Crowdsourcing vs crowdfunding – what’s the difference?

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two business persons plan a project

It can be frustrating when crowdsourcing and crowdfunding are used interchangeably, because they are completely different things.

The confusion might happen because the words are similar, and they are concepts and words that only started entering the mainstream lexicon in the last few years. This means that more and more people are aware of the words, but the distinct meanings can sometimes be a bit confusing.

So, what is crowdsourcing?

Crowdsourcing was coined in 2006 by Wired writer Jeff Howe who defined it as taking a task traditionally performed by an employee and outsourcing it to an undefined, sometimes large group of people. This way, businesses can tap into the power of the crowd rather than performing tasks themselves.

Crowdsourcing first became popular among software developers: open sourced code was a way for companies to more quickly develop software. By making code available to other programmers, people were able to clean up, fix and improve the code as the crowd worked together to make it better. This has now expanded to online collaboration through different mediums:

  • Starbucks noticed that their white cups were being used by artists and designers to doodle on, so they started a campaign around these designs, which turned into the

Both these organisations rely on contributions from their crowds for content. In sum, anyone is free to add their two cents or edit projects and by working together, the information is more powerful than any one person or even a department can create.

And what is crowdfunding, then?

Simply put, crowdfunding is the sourcing of funds from a crowd. In reality, many organisations have been doing this – charities and politicians, for example – to raise money for their campaigns. President Obama’s campaign in 2008 is a good example: his campaign raised over $50 million from over a million followers. Instead of relying on large contributors, Obama’s campaign obtained small contributions from thousands of Americans and shows the power of pooling together small sums of money.

Recently crowdfunding has become more ubiquitous as platforms such as Kickstarter or Indiegogo democratised the crowdfunding process: nearly anyone can raise donations to fund their art projects, medical treatments or anything, really.

Crowdfunding doesn’t stop there: microfinance projects developed to provide money to the poor and help them start their businesses, and turning the initial donation into a crowdfunded investment, are two other forms of crowdfunding that have been used for a few years now.

In short: Crowdsourcing is about gathering and implementing ideas; crowdfunding is about raising funds.

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