People and brands put their money where their mouse is.
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What is Crowdfunding?
Crowdfunding involves people coming together to collectively fund projects they are passionate about and help bring them to life. Crowdfunding has been used to support a wide variety of projects, including disaster relief, citizen journalism, political campaigns, startups, art (music, movies and books), game development, scientific research and causes. In return, funders receive a reward, which might include a product, a customized experience, equity, or simply recognition, depending on the type of project.
Microlending platforms like Kiva, peer-to-peer lending platforms like Prosper and micro-donation platforms like DonorsChoose can be considered to be predecessors to crowdfunding platforms. However, crowdfunding in its present form can be traced to the inception of platforms like indiegogo in 2008 and Kickstarter in 2009, both of which connect people to creative projects in need of funds. It entered mainstream consciousness in 2012, when several projects on Kickstarter and other crowdfunding platforms raised more than $1 million each – and up to $10 million – in funding. These include technology gadgets like e-paper watch Pebble; a music record and tour by Amanda Palmer; gaming projects like gaming console Ouya; and even a community center in Glyncoch, Wales.
The success of such crowdfunding projects shows that people are willing to offer financial support to people and projects they believe in, and has created a new model for artists and entrepreneurs to fund their projects.
How Does Crowdfunding Work?
On most crowdfunding platforms, a creator (an individual or a group) pitches a project to the community and asks for small amounts of funding. Then, the creator and the community promote the project on the crowdfunding platform, on the social web, and in mainstream media, to gather support for the project, and help it reach the funding goal within a specified duration.
Successful creators often have a clear plan for completing their project and a public history of successfully completing similar projects, backed up by links to project website and personal social network profiles. By launching the crowdfunding project in public, creators back up their projects with their reputations.
Most backers support crowdfunding projects based on trust, to help their friends or public figures they have long admired create something meaningful. Others are inspired by the newness of the idea or the rewards promised by the project, such as backstage passes for a concert or being included in a film’s credits. Yet others are attracted to the idea of co-creating the project, by having insider access to updates and the ability to contribute their own ideas to it.
Crowdfunding platforms offer creators more than just money. They also help creators test their ideas in public, build a strong community that supports them and spreads the word, and gain visibility on the platform itself, on social networks, blogs and sometimes even newspapers and television.
As Stephan Angoulvant, design director at texting printing company Lumi, shared:
“For us, Kickstarter has been a powerful tool to connect with a community passionate about our work, to help us collect critical insight, and to provide a time line that helps us organize our activities as we grow our project.”
Platforms offer one of two funding models: ‘all or nothing’ in which the creator only gets the funds if the project reaches the funding goal, and ‘keep it all’ in which the creator gets whatever amount the project has raised, irrespective of whether it has met the funding goal. Over time, three distinct models of crowdfunding have emerged, focused on donations, lending and investments.
As crowdfunding becomes mainstream, we are beginning to see niche crowdfunding platforms targeting specific geographies, funding models and types of projects. Pozible, Zeczec and WeFund focus on diverse projects in Australia, Taiwan and the U.K. respectively. ArtistShare focuses on music projects, CrowdRise and Razoo on non-profits, LoudSauce on meaningful ads, GiveForward on patients, GoFundMe on personal projects, SpaceHiveon public spaces, Credibles on food businesses, and Crowdfunder and CrowdCube on startups.
Crowdfunding for Brands
Several brands have used crowdfunding principles in their programs to connect their fans with worthy projects and non-profits (targeting backers), and to encourage fans to start their own projects and catalyze positive change (targeting creators).
In the most popular model, brands ask their employees, customers or fans to vote for eligible non-profits to receive philanthropic grants. Many brands also enable the community members to directly back the non-profits by volunteering or donating money. Several brands have launched recurring programs that follow this model, which include Chase Community Giving, American Express Members Project, and Starbucks Vote.Give.Grow.
In another popular model, brands ask their fans to act as change makers by creating their own projects and gathering support from their networks to qualify for funding. Not only do these projects receive funding, but also visibility from the brand and its community members, and support from the brand and its employees to realize and scale the idea. Branded programs that follow this model include the Pepsi Refresh Project, Benetton’s Unemployee of the Year and Mahindra Group’s Spark the Rise.
Both of these types of crowdfunding programs tap into the same dynamics as the crowdfunding platforms. Brands provide change makers and non-profits the opportunity to connect with a larger community, and offer their fans a range of projects that match their passions. Change makers and non-profits activate their networks to support the projects, and keep backers engaged with updates on progress during the fundraising period. The brand provides credibility and visibility, beyond funding. Finally, brands rely on the wisdom of crowds to identify projects to fund, and fans feel affinity not only for their favorite projects, but also for the brand for creating the platform to support them.
Crowdfunding case studies
Throughout the year, we have tracked the conversations around a number of crowdfunding platforms and branded crowdfunding programs in our weekly insights reports and quarterly magazines; here are a few highlights.
Crowdfunding platform: Kickstarter
Kickstarter is the largest U.S. crowdfunding platform, empowering artists and engineers to raise funds from individuals.
Indeed, Mike Bulajewski, a user experience designer, described Kickstarter as:
“A place where artists and engineers can connect with the people in direct peer-to-peer relationships who aren’t just buying entertainment, they’re helping make dreams a reality.”
Kickstarter focuses on funding of creative projects and fills a gap that was created by the slow economy and budget slashes. As journalist James Reed observed in the music industry:
“As the music industry’s financial resources continue to crumble, more independent musicians are turning to fans to directly finance work that might not otherwise get done.”
This need has helped fuel the growth and success of Kickstarter. Journalist Patricia Cohen noted:
“[Kickstarter] recently boasted that it expected to raise $150 million in contributions in 2012. By comparison, the National Endowment for the Arts, noted Yancey Strickler, one of Kickstarter’s founders, has a budget of $146 million.”
Kickstarter follows the ‘all or nothing’ funding model, in which only projects that have successfully met their funding goals – approximately 43% of all Kickstarter projects – receive funds. Kickstarter believes this model“protects everyone involved,” as projects with insufficient budgets are less likely to succeed. Since 2009, Kickstarter has helped raise more than $250 million for more than 24,000 projects.
Crowdfunding platform: LoudSauce
LoudSauce is a crowdfunding platform that funds advertising for social good.
The platform offers people a unique opportunity to broadcast message that can help society. As social activist Jeremy Williams commented:
“Most of us can’t afford a billboard. But if we got together with like-minded people and each chipped in a bit, perhaps we could use just a small part of the advertising network for something positive.”
This opportunity helps non-profits and organizations reach larger crowds and create larger networks of like-minded people. Blogger Beth Buczynski observed:
“Most of these [social media] outlets require people to “opt in” to receive updates and invites. This means that for the most part, organizations with the ability to catalyze social and environmental change end up preaching to the choir.”
While the platform may not have an immediate impact on traditional media buying and advertising, it is finding support from both consumers and advertisers. As advertiser Michael Caissie commented:
“I work in advertising and my goal is to make a more human way of communication and this concept of ideas coming from the public is almost to me revolutionary.”
Branded crowdfunding program: Chase Community Giving
Since 2009, Chase Community Giving has donated more than $28 million to more than 500 charities by asking its employees and customers to first nominate eligible charities, then asking its 3.8 million fans on Facebook to vote for their favorite charities.
The four-year program has contributed much learning to Chase’s internal giving strategy. As Samantha Smith, journalist at NYTimes.com, said:
“JPMorgan Chase’s goal with the above contribution is to continuously engage communities that care and are knowledgeable on change in the JPMorgan Chase Foundation’s giving strategy.”
The program has also helped spread the word about Chase’s philanthropic efforts and shape people’s opinion about the brand. As Julie Brown commented on Facebook:
“Way to go, Chase- it is refreshing to see a “big faceless corporation” making things right. Thanks for looking out for the little guys!”
However, the need to campaign for votes and compete with other charities has led to much debate amongst non-profits about the return on investment of participating in such programs. As consultant Carrie Hirmercommented:
“For us, being in one of these contest-type grants has been a wonderful thing so far. It may not work as well for some organizations. It has helped increase awareness of the need for our project and has served as a door-opener, so to speak, for relationships that will last long after the contest ends.”
This type of program also requires constant campaign management and proactive communication with audiences. B.L. Ochman, a consultant and contributor to AdAge.com, who has written about this program at length, considers Chase Community Giving to be:
“a model of what — and what not — to do in a corporate philanthropy campaign.”
Branded crowdfunding program: Benetton Unemployee of the Year
In 2012 Benetton’s Unemployee of the Year gave €500,000 to 100 projects to celebrate young people’s ingenuity, creativity, and ability to create new smart ways of addressing the problem of unemployment.
While Benetton is famous for highlighting social issues in its advertising, this campaign marks the brand’s first effort to support these issues financially. As Stuart Elliott, columnist at NYTimes.com wrote:
“For almost as long, critics have dismissed the [Benetton] ads as exploitative because they do not offer solutions to the problems or assistance to the causes that could use financial help. Now, however, Benetton is going to put some money where its mouth is.”
With youth unemployment, Benetton tapped into a cause that has a large passionate following globally, and the program has inspired widespread coverage of the issue and participation from 42,266 unemployed young people. As NYTimes reader DJ noted:
“Every little bit helps when you have no job at all.”
The €5,000 grants and the relevance of the cause will help Benetton build a deeper relationship with the youth market. Adweek blogger Tim Nudd wrote:
“They may be less provocative than last year’s, but perhaps they’ll make a more lasting difference in the lives of the target market.”
Branded crowdfunding program: Starbucks Vote.Give.Grow
In 2012, Starbucks Vote.Give.Grow gave $4 million to 124 local non-profit organizations based on votes from My Starbucks Rewards card-members.
The program created an opportunity for Starbucks to involve brand loyalists in its corporate purpose. As social do-gooder Tara Nami commented:
“One of the focus areas of the Starbucks Foundation is helping the communities in which they operate, and during the month of April… we, the people, get to help them decide where and to whom it goes to in our very own communities.
Involving customers also amplified Starbucks’ contribution to non-profits. As Starbucks customer Suzanne Ccommented:
“This seems like a good way for SB to not only donate funds to a non-profit but to also raise awareness for the non-profits that are out there!”
In return, customers feel a sense of pride for contributing to worthy causes and a sense of affinity for Starbucks for making it happen. As Starbucks customer Sarah commented:
“Feels good to patronize a company that is philanthropically minded.”
Branded crowdfunding program: Mahindra Spark the Rise
In 2012 and 2013, India’s Mahindra Group is giving grants of $1 million to 96 ideas and projects that can drive positive change in India under its Spark the Rise program. Mahindra also connects change makers with each other and mentors, to help create an ecosystem for social innovation in India.
The program is a demonstration of Mahindra Group’s commitment to its corporate philosophy ‘Rise.’ Ad veteran Ramesh Narayan commented:
“Mahindra is making a statement it is committed to helping India, and backing it with action. [Spark the Rise] is an eloquent statement of its positioning, unlike a mere advertising campaign that says the company is committed to some cause or the other.”
The initiative taps into the passions of the Indian crowds, as former ad-man Lakshmipathy Bhat pointed out:
“The ‘rallying cry’ of Rise and the call to action of ‘Spark the Rise’ couldn’t have come at a better time – there are heroes emerging from every walk of life and being egged on by the general public.”
As consumers evolve in the digital age, it is important for brands to be seen as authentic and socially responsible. Narayan commented:
“As consumers get younger and more aware, these will be increasingly important critical factors affecting choice.”
The Future of Crowdfunding
In the near future, we expect equity-based crowdfunding platforms to become a popular way to fund startups across the world, as financial regulation is modified to allow allocation of equity against crowdfunding. Such models already work in markets like the UK.
We also expect consolidation amongst the larger crowdfunding platforms, as large crowdfunding platforms like Kickstarter and indiegogo become truly global through organic growth, acquisitions and partnerships. For instance, indiegogo is already investing in supporting projects by creators from across the world and building a strong global network of partners, and Kickstarter has already expanded to the UK.
In parallel, we expect even more niche crowdfunding platforms that focus on an under-served segment or geography, as white label crowdfunding software like Launcht, Hayduke, Invested In, CrowdForce and Catarse become more powerful.
We also expect some niche crowdfunding platforms to focus on connecting brands with creators and backers. Projeggt in UK is trying to promote a model where brands sponsor projects in return for custom rewards from creators.
Already, we are seeing examples of brands, organizations and celebrities supporting projects on crowdfunding platforms. For instance, Mozilla Firefox is offering matching grants at Crowdrise.
Some brands will go further and create their own crowdfunding platforms, and ask their community members to fund projects and non-profits on a matching grant basis, not only through virtual actions such as voting.
However, as branded crowdfunding programs become mainstream, and their novelty wears off, we expect that they will become more focused, with a stronger alignment between the brand’s purpose and the type of projects or non-profits it funds.
This is the first report from our upcoming People’s Insights Annual Report titled “The Now and the Next: Ten Frontiers for the Future of Engagement”, to be published in January 2013 as an interactive iPad app. The report will highlight the ten most important frontiers that will define the future of engagement for marketers, entrepreneurs and changemakers: Crowdfunding, Transmedia Storytelling, Social Curation, Behavior Change Games, Grassroots Change Movements, Collaborative Social Innovation, Crowdsourced Product Innovation, Collective Intelligence, Social Recommendation and Hybrid Reality Experiences. These reports are being co-authored by Pascal Beucler, Nidhi Makhija and myself, with inputs from the 100+ members of MSLGROUP Insights Network.
In each of these reports, we start by describing why they are important, how they work, and how brands might benefit from them; we then examine web platforms and brand programs that point to the future (that is already here); then finish by identifying some of the most important features of that future, with our recommendations on how to benefit from them.
Do subscribe to our email newsletter to receive each report and also an invite to download a free copy of the interactive iPad app.