Technology of the week: Crowdfunding vs Crowdsourcing
The rise of Web 2.0 changed the web from a static portal to a dynamic workplace without physical barriers through which people across the world are able to connect and collaborate. This resulted in new business models and new ways to operate in order to achieve goals by using ‘the crowd’ as a main resource. This blogpost will compare two types of crowd usage (Crowdfunding & Crowdsourcing) through two electronic marketplace platforms (Kickstarter & Freelancer).
Using Kickstarter, business entrepreneurs are able to attract capital using the crowd as their main source of investment, called Crowdfunding. Entrepreneurs submit their ideas and the crowd can decide to ‘back’ these projects by donating money, sometimes in return for a finished product. Kickstarter earns its money by charging an average commission based fee of 5% on all successfully funded projects. The business model is fully driven by transaction volume. One of their success stories is the Pebble E-paper Watch. This project reached its 100.000 USD goal in just two hours, and eventually was pledged more than twenty times the expected amount (Jauregui, 2012).
Crowdsourcing is mainly used for four main purposes: solving problems, generating ideas, designing logos/commercials/websites, and outsourcing human intelligence tasks. At the same time, people around the world are looking for work matching their specialisation (Boons, 2014). Freelancer created an online marketplace which connects these two sides and enabled online outsourcing. Their revenue model is subscription and commission based. Both project suppliers and freelancers need a paid subscription if they wish to participate in this electronic marketplace and the commission based fee is based on a fixed percentage of the value of every completed project. Today, Freelancer has over 16 million users and more than 8 million projects. This marketplace is expected to grow as the adoption of internet in low-wage countries increases.
Comparing Kickstarter & Freelancer
Comparing Kickstarter and Freelancer, we found mostly similarities. Both Kickstarter and Freelancer have the largest market share in their market, and do so by providing a hierarchy free marketplace (Malone, Yates, Benjamin, 1987) . They both exploit similar business models, based on fees and commissions, though Freelancer has more revenue streams due to the paid subscriptions. Furthermore, Kickstarter and Freelancer both exploit the absence of matured legislation and governance guidelines, limiting their responsibilities towards the crowd. But Kickstarter has shown its responsibility recently by becoming a Public Benefit Organisation (Kickstarter, 2015). The main difference lies in the role of demand and supply, which are fundamentally different when comparing Crowdsourcing to Crowdfunding. Whereas in Crowdfunding the crowd solely offers funding, in Crowdsourcing the crowd is responsible for providing services.
Kickstarter and Freelancer are ever growing in size as crowdfunding and crowdsourcing are still rising in popularity. However, in the long run the growth of Crowdfunding is expected to reach a ceiling given that the yearly growth will start to decrease. Crowdsourcing is expected to keep on growing as the job market is an essential human need. Especially in the low-wage countries that are getting increasingly connected to the Internet. The most risky element which can potentially disturb the growth of both crowdfunding and crowdsourcing is the maturation of legislation and governance structures. Legislation will most likely shift the landscape of responsibilities regarding crowdfunding and crowdsourcing websites, which could have an impact on all crowd-based business models.
Jauregui, A. (2013) ‘Pebble iPhone Watch Is Highest Grossing Kickstarter Project Ever’. Accessed on 23 September 2015 through http://www.cnbc.com/id/47100168
Boons, M. (2014), Session 8: The Business Implications of Web 2.0 [PowerPoint slides], Retrieved from RSM http://www.eur.edu/
Malone, T.W., Yates, J., and Benjamin, R.I. (1987). Electronic Markets and Electronic Hierarchies. Communications of the ACM 30(6) 484-497.
Strickler, Y., Chen, P., Adler, C. (2015). ‘Kickstarter is now a Benefit Corporation’. Accessed on 24 September 2015 through https://www.kickstarter.com/blog/kickstarter-is-now-a-benefit-corporation
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