Why crowdfunding changes the world

Crowdfunding

When the smartwatch maker Pebble recently wrote crowdfunding history by collecting almost $7 million worth of pre-orders within 12 hours, this made once again clear how revolutionary crowdfunding actually is. The campaign for the Pebble Time eventually ended at a bit more than $20 million worth of pre-orders. It became the most successful campaign of Kickstarter ever.

But the game-changing character of crowdfunding extends far beyond the capability of collecting large amounts of money from everyday people to finance the production of new gadgets. In fact, crowdfunding is a vehicle which can serve very different purposes, some of which have nothing at all to do with what the term “crowdfunding” stands for. It’s a real multi-talent and a way to rival and possibly replace many functions of today’s economy.

The following list describes scenarios in which crowdfunding is a viable strategy to accomplish individual goals. If you have additional suggestions, please leave a comment.

Funding and pre-ordering a product/service
This is the obvious core scenario for which crowdfunding was created: People who want to built a certain kind of product or service collect money from individuals who are interested in using the product/service. Usually, they will be the first to receive access to the product or service once it has been launched.

Investing into a product/service (crowdinvesting)
In crowdinvesting, the individuals providing the funding for a product or service are investing into the company instead of (primarily) pre-ordering a product/service. For their contribution they receive a limited type of equity. In case of a good financial performance, an acquisition or an IPO, they earn a return on their investment.

Funding individual loans, non-profit or creative projects
Crowdfunding can also be used as a tool to give loans to individuals or to non-profit and charity projects. At GoFundMe, everyone can create a fundraising campaign for personal or group initiatives. WeFinance allows individuals to fund student loans. At Kiva and Zidisha, individuals fund entrepreneurial ambitions of people in developoing countries. On Watsi, individuals fund medical treatments of people from around the world. There also are a bunch of platforms on which creative projects such as music productions or investigative journalism can be funded.

Marketing for a product/service
Sometimes, the capital required to create a new product or service already is available through institutional investors or as operating profit from an existing business. However, a viral crowdfunding campaign can bring a massive marketing and public relations effect, turning a low-profile idea into a household name, even before the launch.

Raising awareness about issues
In certain cases, a crowdfunding campaign’s primarily goal is to raise awareness about an issue and to inspire others to pursue the concept or engage with the idea presented in the campaign. A recent example: William Shatner says he wants to built a Kickstarter-funded, $30 billion water pipeline from Seattle to save California from its drought. It’s not clear whether he’ll actually set up this campaign, but in any case the purpose is to raise awareness, nothing else. He’ll never be able to collect the $30 billion through Kickstarter. Not in 2015, at least.

Creating a serious movement
Many people criticize so called “clicktivism”, because supporting a cause with a simple “like” on Facebook or a retweet on Twitter can hardly be compared to actual hands-on activism. Hard to argue with that. But things get different when people are willing to spend money on a cause. A quick click on “like” is easily done. Spending a few bucks on a crowdfunding campaign means an actual sacrifice. Thus non-profit campaigns that manage to bring together large groups of individuals who each chip in a bit of their money are most likely more credible and significant than a Facebook protest page.

Market research/testing consumer demand
This is one of the greatest advantages of crowdfunding: Project creators find out whether there is demand for their idea before they invest lots of money into it. It is one of the cheapest and most effective ways to do market research and to test consumer demand. The world has seen too many products that nobody asked for or bought. Crowdfunding offers a chance to end that.

Creating loyal brand/product ambassadors
With both crowdfunding and its subtype crowdinvesting, project initiators create brand/product ambassadors. Once somebody has funded a product, service or product, this person likely becomes a vocal supporter and user – either in order to help the campaign to achieve its funding goal (otherwise there won’t be a product), or simply as a way to express a certain kind of attitude and status. Every company wants supporters and customers like this.

Selling a product/service
A pre-order campaign naturally also acts as an alternative store-front. Money from supporters is collected upfront, and once the campaign reaches its goal and the product/service is being released, those who purchased receive access. In the future, we might see companies who exclusively or at least primarily sell via crowdfunding.

Photo: Flickr/Rocío Lara, CC BY-SA 2.0

3 comments

    • Yeah I have read about these cases. But well, that’s freedom I guess. Everybody can make use of these new possibilities.

  1. Crowdfunding has really changed the way of a startup launch or any new creative idea. It has also changed the way to raise funds for any social cause which is really a great thing. Recently, when there was earthquake in Nepal some of the platforms started crowdfunding campaigns to help the people of Nepal and it really worked as more than 1 million amount was raised so this is the best change i have ever seen.

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