Difference between Crowdsourcing and Crowdfunding

Crowdsourcing and crowdfunding are two terms that have been misconstrued for a long while. Some people, especially those in the business world, see these two terms as meaning the same thing. Though they are closely related in meaning, they are not entirely the same.

Here, we shall be examining the differences between the two concepts looking at their aims and approaches.

What Does Crowdsourcing Mean?

Crowdsourcing is a term used to refer to the comprehensive process of connecting with a large group of people for the sole purpose of getting their ideas, opinions, and expertise about a particular subject or topic.

Crowdsourcing first appears in a story that was written in the Wired Magazine sometime in 2006. This story was written by Jeff Howe and was titled ‘The Rise of Crowdsourcing.’

The ideas shared in this story later formed the basis of the book – ‘Crowdsourcing: Why the power of the crowd is driving the future of business.’

The term ‘crowdsourcing’ comes from two distinct words ‘crowd’ and ‘outsourcing.’ As a business, when you’re looking into your business for expertise, knowledge, and ideas, you’re not crowdsourcing.

Crowdsourcing only happens when you look outside the skills and expertise available in your business.

At one point or another, every business will have to look beyond its current human resources to get ideas and leverage the expertise of others.

The difference between what one business makes of crowdsourcing and that of another is where they crowd sourced from.

As a business owner, the chances are you might have come across the saying that ‘there is strength in numbers.’ The more people your business can establish a connection with per time, the better it is for your company.

Crowdsourcing can be done through any channel, but the internet has been the most viable channel in recent times. Also, crowdsourcing can be paid or voluntary depending on who is doing it and the purpose for the action.

For example, a business can make an opening seeking volunteers for a particular cause. It can state the areas where it needs people’s services to carry out the task.

People can send in applications to offer professional services voluntarily because of their passion for the cause at hand.

The Aims of Crowdsourcing

Crowdsourcing is not a magic solution for companies looking to find an answer to a particular problem. However, every act of crowdsourcing looks to achieve specific aims, and some of them include:

1.      It brings people together to support a particular project or cause

Some people are passionate about a particular project or cause. When you have these kinds of people on your team, carrying out that project or cause becomes easier. Crowdsourcing is a system that seeks to bring people with similar ideas together to achieve a common purpose.

2.      It makes the problem-solving process a lot faster.

Every time an individual or company provides a solution to a particular problem, such individual or company is said to have provided value.

Facebook provides a solution to the problem of social interaction. A food store provides a solution to the problem of hunger. In business, a marketer provides a solution to the problem of low sales.

There will always be a problem that requires critical thinking to achieve a solution. When the thought process of finding solutions to a particular problem is limited to a select few, chances are it might take a long while.

Crowdsourcing ideas and opinions about a particular problem help to fast-track the problem-solving process and allows businesses to provide better value.

What Does Crowdfunding Mean?

Crowdfunding refers to a system of raising money for a particular project or cause by asking people to donate any amount. Usually, crowdfunding always happens for a short period, and there is not always any specified amount of money for people to donate.

Many crowdfunding activities happen online and can be done by individuals, businesses, and corporate organizations with a particular project to carry out.

For example, a startup can crowdfund to launch its operations; an organization can crowdfund for a charitable cause; individuals can crowdfund to fund a medical situation or pay tuition fees.

If you spend time online, especially on a platform like Twitter, chances are that you must have come across crowdfunding activities.

The most common platform people use for crowdfunding is GoFundMe. Other platforms that can be used include Kiva and Kickstarter.

How Does Crowdfunding Happen?

Generally, crowdfunding is of two broad types – donation-based funding and investment crowdfunding.

For donation-based funding, donors must contribute a certain amount of money to make up the total funds needed for a project.

When donors give money for a charitable cause, they do not expect anything in return because they know they are not the ultimate beneficiary of the proceeds from such donation.

However, where donations are required for a particular creative project, funders are sometimes rewarded with the revenue obtained from the success of the eventual product or service.

On the other hand, investment crowdfunding is always done by businesses seeking capital for a new startup idea. Here, these businesses sell their ownership stake in a business to interested individuals. This sale takes the form of equity sales.

Everyone who donates under the investment crowdfunding model either becomes an owner or a stakeholder in that business. As an owner or stakeholder, such a person is entitled to a percentage of potential returns.

If $1,000 is needed for a startup, and an individual donates $200 in investment crowdfunding. It appears like such a person is buying a stake in the business and, in the long run, becomes entitled to returns received from investing the $1,000 to launch the startup.


From the above, you can tell that crowdfunding and crowdsourcing may sound the same, but they are different. While crowdsourcing has to do with outsourcing for people, ideas, and opinions about a particular subject, crowdfunding has to do with sourcing for money to find a project or cause.


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