GUEST COLUMN: Understanding Crowdfunding vs. Crowdsourcing
(EDITOR’S NOTE: We publish guest columns on occasion. Today’s was written by Daniel L. Ellis, Attorney at Ellis and Ellis Law, P.C. He provided this content as a summary of recent trends and is not providing legal advice. Ellis practices in several areas of law including, but not limited to Security Clearance Law, Special Education Law, Personal Injury Law, and Social Security Law. Ellis can be reached at 865-951-2257 or visit him online at www.ellisandellislaw.com.)
Crowdfunding and Crowdsourcing are two often confused and misunderstood terms. Understanding these two evolving and complex terms and how they are being used and regulated can provide advantage and insight to any small business person or entrepreneur.
Crowdsourcing is defined by the Merriam-Webster™ Online Dictionary as “the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers.[i]” Crowdsourcing is flourishing in the Knoxville-Oak Ridge Innovation Valley as demonstrated by the attention garnered by Local Motor’s Crowdsourced Sports Car.
In 2014 Local Motors™ ran a design challenge for an exploratory sports car asking participants to focus on aesthetics, performance, affordability and the connection between driver and machine. The company received over 200 submissions. Its 2014 sports car was not Local Motors’ first crowdsourced car, having printed what was claimed to be the “World’s First” 3D printed car through another crowdsourced open contest. Local Motors, unlike some crowdsourcing innovators, incentivized its exciting competitions by offering a royalty on the first, second and third place designs.[ii] Though Local Motors is part of a growing trend of crowdsourcing innovators using the internet to accelerate its initiatives – crowdsourcing as a concept isn’t new.
One example of crowdsourcing began in the 19th century – that example is the Oxford English Dictionary™ – and has been called “arguably history’s first massively-crowdsourced collation of English knowledge.[iii]” Nate Lanxon of Wired.co.uk described in a 2011 article how Professor James Murray led a “literary project that draws from the knowledge, expertise and time of tens of thousands of volunteers” having received “hundreds of thousands of slips of paper over the course of several decades, each containing the definition of a particular English word” and compiles them into the evolving book we know today as the Oxford English Dictionary. Crowdsourcing is not new, but the online medium connecting people from all over the world provides a more efficient and wider base from which to create new cars, content, and learn more about our world.
Crowdfunding on the other hand was one of the new words added to the Oxford English Dictionary in 2015 and is defined according to the Merriam-Webster Online Dictionary as “the practice of soliciting financial contributions from a large number of people especially from the online community.[iv]” One Crowdfunding success story is that of GoldieBlox™. It was founded by Debbie Sterling, a Stanford Engineer who created GoldieBlox to inspire girls the way that Legos™ and Erector™ sets have inspired boys, for over 100 years, to develop an early interest and skill set in engineering.[v]” She wrote in her first campaign that “It’s time to motivate our girls to help build our future.” Her 30-day campaign on Kickstarter.com started on September 18, 2012 and raised over $285,881.00, well exceeding her $150,000.00 goal. Her idea and product went from an idea, to a funded product, to a product that is available online at well-known stores like Toys R Us™ and Amazon™.com![vi]
Although Crowdfunding generally starts and exists online, integrating Crowdfunding into traditional fundraising methods can produce positive results. One example of this is Dream Connection (www.dreamconnection.org), a local non-profit organization dedicated to fulfilling the special dreams of children ages three to 18 years old who are faced with life threatening or chronically debilitating illnesses in the East Tennessee area. Through the annual WIVK Dream Connection Radiothon, they reach out to listeners who then call in and make donations. What I observed first hand this year was that volunteers, many from the Knoxville Bar Association, would reach out to friends on Facebook asking them to make donations. I observed first hand evidence of a local attorney who donated on the way to depositions – not directly because of the traditional Radiothon, but indirectly because of volunteers to the WIVK Radiothon who went the extra mile and reached out on social media to “Crowdfund” and support this worthy cause.
Adapting crowdfunding and crowdsourcing to serve your business’s needs is an important tool to consider. We will be looking at the successes and stumbling blocks that crowdsourcing innovators have had within the legal realm in our next post on teknovation.biz – Technology Innovation News for the Serious Entrepreneur!
[i] “Crowdsourcing.” Merriam-Webster.com. Merriam-Webster, n.d. Web. 30 Nov. 2015.
[ii] “Sports Car Challenge” LocalMotors.com July 23, 2014. (Available: https://localmotors.com/idesigncars/sports-car-challenge/entries/ )
[iii] “How the Oxford English Dictionary Started Out Like Wikipedia” Lanxon, Nate. Editor of Wired.co.uk. January 13, 2011. (Available: http://www.wired.co.uk/news/archive/2011-01/13/the-oxford-english-wiktionary )
[iv] “Crowdfunding.” Merriam-Webster.com. Merriam-Webster, n.d. Web. 30 Nov. 2015.
[v] “GoldieBlox” Kickstarter.com Kickstarter n.d. (Funding Period was from 9-18-2012 to 10-18-2012) Last accessed on December 8, 2015 (Available: https://www.kickstarter.com/projects/16029337/goldieblox-the-engineering-toy-for-girls/description
[vi]It isn’t presently clear whether GoldieBlox are available through Toys R Us online only or are available in stores as well. Other Brick and Mortar Stores may well stock this product on their shelves.