Difference Between Crowdsourcing and Crowdfunding

Both crowdsourcing and crowdfunding have the same underlying dynamics. In fact, crowdfunding is derived from a broader concept of crowdsourcing, which is simply seeking ideas, opinions, or solutions from a large network of undefined people, colloquially refers to as the crowd. The idea of crowdsourcing is to enlist assistance or services of the crowd to accomplish tasks that were done conventionally within more closed systems. Crowdfunding is based on the same logic as crowdsourcing, but instead of ideas or expertise, it seeks funding from potential investors or individuals with similar interests in return for a reward or profit. Let’s take a look at the two separately and how they work.

Crowdsourcing

The term ‘crowdsourcing’ first appeared in a famous Wired story, ‘The Rise of Crowdsourcing’, by Wired magazine writer Jeff Howe in 2006, which eventually led to his book, ‘Crowdsourcing: Why the power of the crowd is driving the future of business.’ Crowdsourcing is a distributed sourcing model that allows businesses to seek information, ideas, input or solutions from a large group of active participants, either paid or on the voluntary basis, typically via the Internet. The term crowdsourcing is a culmination of two terms crowd and outsourcing. Businesses, governments and non-profit organizations often seek collective intelligence of online communities to serve their business goals, solve problems, or obtain finances and micro-tasks. Crowdsourcing can be done on many different levels and across several industries. The idea is to enlist assistance or services of a large network of undefined people to support knowledge sharing or get access to opinions and ideas.

Crowdfunding

Crowdfunding is quite similar to a crowdsourcing model as both involve leveraging the power of the crowd, but instead of seeking services, ideas, opinions or micro-tasks, crowdfunding seeks funding. Crowdfunding is a new form of capital formation which brings together individual entrepreneurs or groups seeking funding by drawing small contributions from large number of people or organizations who are willing to invest in their ideas or fund their ventures. It is a practice of raising capital from a large number of active participants or potential investors, typically via the internet, in order to fund a business venture or a start-up project without using standard financial intermediaries. Crowdfunding has become a phenomenon that seeks active participation from the crowd with the aim of creating value, the process which was conventionally conducted within more closed systems. It provides a mechanism through which interested parties can financially support new ideas or business ventures.

Difference between Crowdsourcing and Crowdfunding

Meaning

 – Crowdsourcing is a business outsourcing model that allows businesses to connect with a large group of undefined people, typically via the Internet, to seek their knowledge, opinion, expertise, ideas or resources. The term crowdsourcing means reaching out to the crowd and leveraging their collective intelligence for solving problems or serving business goals that do not specifically result in the creation of an innovation.  Crowdfunding is a practice of raising capital from a large number of active participants or potential investors, typically via the internet, in order to fund a start-up or business venture.

Goal

 – Crowdsourcing is a viable alternative business model that focuses on accomplishing micro-tasks or problem solving, or obtaining finances provided by the distributed network of individuals, either paid or on voluntary basis. It is the collection of information, knowledge and expertise from a group of people for a common goal. Crowdfunding, on the other hand, provides a mechanism through which individuals, businesses, and charities raise money by drawing small contributions from large number of people or organizations. It is a great way to obtain funding or validate your business for your new business ventures. 

Approach

 – Crowdsourcing is a distributed sourcing model which involves opening up the process of innovation to the crowd to achieve new model of activities and gain value during the process. Crowdsourcing activities can be grouped into six main areas: idea generation, opinion gathering, community building, knowledge sharing, online-distributed work, and funding participation. Crowdfunding is based on the same logic as crowdsourcing, but with a purpose of securing financial resources from the crowd. Crowdfunding involves valuating engagement, collecting opinion of potential users, and validating an idea or a product or service, and banking on a funding campaign.

Crowdsourcing vs. Crowdfunding: Comparison Chart

Summary

Both crowdsourcing and crowdfunding are a means to connecting online with people or the crowd that you otherwise would not know, but for different purposes. Crowdsourcing is a mechanism that allows businesses to connect with a large group of undefined people to seek their knowledge, opinion, expertise, ideas or resources. Crowdfunding is based on the same logic as crowdsourcing, but with the purpose of securing financial resources from the crowd. Anyone can use the power of crowdsourcing, organizations, government agencies, or individuals. They can use it grow their business or support their business goals. Crowdfunding is a platform that brings in investors on the table with the people seeking funds together. It is a means to raise funds from large number of sources.

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