Collaboration of the Masses: Crowdsourcing & Crowdfunding

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  • 1. Collaboration of the Masses: Crowdsourcing & Crowdfunding Laura Amole 4/10/2012
  • 2. Collaboration of the Masses: Crowdsourcing & Crowdfunding Due to the rapid development of technology and the incredible power of the Internet, we have become anincreasingly connected world. The ability to connect with people in multiple countries, on similar platforms, on highlymobile devices has fostered a great deal of innovation and has created entirely new opportunities. These opportunitieshave Internet users looking to solve problems in new and creative ways. Digital collaboration has become one of thebiggest trends to transpire from the groundswell that is taking place (www.crowdsourcing.org). Individuals, institutions,non-profit organizations, and companies are now leveraging the power of networks through online social platforms tosolve a variety of their problems. This is the very idea behind the concept of crowdsourcing. A particularly interestingtopic within this concept is crowdfunding, or a new way individuals and organizations are securing financial funding.First, let us gain a better understanding of the broad topic of crowdsourcing.Crowdsourcing Although this is a relatively new term, there has been a great deal of interest in the topic. As the area ofcrowdsourcing continues to grow and expand, so does the meaning of the concept. One explanation I found most usefulwas stated in a study done in 2011 by Estellés E. and González F. “Crowdsourcing is a type of participative online activity in which an individual, an institution, a non-profit organization, or company proposes to a group of individuals of varying knowledge, heterogeneity, and number, via a flexible open call, the voluntary undertaking of a task. The undertaking of the task, of variable complexity and modularity, and in which the crowd should participate bringing their work, money, knowledge and/or experience, always entails mutual benefit. The user will receive the satisfaction of a given type of need, be it economic, social recognition, self-esteem, or the development of individual skills, while the crowdsourcer will obtain and utilize to their advantage that what the user has brought to the venture, whose form will depend on the type of activity undertaken.” As the length of this definition suggests, crowdsourcing encompasses many different areas. Crowdsourcing.org,a website dedicated to being the industry expert, has categorized the different types of crowdsourcing to include cloudlabor, crowd creativity, open innovation, distributed knowledge, and crowdfunding (www.crowdsourcing.org). I wouldlike to focus the reader more closely on the last category, crowdfunding.Crowdfunding As defined by Crowdsourcing.org, “crowdfunding allows for financial contributions from online investors,sponsors or donors to fund for-profit or non-profit initiatives or enterprises. Crowdfunding is an approach to raisingcapital for new projects and businesses by soliciting contributions from a large number of stakeholders.” They would goon to suggest that there are really three types of crowdfunding models. The first model deals with donations,philanthropy, and sponsorships by individuals or organizations with the expectation that they will not be getting any 2
  • 3. financial returns (www.crowdsourcing.org). This is different in the second and third model, where in the second model,individuals or organizations will lend money and in the third model an investment is made in exchange for equity, profit,or revenue sharing (www.crowdsourcing.org). Like crowdsourcing, crowdfunding relies heavily on online communities and social networks. The idea here isthat “like minded” individuals and organizations have a place to go and directly impact something they are passionateabout (www.management.co.uk). It makes sense then that many of these platforms have been established based on thetype of “project” that needs to be funded or on the funding models described previously. The majority of platforms thathave been established can be categorized into three different types of platforms: (1) creative, (2) social, and (3) business(www.pleasefund.us). In addition, the platform organization can determine which funding rules they want to establish.One model is based on the idea of “all or nothing” (www.pleasefund.us). This model requires a fundraiser to set a goaland date to reach the goal. If they fail to reach their goal, they do not get any of the funds that were raised. Anothermodel is based on “keeping what you raise” (www.pleasefund.us). This allows the fundraiser to have a goal, but if theydo not reach it, they can keep what funds they were able to raise. I believe that this is an area that will continue toevolve in the future. There are other models still being tested, but the first two described appear to be used mostfrequently. The stimulus for crowdfunding platforms has been the speed of the Internet, the online workforce, and theability to make online international payments (Sanders, Infographic). An overall stimulus, rapid adoption rate, and earlysuccess can be attributed to the power of established social networks (www.boss.blogs.newyorktimes.com). Nowmothers who chose to stay at home can work on projects and can be funded by anyone from anywhere in the world.The idea of crowd participation eliminates the need for individuals or organizations to secure specialized grantapplications or other formal processes that are involved with traditional fundraising (www.ecsb.exbdblogs.com). It hasbeen suggested that the progression of funding ideologies started with microfinancing, then moved to microlending,then to peer-peer lending, and now, crowdfunding (Sanders, Infographic).Embracing the Trend It is not uncommon for companies to engage their consumers and employees by having contests to design newcreative or come up with innovative solutions. For example, Doritos encourages individuals to produce commercials andthe best ones will be aired, possibly during the Super Bowl. Companies of all sizes have begun to embrace the power inleveraging the power of the crowds. Today, companies are increasingly engaging with their consumers online throughsocial media channels. Social media is beginning to change many business practices; one such area is corporatephilanthropy (www.fastcompany.com). As this is part of their larger corporate social responsibility strategy, companiesare now making decisions that draw on the collective wisdom of diverse groups of people of all generations andbackgrounds, including members of the global community being served, social innovators, customers, and employees(www.fastcompany.com). Instead of a few members of management deciding which charities to focus on, corporationshave opened this up to the public in different ways and on different platforms. 3
  • 4. Two companies who have been able to utilize the power of crowdsourcing and launched crowdfundingprograms are JPMorgan Chase & Co (Chase) and Pepsi. We will now dive deeper into these two programs and evaluatetheir results.Chase Community Giving The Chase Community Giving program has been brought to life through JPMorgan Chase & Co. They use thebrand Chase for its consumer and commercial banking businesses. Chase serves consumers and small businessesthrough 5,200 bank branches, 16,000 ATMs, mortgage offices, and online and mobile banking as well as throughrelationships with auto dealerships and schools and universities (www.jpmorganchase.com). As part of their corporate social responsibility strategy, Chase Community Giving was introduced in 2009 as anew way forward for giving. This program lets Facebook fans of Chase Community Giving vote to help determine whereChase donates millions of dollars. Chase reports that millions of people have helped them donate over $18 million toover 500 recipient charities in 41 states, Washington D.C. and Puerto Rico (Chase Community Giving Facebook). This program has allowed Chase to build their brand reputation, establish goodwill within the global community,and engage consumers with their brand. This could also be viewed as a valuable form of marketing, especially since thebanking industry has many consumers on edge. By funding community programs, especially those that support thegrowth of small business and entrepreneurism, the company hopes to show understanding and support of strugglesmany are facing in today’s society. Once some of these situations are reversed, Chase hopes their relationship buildingwill prove to produce future clientele.Pepsi Refresh Pepsi has not only been a rival of Coke for many years, but has also taken the standpoint of speaking to orproviding the voice for the younger generation. This has been done through advertisements featuring current pop-stars,tapping into new communication channels, and exploiting social media channels for a collective decision about wheredonations should be made (www.huffingtonpost.com). Much like Chase, Pepsi has also launched campaigns allowing thepublic to vote for charities that they feel deserve the financial support of the corporation. However, one majordifference is that Pepsi chooses to host this on their own website at www.refresheverything.com, versus having it on asocial media platform, like Facebook. The Pepsi Refresh Project is an online grant program which makes availablemillions of dollars to be granted to projects which are intended to improve communities through an online, democraticvoting process (www.refresheverything.com). The ideas that are submitted to the specified website, are then voted onby individuals for a one month period. In addition to the grant money that could be won, Pepsi helps connect grantrecipients with others who are passionate about the same cause and want to offer their support. These connections aremade through some of the non-profits aligned with the project, such as GOOD (www.good.is) and GlobalGiving(www.globalgiving.org) (www.huffingtonpost.com). Different from the Chase campaign, the Pepsi Refresh project did not get generally high reviews. This may bebecause many people, including analysts, try to measure social media based on sale conversion. But this may be the 4
  • 5. wrong way to measure the benefits of social media. In an article featured in the New York Times, Mr. Singh said, whohad worked with the Pepsi Refresh Project, it was not a sales-driving program, but viewed as an investment to buildbrand awareness and cultivate a long-term relationship with consumers (www.newyorktimes.com). “It was designed todrive brand health,” he said. “We look at brand equity, brand health and sales — and we have seen movement in all ofthem” (www.newyorktimes.com). In addition, others see this as an opportunity for small, local non-profits to competeagainst larger organizations and campaigns. I think this was a good move by Pepsi, to stay consistent with their brand personality and speak to the youngergeneration through social media. It should be noted that most of their dollars for this campaign came from the decisionto not run commercials during the Super Bowl. The argument could be made that Pepsi has tried to tune into theirtarget market and has recognized the shift to communicating through the social media channel over TV advertisements.I think Pepsi may have faced challenges in the reach they predicted their campaign to have, leaving some consumersconcerned that they would be donating funds to “non-deserving” organizations. However, Pepsi should still continue toparticipate in this activity to raise brand awareness and strengthen relationships with their consumers. Crowdfunding can virtually work in all industries because at the very core of this trend is the basic idea offinancial support given through networked communities. Through platforms that have been designed, anyone canregister, describe their initiative, and ask for donations. Some examples include schools that need additional educationalresources, underdeveloped areas that have entrepreneurial ideas, musicians trying to create albums, filmmakers raisingfunds for productions, etc. A benefit to many companies, entrepreneurs, and individuals, is the way in which theseprograms are funded. The crowdfunding marketplace allows investors and competitors to keep an eye on emergingtrends, what consumers are interested in and passionate about, and if different products or services are likely tosucceed (www.fastcompany.com).Crowdfunding the Future As stated previously, companies have been participating in the act of crowdsourcing under the varyingcategories that were listed at the beginning of this paper. Crowdfunding has added a new dynamic that allows anyone todonate to a cause they feel is worthy of their dollars. Companies have begun to incorporate this concept within theircorporate social responsibility strategies (www.fastcompany.com). And someone might think, well why not? Platformsare being designed that are effective, easy to use, and already have a variety of capabilities, like social media. This wouldallow corporations to encourage their employees to donate in areas they feel passionate about with the potential thatthe company will match the donation. Crowdfunding has the ability to change the business landscape, if not for all, than for start-up to medium sizedbusinesses. Banks are continuing to lend on a cautious basis leaving many entrepreneurs with no other channels ofcapital. With the rapid adoption of social media, individuals are able to collect capital to fund their idea or project andthey are able to donate to whomever they want too. One such example is that of Brian Hill and his start-up calledMaster Nutrition. Mr. Hill realized that many people were interested in participating in a healthier lifestyle but needed 5
  • 6. the proper guidance, direction, and motivation to change past behaviors. To keep people engaged and motivated, Hillexploits the power of social media platforms to connect with customers and encourages group formation within hiscommunity. In addition, he has been able to raise funds for his business through the same platforms from family,friends, and supporters. Hill states, “Without their help and continued support, I’m not sure my business would havesurvived or be where it is today.” Mr. Hill is among millions of individuals and organizations that are in desperate need of financing. As I discussedearlier, there are three main financial models for this system. Most recently, the models that require return, specificallyequity, have been under scrutiny by the United States Government. On April 5th, President Obama signed the JumpstartOur Business Startups (JOBS) Act into law (www.huffingtonpost.com). This law promises to help reduce the barriers andburdens that small businesses encounter when raising capital. What was once illegal, or incredibly difficult to do,crowdfunding was legalized by this law and should prove to increase the number of small businesses and entrepreneursall over the world (www.huffingtonpost.com). I think this is a trend that society should take interest in and keep a closeeye on. This type of collaboration could bring communities together and spur new innovative ideas. Crowdfunding hasthe potential to help develop underserved communities, make significant scientific discoveries, and much more. As oursociety becomes more collaborative in nature, crowdfunding is sure to be a prominent topic and method of financingand donating now and in the future. 6
  • 7. Appendix A – Expert Interview BiographyBrian HillBrian Hill is the mastermind behind the idea of Master Nutrition. While pursuing his business, Hill has served on theTiger football strength and conditioning program. He joins the Memphis coaching staff after previously serving as anassistant strength and conditioning coach with football at Tulane University.Hill served as the head strength and conditioning coach at Northwestern State University in Louisiana (2007-09), avolunteer strength and conditioning coach with the Cleveland Browns organization in August 2008, and assistantstrength and conditioning coach at Northwestern State (2006-07).As a player, Hill was a three-year letterwinner, and shared a starting role at defense tackle for Southwestern OklahomaState University (2002-05). Hill competes in powerlifting in the American Powerlifting Federation Open 242-pounddivision and still currently holds his APF Texas junior 275-pound division bench press record at 507 poundsA native of San Antonio, Texas, Hill earned his bachelors degree from SWOSU in 2005 and later earned his mastersdegree from Northwestern State University in 2008. He is a Certified Strength and Conditioning Specialist (CSCS), aRegistered Strength and Conditioning Coach (RSCC), and a USA Weightlifting Certified Sports Performance Coach.Hill is certified in sports massage, as well as Specialist in Performance Nutrition (SPN) through International SportScience Association. 7
  • 8. References"About Us." About Us. JPMorgan Chase & Co. Web. <www.jpmorganchase.com>.Burrows, Jason. "MT Expert - Innovation: The Benefits of Crowdsourcing." Management Today. 9 Sept. 2010. Web. 8 Apr. 2012. <http://www.managementtoday.co.uk/news/1027619/mt-expert-innovation- benefits-crowdsourcing/>."Chase Community Giving | Facebook." Chase Community Giving. Chase. Web. Apr. 2012. <http://www.facebook.com/ChaseCommunityGiving>."Crowdfunding: A Growing Small Business Opportunity." Enterprise Council on Small Business. Corporate Executive Board, 29 Apr. 2011. Web. Apr. 2012. <http://ecsb.exbdblogs.com/2011/04/29/crowdfunding-a-growing-small-business-opportunity/>.Empson, Rip. "Soon Even Your Mom Can Invest: Senate Passes Crowdfunding Bill 73-26 (With Protections)." TechCrunch. 22 Mar. 2012. Web. 8 Apr. 2012. <http://techcrunch.com/2012/03/22/senate-passes- crowdfunding/>.Esposti, Carl. "Crowdsourcing and Crowdfunding - The Industry Website." Crowdsourcing and Crowdfunding. Massolution. Web. 1 Apr. 2012. <http://www.crowdsourcing.org>.Estellés-Arolas, E., and F. Gonzáles-Ladrón-de-Guevara. "Towards an Integrated Crowdsourcing Definition." Journal of Information Science (2012): 1-14. Sagepub.co.uk. Web. 7 Apr. 2012."Funded Ideas - Pepsi Refresh Project Grant Winners." Pepsi Refresh Project. Pepsi. Web. Apr. 2012. <http://www.refresheverything.com/>. 8
  • 9. Grinton, Claire. "Pepsis Refresh Everything Vs. Cokes Live Positively: Which Soda Wins The War? (POLL)." The Huffington Post - Impact. TheHuffingtonPost.com, 17 Feb. 2010. Web. Apr. 2012. <http://www.huffingtonpost.com/2010/02/17/pepsis-refresh-everything_n_464712.html>.Hill, Brian. "Working with Crowdfunding." Personal interview. 8 Apr. 2012.Kassan, Jenny, and Michelle Long. "JOBS Act: Crowd Funding Could Give a Boost to Small Business." The Huffington Post. TheHuffingtonPost.com, 04 Apr. 2012. Web. 7 Apr. 2012. <http://www.huffingtonpost.com/jenny-kassan/jobs-act_b_1405844.html>.Korngold, Alice. "Crowdsourcing: Yesterdays Corporate Philanthropy Is Todays Branding and Community- Building | Fast Company." FastCompany.com. 3 Feb. 2011. Web. 10 Apr. 2012. <http://www.fastcompany.com/1723858/crowdsourcing-yesterdayrsquos-corporate-philanthropy-is- todayrsquos-branding-and-community-b>.Preston, Jennifer. "Pepsi Bets on Local Grants, Not the Super Bowl." Media & Advertising. New York Times, 30 Jan. 2011. Web. <http://www.nytimes.com/2011/01/31/business/media/31pepsi.html>.Sanders, Dorothy. "An Introduction to Crowdfunding." Pleasefund.us. Crowdsourcing.org, 15 Nov. 2011. Web. 6 Apr. 2012. <http://www.pleasefund.us>.Szaky, Tom. "Crowdfunding and Social Entrepreneurs." Youre the Boss Blog. New York Times, 26 Mar. 2012. Web. 4 Apr. 2012. <http://boss.blogs.nytimes.com/2012/03/26/crowdfunding-and-social- entrepreneurs/>. 9