What is the difference between crowdfunding and crowdsourcing? This article will help explain in detail.

A lot of people often confuse crowdfunding and crowdsourcing to mean the same thing but even though they sound similar and are similar in techniques, they mean two different things entirely. In fact, crowdfunding is a type of crowdsourcing because crowdsourcing encompasses many things.

Crowdsourcing involves receiving ideas, contributions, collaboration,services or ideas from a huge number of people usually on the internet. It is a way of combining the efforts of several people to achieve a better and more desirable result. You must have heard of the term ‘division of labor’ before. We can liken crowdsourcing to division of labor where tasks are divided between several people to make the task completed faster and make the work less monotonous.

Crowdsourcing comes from two words; outsourcing and crowd. Crowd is used to refer to people, so simply put, crowdsourcing means outsourcing of a company’s functions to a large group of people (on the internet) instead of assigning the job to selected employees.

For instance, if there is a problem to be solves or a task to be performed, the company throws it out to the public to provide solutions. Solution providers are sometimes compensated with financial benefits and at other times, they are only compensated with awards and recognitions. The company (Crowdsourcer) on the other hand, benefits from having solutions provided to their challenges without spending too much money. There are five major types of crowdsourcing viz;

Types of Crowdsourcing Vices

  • Crowdfunding
  • Creative Crowd sourcing
  • Microwork
  • Wisdom of the crowd
  • Inducement Prize contests

a. Crowdfunding

Crowdfunding is the most popular type of crowdsourcing and it involves raising the needed capital to finance a project or a business. Through crowdfunding, people with smart business ideas but lack the necessary capital to follow it through may be able to raise the needed funds by getting financial donations and investments from a large group of people on the internet.

Crowdfunding has been used to fund a lot of projects in the past such as political campaign funding, business startup funding, disaster reliefs etc. Crowdfunding is also used to raise money for humanitarian projects such as medical relief or Non-Governmental Organizations (NGO’s). There are four basic types of crowdfunding-:

  1. Equity based crowdfunding-: Under this method of crowdfunding, investors contribute to a business or project with the hope of becoming a joint owner, receiving shares of the company or any other type of monetary gains in the future. Contributors under this method are seen as investors in the business.
  2. Donation based crowdfunding-: No form of financial rewards or direct benefits is expected or awarded under this form of crowdfunding. People contribute to a charitable course such as helping people with medical bills, provision of disaster relief, scholarships, rehabilitation, NGO’s and other similar charitable activities.
  3. Debt based crowdfunding-: This involves borrowing money from people with the aim of returning such funds usually with interests.
  4. Reward based crowdfunding-: Contributors under this category expect to be compensated for their contributions in monetary or non-monetary forms.

b. Creative Crowdsourcing

Creative crowdsourcing involves getting different ideas and solutions for a particular project. It allows for several people to contribute creative ideas to a task together. Creative crowdsourcing could be used for projects like graphic design, architecture, writing, illustration or fashion design. A very good example of a company that makes use of creative crowdsourcing is Wikipedia which encourages users to contribute to information.

Rewards for creative crowdsourcing may be extrinsic or intrinsic. Extrinsic rewards may be in the form of financial compensation and recognition while intrinsic rewards may include knowledge expansion, fun or opportunity for personal expression.

Creative crowdsourcing doesn’t necessarily have to be anonymous in nature; People working on a crowdsourced project may work in the form of collaboration where everyone comes together to work as a team. For instance, if the task involves graphic design,a particular group may be assigned the task of designing while another group would be saddled with evaluating and making necessary corrections and adjustments and together, they would be able to turn outa superb design.

c. Microwork

Microwork also known as microtasking. It involves division of a project into several smaller tasks and sharing such tasks to several people on the internet to perform and complete such tasks. For instance, a company that is into data entry and processing may engage the services of several freelancers on the internet to complete the tasks and get paid for their contributions. Other companies that make use of such services include content writing companies, call centers, network marketers and language translation companies.

Microwork is beneficial to contributors because it allows them the opportunity to work from the comfort of their homes and also offers them flexibility and tax-free earnings. The company outsourcing the job on the other hand benefits from having large volumes of job completed within a short period and at cheaper costs since there would be no need for pensions or retirement benefits.

d. Wisdom of the crowd

Wisdom of the crowd involves gathering collective opinions of a large group of people over a particular subject or issue. It is often believed that the opinions of a large group of people are better and more useful than the opinion of a single individual. A very good example of a company that makes use of this technique is Yahoo! On the Yahoo! Answers website, you would find a lot of responses to a single question. Wisdom of the crowd is also used to sample public opinions on a political candidate or for market or product research.

e. Inducement Prize contests

Inducement prize contests are in form of competitions where people are awarded with cash or other prizes for achieving a particular feat or winning a challenge or contests. It is usually used to encourage innovations and technological advancements. There are usually preset criteria and conditions required to win such prizes.

As can be seen above, crowdfunding is different from crowdsourcing. Crowdfunding is only one of the several types of crowdsourcing just like microworking, wisdom of the crowd, inducement price contest and creative crowdsourcing.