Crowdsourcing and crowdfunding have become more and more popular over the years but they are often misused and misunderstood. Both are ways to gather resources from a community in order to grow and scale but how they go about doing this can be very different.

So, what is crowdsourcing exactly? How does it differ to crowdfunding, and what differences do the two have? Do they have similarities?

Keep reading to learn all you need to know about both of these, and understand why you might use one over the other.

What Is Crowdsourcing?

Photo of a crowded street

Crowdsourcing is the act of outsourcing tasks or jobs to a large group of people in order to take advantage of their expertise and intelligence. Crowdsourcing is used because a large group of people will likely have more knowledge than a small number.

Utilizing this information can be much more beneficial to society because it pulls a variety of perspectives and ideas into one solution, rather than using one person to come up with everything.

Crowdsourcing can be used in many different industries including software, translation, and design. Crowdsourcing has also been applied for purposes such as data mining, medical research, and intelligence gathering.

There are many benefits of utilizing crowdsourcing that include the ability to find solutions to problems, increase innovation and get more creative ideas. The only downside is that crowdsourcing can lose sight of individual issues to service the whole of the group.

Crowdsourcing has been helpful in today's world by integrating with online technology. Before the days of the internet, crowdsourcing was restricted by people's ability to get in contact with others, physically. Now that everything is done online, the ability to crowdsource increased exponentially.

What Is Crowdfunding?

Large amount of money

Crowdfunding is how many newer companies who don't have the capital to start their endeavors are able to still produce a valuable and helpful product or service. The idea is a business gets a small amount of money from a large group of people.

Related: What Is Crowdfunding and Can You Trust a Kickstarter Campaign? 

Traditional means of getting investment money meant that you would need to take out a large bank loan or convince an angel investor you had a concept worth investing in. Many sites like GoFundMe have been able to give entrepreneurs a platform where they can reach out to family, friends, or interested parties to receive small investment amounts.

These types of sites continue to grow as more and more industries get involved. Niche sites are now being created, too, such as ones that are made specifically for writers who need crowdfunding.

In exchange for these investments, contributors are usually given some special deal on the product when it is released to the public. Other prizes like free swag or early access are also given in exchange for a small investment into the company.

The small amounts of money given from individuals will gather over time and produce a large investment sum that the entrepreneur can use to build and scale the business. Businesses that use this model leverage social media in order to market their project and get more attention to get more investors.

How Are Crowdsourcing and Crowdfunding Different?

While crowdsourcing may involve getting a group of people together who plan on investing in a project, finances are not the sole focus. This is the main difference between crowdfunding and crowdsourcing. Crowdfunding focuses entirely on getting financial gains from a group of people to build a business.

Whereas crowdsourcing focuses on getting ideas, knowledge, products, or services from a group of people. The popularity of crowdsourcing is not nearly as big as crowdfunding. Open-source sites are an example of how crowdsourcing works in order to build a new venture.

Now You Know Know the Crowdsourcing Definition

Crowdsourcing and crowdfunding have become more popular in recent years due to the progression of technology that allows these to become more prominent. While crowdfunding focuses exclusively on financial gains from a group of people, crowdsourcing uses ideas, knowledge, or products from a group of people.

If you're thinking of running your own crowdfunding campaign, it will be helpful to learn the best practices to be able to reach your financial goals.