Crowdsourcing+and+Crowdfunding

=Crowdsourcing and Crowdfunding=

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1 - Definitions
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 * Crowdsourcing** is the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, often from an online community, rather than traditional employees or suppliers. The defining element of crowdsourcing is the use of the open call format and the large network of potential labourer’s (Howse, 2006).


 * Crowdfunding** is similar, but it refers more to the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations. Colgren states that ‘It’s about creating a new, exciting, dynamic mechanism for allocating capital from traditional, institutional stakeholders (such as banks) to individual-driven operations using current and future technologies to touch millions of individuals looking for investment opportunities’ (2014:56). Moreover, Crowdfunding is an alternative way to raise money to enable creative ideas to get within the market (Securities and Exchange Commission, 2014; Sawers, 2014). This practise allows individuals to upload their project or ideas to the Internet and share it in Social Media. Then, business or individuals could obtain small contributions from family and friends, friends-of-friends or/and friends-of-friends-of- friends (Berg, 2013). Crowdfunding is used to fundraise artistic projects, product developments, start-ups and charities’ projects. It is important to mention that the evolution of Crowdfunding is taking place in a global basis, as it is being developed rapidly in Australia, United Kingdom, U.S. and a big part of Europe (Colgren, 2014:56).

2 - History of Crowdsourcing and Crowdfunding
Jeff Howe's 2006 article in Wired magazine, was the root of the term crowdsourcing where he defined it as a new form of outsourcing.

Howe (2006) believes that crowd sourcing is made up of **three different phenomena:**

This is illustrated by internet spectacle’s such as Wikipedia and Open Source software development.
 * Peer production -**

A primary example of this would be Innocentive.
 * IT-mediated Open Innovation R&D platforms -**

Amazon's M-Turk and Crowdflower are two of the largest.
 * IT-moderated labour markets -**

Crowdfunding is a concept formed from crowdsourcing, the earliest recorded use of the word ‘crowdfunding’ was in August 2006 by Michael Sullivan for his product fundavlog. However, it is based in an old concept of relying on the crowd to find funds. Today, the Internet and Digital era have enabled Crowdfunding to reach more target audience in less time (Lerner, 2013 cited at Blanding, 2013). Therefore, Crowdfunding is of contemporary relevance because it promises to revolutionise how start-ups, creative or charitable projects are funded (Colgren, 2014).

Have a scroll through the latest tweets surrounding crowdfunding. media type="custom" key="25912712"

Crowdsourcing:
Crowdsourcing Has Four Main Categories (Meek, 2013):


 * Microtasking**- The assigning of small tasks that require a little bit of human skill such as bits of translation and handwriting recognition. Amazon’s Mechanical Turk is the leader of this market.


 * Macrotasking** **-** The completion of more complex tasks, such as coding, through the gathering of experts in the specific areas. Topcoder is a leading company in this market.

http://www.crowdspring.com/graphic-design-contests-competition/
 * Crowd Contests-** Help to find the most capable individual at solving a problem. They’re often used for data analysis or graphic arts. If a company needs a logo to be created, they can state the criteria required, host a crowd contest, and pick the winner who will then get paid.

One case study idea generation is Netflix, who sought after a way of improving their algorithm for recommending films, with a $1m incentive. Firms such Spigit are platform to which companies can seek solutions.
 * Idea Generation-** This is used by businesses to find solutions to problems that they cannot solve themselves.

Crowdfunding:
Crowdfunding can affect the business world via four main ways of collaboration (Colgren, 2014:56). So, there are four main types of crowdfunding:



‘[t]he campaign owner now has to convince the crowd that the project is a viable investment opportunity. In turn, the challenge is then to outline the projected cash flows from the project and determine which financing option is most relevant.’ (Berg, 2013:8)
 * Equity Based Crowdfunding** - If the company is successful then the investors will receive a stake in the company. The market leader for this is Crowdcube.In equity-based Crowdfunding, business or organisations offer an equity investment in exchange of the amount received (Colgren, 2014:56). One of the advantages of this model is the possibility of the project to grow, and consequently, the increase of their part of the business. Despite the fact that financial risks are shared with investors, it is a more risky model for a long-term investment (Berg, 2013:8; Barnett, 2012). In 2013, the Securities and Exchange Commission of U.S. regulated the equity-based Crowdfunding model based on the JOBS Act. More information about the Crowdfunding rules in U.S. here


 * Donation Based Crowdfunding** - The contributions made to the project go towards a charitable cause. Kickstarter and Indiegogo both support this type of crowdfunding. In donation-based Crowdfunding entities or individuals ask for donations to support themselves or their cause, with no gratification in exchange (Colgren, 2014:56). There is no importance of tangible reward in this kind of fundraising because it concerns to the individuals’ self-satisfaction and their emotional connection with the cause (Berg, 2013:6). Some examples of this model are donations for political campaigns; govern funds; religious campaigns or individual needs, such as covering student tuition or medical fees (Berg, 2013:6). An example of a donation-based Crowdfunding campaign is [|'Children Heard and Seen]'

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‘Children Heard and Seen’ was developed to engage local individuals to support children of prisoners in England. In 2008, there were 200,000 children unprotected because their parents were in prison (The Ministry of Justice, 2008 cited at Crowdfunder.co.uk). The organisation of Children Heard and Seen idea was to raise money for providing children of prisoners with mentoring schemes to avoid the social exclusion and negative conduct (2014). Hence, the organisation decided to get funds via [|Crowdfunder.co.uk].

Children Heard and Seen established the funding goal of £5,000 for their cause. The communication strategy that they chose was based on creating emotional connexions with individuals via the explanation of the project and a video. Likewise, it was explained how the amount of donations could help those children. Therefore, the strategy was built on the more individuals donated; the longer children of prisoner would be protected.

Finally, the result of the campaign was successful. The organisation got the 201% of the initial goal, which means £10,052. There were two different key factors that determined the success of the project:
 * The communication strategy based on emotional attachment, the clear purpose and target, and the way they transmitted the message.
 * The initiative was focused on helping children of prisoners from England, so it was crucial to place it in a UK platform to focus on their target audien ce.

(Crowdfunder.co.uk, undated)

Finally, Berg (2013:7) states that ‘Donation-based crowdfunding is therefore the model that will require the most carefully thoughtful communications strategy, and the most persistent communications effort’.


 * Lending Based Crowdfunding** - Over a period of time the project investors are repaid for their investment. SoMoLend is a platform solely based on this form of lending.Therefore, business or individuals ask for money to finance themselves. In exchange, backers receive the amount invested plus interest in the near future (Colgren, 2014:56). Despite being easy to get investors when the refund schedule is communicated, the risk of not returning the funds or interest increases when the investment is higher (Berg, 2013:8). This model represents the best option for local companies who cannot participate in equity-based models (Barnett, 2012).


 * Reward Based Crowdfunding** - In return for investment, the project backers receive an item or service. Crowdfunder is the leading reward based crowdfunding service within the UK. Therefore, rewards-based Crowdfunding is for business that offers gifts related to the project in an exchange of pledges (Securities and Exchange Commission, 2014:6). It is based on the more backers give, the better rewards they will receive. However, businesses shall take into account these two possibilities: some contributors are not interested on the reward because they are emotionally attached to the cause, and/or some contributors are interested in obtaining the reward offered (Berg, 2013:7). Today, reward-based model is the most common type of Crowdfunding (Berg, 2013:7). It is perfect for business or creative ideas that need something to catch individuals’ attention, such as an attractive reward. An example of reward-based Crowdfunding is '[|FORM 1: An affordable, professional 3D printer]'.

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FORM 1 Crowdfunding project was created to support the full-manufacturing process of professional, high quality and low-cost 3D printers. There were some low-cost 3D printers commercialised, but the quality and resolution of them were really bad. Max Lobovsky, David Cranor and Natan Linder decided to design and build a new prototype which could compete within the market, but they needed support for financing substantial resources (Formlabs, 2012). For that reason, the co-founders create a Crowdfunding campaign in [|Kickstarter]

The funding goal of FORM 1 was $100.000. They needed a large amount of money for their project, so they focused the strategy in a reward-based model, giving therefore more relevance to the attractiveness of the return of fund (from a T-shirt for a $29 pledge, to a full FORM 1 package signed with free printing lesson for an $8,000 pledge).

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<span style="font-family: Arial,Helvetica,sans-serif;">FORM 1 is known as one of the most successful Crowdfunding campaigns. It finally got the 2,945% of their funding goal, which means that Formlabs raised $2, 945,885. Not only the rewards offered was a crucial factor for success, but there were others as well:
 * <span style="font-family: Arial,Helvetica,sans-serif;">An intensive communication strategy to get as much spread and funds as they could
 * <span style="font-family: Arial,Helvetica,sans-serif;">Making clear the relevance of the project or competitive advantage
 * <span style="font-family: Arial,Helvetica,sans-serif;">Explaining carefully why the project needed that money and not more or less (Berg, 2013:10).
 * <span style="font-family: Arial,Helvetica,sans-serif;">FORM 1 was an ambitious project which required a high funding goal. It was a key factor to place the project in a platform with a large target audience.

Both activities have been employed to support a wide range of projects - disaster relief, support of artists by fans, political campaigns, startup funding, motion picture promotion, software development, inventions development, scientific research, and civic projects. These are, of course, activities that can occur offline, but developments in the internet and the software it supports have now made it effective and efficient to undertake these activities online.

3 - Crowdfunding in the Cultural Industries
Crowdfunding is now a viable alternative for start-ups across many different industries. By utilising small levels of funding it has the ability to create new opportunities to a greater number of people (Bannerman, 2013). The cultural and creative industries are no exceptions with crowdfunding providing an alternative way of funding new projects whilst encouraging grass roots production and a greater level of involvement (Bannerman, 2013).Crowdfunding is fast becoming a viable way of funding films, festivals, music and any other form of cultural production.

Using crowdfunding as a source for start-up capital for these cultural enterprises has several benefits. Firstly it is a good indicator of how much of a demand there is for your production or event which is often a major concern for the cultural industries given the high risks often involved. If there is not enough demand for the product and the target is not met then there is no obligation for the project to go ahead which eliminates a vast amount of risk. Crowdfunding is also creating new, more democratic ways in which cultural products are created and distributed which can potentially alter the gatekeeping roles traditionally held by large conglomerates (Bannerman, 2013). Whereas before cultural producers often needed the backing of a major financial force in order to get their project off the ground, they now only require a dedicated network of people who believe in what they want to achieve and want to see it happen.

However, crowdfunding does have some potential drawbacks. Due to the nature of it can only create loose connections between project leaders and funders. This can potentially cause issues surrounding what the funder and ultimate consumer expects and what the producer delivers. Given the highly subjective nature of cultural productions this can be a major issue and creates a situation in which a high level of trust needs to be present between the two. There is the added drawback of there not being a major organisation being there to offer stability and support which could result in the project losing direction and ultimately failing. Another issue is that some projects may achieve their goals based solely on their popularity and the strength of their network with no particular guarantee of success or quality (Benkler, 2006). A good example of all of these drawbacks being realised was when rap super group Public Enemy turned to Sellaband in 2010 to help them raise capital for a new album. Given the popularity of the group they easily achieved their $75,000 target. However, a year after their target was met there was still no word from the band which raised doubts over whether or not they were going to deliver on what they had promised to the 1178 funders (Sellaband, 2014a). As there wasn’t the support and stability of a record label they ultimately failed to deliver what they had promised their fans and as a result betrayed their trust. Although crowd funding may reduce the risk faced by the producers it instead places it on the funders who have no real guarantee of receiving what is promised to them.

Along with the well-known crowd funding platforms such as Kickstarter, there are several platforms which specialise specifically in the cultural industries.
 * [|CrowdCulture] – This is a Swedish crowd funding and crowd sourcing service which utilises both user donations and public grants taken from the government’s culture budget. As it allows the public to decide what cultural programmes the government funds it is an attempt to democratise government spending. Users can post their own projects for the small fee of 50 Swedish Krona (just under £5) however they are not forced to make use of the public grants and can instead rely on individual donations.
 * [|Sellaband] – Essentially an online record label it offers funders a share of revenue from record sales. The service specialises in music and has so far helped to raise over $4,000,000 for independent bands through donations (Sellaband, 2014b). The service doesn’t restrict any of the bands which use the service to a contract and the artists retain 100% of the rights to their music. The service can also be used by management companies, record labels, publishers, sponsors and media companies. In return the service takes a 10% commission from the recording budget and 10% from music sales.
 * [|ArtistShare] – The internet’s first fan funding platform for musicians. Founded in 2003 it centres its service around the artist while offering fans access to VIP events, recording sessions and limited edition copies of the finished product. Since they started, their projects have accumulated 9 Grammy awards and have proven the viability of crowd funding models in the cultural industries.

4 - Amanda Palmer - The Art of Asking
<span style="font-family: Arial,sans-serif; font-size: 10pt;">A real success story of crowd funding comes in the form of musician Amanda Palmer and the relationship with her fans which she relied upon when she came to record her next record.

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<span style="font-family: Arial,sans-serif; font-size: 10pt;">Following the Kickstarter campaign she gained praise as well as coming under a considerable amount of criticism for the project. She proved without a doubt that crowdfunding is viable and that the old business models used by the music industry are coming under threat. By relying on her fans throughout her career and taking it that next step by turning to them for funding has proven that simply asking for help is a viable alternative to relying on record companies.

<span style="font-family: Arial,sans-serif; font-size: 10pt;">However the remarkable success of Amanda Palmer was a double edged sword and ended up with people criticising her achievement. By raising $1.2m through the campaign people began to assume that she was purely doing it for the money which is once again where the issue of trust comes into the idea of crowdfunding. The simple fact of the matter was that the more money they raised the more copies they needed to produce and ship without the profit margin rising much at all (Guardian, 2013).

<span style="font-family: Arial,sans-serif; font-size: 10pt;">Amanda Palmer’s success however may be difficult to replicate. As she and her previous bands have had moderate success she had already built up a global network of fans that were willing to help her, something which was invaluable when she turned to crowdfunding.

5 - The Wisdom of Crowds – James Surowiecki
James Surowiecki (2005) outlines the simple concept that, large groups of people are smarter than an elite few. He further reveals the perception that the behaviour of crowds is unpredictable and deadly, however he provides reason to believe the crowd culture is in fact made up of simple rules.

Surowiecki (2005) explains the three main advantages of crowds that prevent disorganized decisions:

Surowiecki (2005) argues that the judgement of a market can be faster, more reliable, and less affected by political forces by means of a crowd, instead of the thoughts of expert committees.
 * Cognition**

Coordination of behaviour looks at optimizing moving traffic flows. Examples include naturally occurrences such as the pavement flow by pedestrians. Surowiecki (2012) examines how accurate judgment known as //common understanding// occursregarding the predications of specific reactions of other members of the culture. When relating this to business and crowdfunding, it is the idea that the crowd in this case is the market that the product or service would be sold to, indicating if the product is successfully crowdfunded, then it is likely to be successful.
 * Coordination**

Surowiecki (2012) reveals the notion that groups of people can trust other people and form networks without being governed by a central system. This theory especially supports a free market.
 * Cooperation**

When relating these factors to contemporary business and crowdfunding, it is the idea that the crowd in this case is the market that the product or service would be sold to, indicating if the product is successfully crowdfunded, then it is likely to be successful.

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6 - Successful Crowdfunding Platforms
<span style="font-family: Arial,Helvetica,sans-serif;">As it was said before, it is important for a business to choose the proper Crowdfunding website depending on the goals and needs of the project or cause. Chance Barnett (2012) analyses the most important Crowdfunding platforms:

[[image:ntinm3/Kickstarter-logo_(1).jpg width="164" height="124" align="right"]]
Kickstarter is the world's largest crowdfunding platform. Since its launch in 2009, nearly 5 million people have funded more than 50,000 creative projects, such as films, music, stage shows, comics, journalism, video games and food-related projects.

<span style="font-family: Arial,Helvetica,sans-serif;">Last year, Kickstarter projects collected $1,315,520 pledges every day (Kickstarter, 2013), and t he total number of dollars pledged is $717million. Initially it only operated in USA, but now it operates in the UK. On Kickstarter project creators choose a deadline and a minimum funding goal. If the goal is not met by the deadline, no funds are collected. The platform is open to backers from anywhere in the world and to creators from the US or the UK. In June 2013, Kickstarter announced that it would open up to those looking to launch projects from Canada. People who back Kickstarter projects are offered tangible rewards and one-of-kind experiences in exchange for their pledges. This model traces its roots to subscription model of arts patronage, where artists would go directly to their audiences to fund their work.The most successful campaigns launched in Kickstarter are FORM 1, [|Pebble] or[| Oculus Rift]

Indiegogo
(Indiegogo,2014) <span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">[|Indiegogo] is an international donation and reward-based platform. It was created to help creative projects, charities, personal needs, films, communities, etc. to be sponsored.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 18px;">Crowdfunder.co.uk
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">[|Crowdfunder.co.uk] is the largest UK donation and reward-based Crowdfunding platform for financial supporting business, start-ups, charity causes, arts, etc.

<span style="font-family: Arial,Helvetica,sans-serif; font-size: 18px;">SoMoLend
<span style="font-family: Arial,Helvetica,sans-serif; font-size: 12px;">[|SoMoLend] is a lending-based platform for business. It helps business to get loans from banks or other entities.

Crowdsourcing platforms in the UK
There are number of crowdsourcing platforms in the UK.

The one that is most similar to Kickstarter is [|Crowdfunder]. [|Funding Circle] and [|Crowdcube] are two other platforms, but they operate with a more ‘commercial model’, attracting larger investors and larger businesses looking for investment.

7 - Why Crowdsource?
The primary motivation for people taking part in crowd sourcing is a social motivation; such as prestige or status. The Amazon M-Turk uses this reputation desire as a motivator for quality control. Crowdworkers who inadequately complete tasks regularly may not be allowed to access future tasks; this ensures there is motivation to produce high-quality work. (Kaufmann //et al//, 2011)
 * A Consumer Perspective**

<range type="comment" id="508885912_1">8 - Why Crowdsource?</range id="508885912_1">
The process of using a crowd for business benefits has long been used by businesses. Planters Peanuts held an open contest to develop its logo in 1916. The main benefit to crowdsourcing for a business of this generation is the way in which web 2.0 is used to reach a global crowd. This is a far more affordable method of reaching such a number of people, it allows for the engagement of consumer interest, and the filtering of feedback due to data being collected all in one place. The world has become far more entrepreneurial in recent years, due to the increased accessibility to professional software, thus contributing to a more DIY approach in business. Crowdsourcing has helped to enable success without the need for big investment. The contribution of a crowd can often be worth millions to a company. (Kaufmann //et al//, 2011)
 * Contemporary Relevance to the Business Environment**

The Case study of Ford
//Crowdsourcing campaign success //

//The Random Acts of Fusion initiative.//

The 2012 campaign worked by people uploading 30 second videos to the Ford website, explaining where they would drive their Ford Fusion if they had one. The incentive provided chances for participants to drive the Ford Fusion before it reached the dealerships, as well as take part documentary filmed by Ryan Seacrest and Joel McHale. Ford’s well known marketing campaign (giving the power to everyday people) was made innovative by literally placing the control in consumers’ hands through crowdsourcing. Consequently the new car was accessed by millions prior to showroom release in 2013, greatly increasing the awareness of its launch (Buss, 2012).

9 - Risks of Crowdsourcing

 * Within the contemporary Business Environment**

Faulty results can quite easily occur from crowdworkers, whether intentional or not, due to the financial encouragement that is often offered to complete tasks. This is because participants may choose to complete a task quickly rather than well. The time and monetary costs incurred in order to monitor responses are expensive, and so crowdsourcing can be innefficient (Archak and Sundararajan, 2009).

Due to the fact that crowdworkers are voluntary, they are a somewhat non-random sample of the population. Due to the generally low pay associated with crowdsourcing, participant groups can be skewed towards financially poor users. One of the problems of crowdsourcing products is the lack of interaction between the crowd and the client. Usually there is little information about the final desired product, and there is often very limited interaction with the final client. This can decrease the quality of product because client interaction is a vital part of the design process. (Archak and Sundararajan, 2009)



The case study of Smart Car
//Crowdsourcing campaign failure//

The brand posted a photo on Facebook of a Smart car parked underneath a New York and San Francisco road sign, asking fans to create a story about the vehicle within the comments section, using one word at a time. The content was completely illegible due to the delay in Facebook’s comment updates, fans could not always see the most recent words posted before they acted, the campaign was therefore almost useless (Griner, 2012).

10 - The Motivations Behind Crowfunding: Creators and Funders
While certain motivations behind crowd funding are obvious there are perhaps deeper reasons behind people’s willingness to both set up and donate to crowdfunding projects. With crowdfunding raising $2.7bn in 2012 (Massolution, 2013) it is becoming increasingly important to understand the reasons behind its increasing success and popularity. Gerber, Hui and Kuo (2012) carried out a qualitative piece of research in an attempt to better understand the motivations behind both the creators of projects and the funders who support them.

__Creators__
 * __Create Funds__ – The most obvious reason behind wanting to utilise crowd funding. However, the democratic way in which crowdfunding works may be a factor behind why so many people turn to it. As it doesn’t require funders to donate vast sums of money there is a certain reward in achieving the goal other than the money itself. One of researcher’s interviewees stated “Getting financial support from a lot of small contributions… Is different from going and applying for a grant. It’s satisfying” (2012: 5). This implies that by receiving financial support it motivates creators in other ways.
 * __Establish Relationships__ – Direct connection to the funders can result in a long term interaction which can be beneficial to both the creator and funder. By blurring the lines between the two it allows for greater interaction between the parties which may ultimately result in a better finished product and a more satisfied customer.
 * __Receive validation__ – Having a large number of supporters through crowdfunding can also help to increase a creator’s confidence in their ability and project. This is especially important for start-ups which may have only limited experience from the past. One of the founders of crowdfunding platform Rockethub stated “With crowdfunding you are allowing people to do something… You have people saying I believe in you” (2012: 5). This can be vitally important when starting a business as it gives creators the reassurance that their idea has the potential to be successful.
 * __Replicate the Successes of Others__ – Due to the transparent nature of crowdfunding it allows for people to easily see the successes of others. This can have the effect of motivating others to do the same to help get their projects off the ground.
 * __Expands Awareness of their Work__ – By seeking funding for a project on the internet you are in a sense promoting it before you have even started which potentially opens the door to people who may be able to help you either by simply offering ideas or advice or by actually working with you. There is also the added benefit that the more people that fund the project at the start the more will be aware of it when it is finished thus enhancing the chance of it being successful.

__Funders__
 * __Seek Rewards__ – People who fund projects obviously do so in order to receive something in return although they often expect it to be more of a long term transaction. For example, film makers and musicians often view crowdfunding as a pre-order system. Another motivation is the prospect of gaining early access to the finished product, a limited edition or even a discount. Gerber //et al.//(2009)found that funders often described their transactions as “giving” and “buying” which suggest both philanthropic and consumer motivations behind their decisions to back a project.
 * __Support Creators and Casues__ – It was also found that a lot of funders do it to support people they know or who they identify with socially. This fits with Aaker and Akutsu’s (2009) marketing research which suggests that people support efforts and organisations which are consistent with their own identity and values. This means that crowdfunding could be used to develop certain niche markets which struggle to gain investment through traditional means.
 * __Engage and Contribute to a Trusting and Creative Community__ – The research suggests that contributors want to be part of an active community which is part of the project throughout its development process. They want to be a valued part of the creative process meaning that it is essential for creators to allow them to be involved. One senior executive of a crowdfunding platform stated that “just to be a part of something is what really motivates people” (2012: 7) which indicates that simply being involved in a project is enough motivation for some people. Another interviewee suggests that due to the collaborative nature of crowdfunding there is not so much of a sense of competition, something which is rare in the business world.

While this study does a good job of uncovering some of the underlying motivations behind crowdfunding it is not quite representative. For a start it only focuses successfully funded projects which may slightly skew the results to being more favourable towards crowdfunding whilst ignoring the potential drawbacks such a system has. It also only looks at projects from three of the most successful crowdfunding platforms which cater toward all kinds of projects looking for funding. There may well be other motives behind using crowd funding that are unique to platforms which may focus on more specific types of projects.

With the growing success of crowdfunding there will no doubt be more research in the future looking at the motivations behind it, the results of which will most definitely be of interest to marketers and business leaders as they need to be increasingly aware of any opportunities and threats which the platform may create in the future.

11 - The Benefits of Creating a Crowdfunding Campaign

 * Within the Contemporary Business Environment.**

// (CMF, 2012) //

Useful form of testing the market – The business or campaigner can discover whether there is an audience and market for their project. If the campaign is unsuccessful then the market feedback may provide useful information on ways to improve, or encourage the discontinuation of the project before major investment (CMF, 2012).

Audience engagement – Crowdfunding allows project initiators to engage with their audiences. The audience can therefore engage in the production processes progress, via updates from the business/creator. Offering opportunity to access content to be tested to project backers can be useful market testing. Through this format, people interested in the project can share their own feedback and potentially improve the project (CMF, 2012).

Increased Awareness – If the project is convincing then its producer may become well known and receive a boost to their reputation (CMF, 2012).



The case study of the Pebble (Watch)
//Crowdfunding Success Story//

The Pebble is an e-paper watch, giving consumers access to their apps and messages without having to look at their phone. The Pebble hit its target of $100,000 within two hours and managed to raise $10.3m to fund its production. This made it the most successfully funded product through Kickstarter at the time (Fell, 2013).

12 - The Risks and Barriers of a Crowdfunding Campaign
// (CMF, 2012) //
 * Within the Contemporary Business Environment.**

IP protection – Many project creators try to refrain from publicly announcing the details of a project before its production, to prevent the theft and plagiarism of the idea (CMF, 2012).

Reputation risk – The failure to reach the goals and complete the proposed incentives offered to campaign backers may result in public failure. If the campaign has achieved the required financial goals however does not deliver on a project, then it is likely to severely impact the creator’s reputation, and never be trusted again (CMF, 2012).

Public distrust – Many projects posted through crowdfunding may fail to receive any financial backing despite support for the idea. This is due to the lack of trust that the funds will be used in the manner advertised. This concern creates greater scarcity in terms of public engagement (CMF, 2012).

Donor exhaustion – If the campaign reaches out to an identical group of supporters time after time, then there is a risk the group will reach a point where they no longer provide the necessary support (CMF, 2012).

The case study of the Ubuntu Edge Phone[[image:ubuntu-edge1.jpg width="273" height="184" align="right"]]
//Crowdfunding failure story//

The Ubuntu Edge phone aimed to raise $32m with its extremely high powered operating system aimed at taking the smart phone and desktop PC combining the two. The project raised $3.4 million within the first 24 hours, which is the highest figure raised through crowdfunding in one day to date. However it did not reach its target and consequently the 27,000 backers had to be refunded. (Brodkin, 2013)

13- Critical thoughts of Crowdfunding
<span style="font-family: Arial,Helvetica,sans-serif;">‘Crowdfunding promises to democratize funding of startups. But is that necessarily a good thing?’ (Blanding, 2013). This section will analyse the different perspectives of Crowdfunding that could occur in the business world.

<span style="font-family: Arial,Helvetica,sans-serif;">The most heard word when professionals reflect about the implications of Crowdfunding in businesses is ‘democratization’, because it allows the whole world to connect to the Internet and practise it, as backers or campaign owners. Crowdfunding appears when both VCs firms and public programs are dying off, same as the rate of projects they finance (Mounton, 2013; Barnett, 2013). Therefore, Crowdfunding represents an alternative financing tool where all type of social, creative, and business projects can participate if they need support (Sawers, 2014). Moreover, it enables local companies or organisations, which did not get funded by banks or public entities, to try again via Crowdfunding (Mouton, 2013). Despite ‘democratization’ being a substantial advantage for business, there are others that shall be taken into account. Crowdfunding allows community relationships to promote businesses’ products or services, so it becomes also a promotion tool (Berg, 2013:17; Dupree, 2012). Furthermore, businesses or organisations also can measure the spread obtained and the implication of the audience with the project. This data is used to verify the viability of the project within the market, as a marketing research tool (Sawers, 2014).

<span style="font-family: Arial,Helvetica,sans-serif;">However, the sceptics think that ‘democratization’ could become negative for the business world (Nanda, 2013 cited at Blanding, 2013). Firstly, some professionals defend that companies that did not get funding from banks will get it via Crowdfunding, and it may is because some backers are not aware of the real value of that business within the market (Nanda, 2013; ACEI, undated). Secondly, the professor of the Harvard Business School Ramana Nanda stated ‘companies that should not have been funded in the first place, and when it's time to scale up and they approach VCs, they will have a hard time getting further funding’ (cited at Blanding, 2013). Indeed, the ‘democratization’ could be affected because entrepreneurs, who cannot get more funding to grow, will fail; and VCs will overfund big projects (Nanda and Lerner cited at Blanding, 2013). <span style="font-family: Arial,Helvetica,sans-serif; line-height: 1.5;">Finally, Andrew Sherman highlights that the fact of raising funds from a wide number of shareholders could influence negatively on the entrepreneurs’ business plan, because they think that there is no need to spend too much time on the fundraising process (cited at Risen, 2013; Dupree, 2013). Likewise, Nick Underhill stated ‘[Y]ou need to approach it like you would approach a bank for funding. You need a plan and a strategy and a network’ (cited at Hudson, 2012).

New UK regulations created by the Financial Conduct Authority (FCA) state that investors into equity schemes of unlisted businesses must not invest more than 10% of their portfolio (FCA, 2014). The rules are applicable to loan-based crowdfunding and investment-based crowdfunding.

This indicates that the crowdfunding is not as accessible to everyone looking to implement their idea as it aims to be. An idea created by an small/unlisted business may not be able to "dream as big" as it desires, due to crowdfunders being unable to invest what they would like to in the project, potentially altering their investment decisions (BBC, 2014). The Crowdfunding Centre (//cited in// Thornton and Wilmot, 2014:1) purport the regulations may have 'taken the crowd out of crowdfunding' due to the prospect that less people may invest. Small businesses see crowdfunding as a way of avoiding bureaucratic banks and investors with false promises to raise finances, therefore if an element of this freedom has been taken away then a concern lies with the reduction of returns of crowdfunding for both the project creator and the investors. The project creator will receive less investment, which may lower the value of the incentives offered to investors, ultimately desensitising the excitment of crowdfunding.

On the other hand many see the 10% rule as a very sensible step to take, one which maintains the freedom to investors whilst ensuring they are protected at the same time (Thornton and Wilmot, 2014). Many of the leading crowdfunding platforms express positivity towards the regulations with Desai (//cited in// BBC, 2014) stating that the op erating principles are sensible and would be expected within other financial service markets, so crowdfunding should not be an exception. There is a necessity to protect investors, especially the inexperienced who are more likely to be susceptible to emotive advertising (Garside, 2014). Therefore the 10% rule seems like a sensible option.

<span style="font-family: Arial,Helvetica,sans-serif; line-height: 1.5;">To sum up, it is clear that Crowdfunding is here to stay and revolutionise the market. Even though there is wide range of advantages for small businesses and charities, Crowdfunding could become a double-edged sword because it also has negative consequences if the strategy is not carefully managed. However, Crowdfunding promises to revolutionise the market and develop in the next years. Some thoughts of the Crowdfunding future see this [|link]

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