targeted than traditional focus groups and other methods. The funded projects do have legal responsibilities to their backers to complete the projects and fulfill any reward promises made to solicit funding. Particularly for equity funding, federal regulations (such as the JOBS Act; sec.gov/news/pressrelease/2015-249.html) are working to regulate this new investment area. According to a 2013 Social Science Research Network study on crowdfunding by Ethan R. Mollick, “Transparency may be an issue; however the majority of projects appear to have demonstrated a good-faith effort in meeting their obligations—as measured by the few negative comments on crowdfunding sites and other social media platforms” (papers.ssrn.com/sol3/papers.cfm?abstract_id=2088298).
Kick-Starting a Revolution
Kickstarter (kickstarter.com), considered the “inaugural crowdsourced fundraising platform” by Jacobin magazine (jacobinmag.com/2016/05/crowdfunding-kickstarter-go fundme-charity-taxes), describes itself as “an enormous global community built around creativity and creative projects. Over 10 million people, from every continent on earth, have backed a Kickstarter project.” “I wonder if people real ly know what the definition of crowdfunding is,” company co-founder Perry Chan asks in The Economist (economist.com/blogs/prospero/2010/10/crowd-funding_art). “Or, if there’s even an agreed upon definition of what it is.” In the Q&A, Chan continues:
We haven’t actively supported the use of the term because it can provoke more confusion. In our case, we focus on a middle ground between patronage a nd commerce. People are offering cool stuff and experiences in exchange for the support of their ideas. People are creating these mini-economies around their project ideas. So, you aren’t coming to the site to get something for nothing; you are trying to create value for the people who support you. We focus on creative projects—music, film, technology, art, design, food and publishing—and within the category of crowdfunding of the arts, we are probably ten times the size of all of the others combined.
A variety of specialized crowdfunding platforms have arisen. Launched in April 2009, Gambitious (gambitious.com) focused on funding video games; Patreon (patreon.com), launched 4 years later, focuses on the arts. Yet not all have been successful.
“There have been other much talked about crowdfunding platforms devoted to journalism over the years, but most came and went (Emphas.is, Vourno, Indie Voices, etc.) None lasted as long, were as widespread, and received as much praise as Spot.Us,” notes a 2015 MediaShift analysis (“Why Crowdfunded Journalism Pioneer Spot.Us Died,” Khair John son, March 19, 2015; mediashift.org/2015/03/why-crowd funded-journalism-pioneer-spot-us-died). Yet in March 2015, Spot.Us shut down.
Crowdfunding journalism appears to be a special excep tion to the general patterns of public support. One reason given in the MediaShift article for the demise of this area is that “the landscape of crowdfunding changed significant ly. In the year after APM [American Public Media] acquired Spot.Us, the number of domains with crowdfunding in their name increased from 900 to nearly 8,800.” The article quotes APM’s Laura Miller, who notes:
Spot.Us, as popular as it became with a devoted group of fans and academics, was not financially sustainable when APM acquired it. And while the drop in activity was disappointing, especially to those who have relied on it for past projects, it’s important to note that more activity would not have solved the long-term problem of scalability and sustainability. That’s what APM was focused on.