Crowdsourcing: Definition, How It Works, Types, and Examples

What Is Crowdsourcing?

Crowdsourcing involves obtaining work, information, or opinions from a large group of people who submit their data via the Internet, social media, and smartphone apps.

People involved in crowdsourcing sometimes work as paid freelancers, while others perform small tasks voluntarily. For example, traffic apps like Waze encourage drivers to self-report accidents and other roadway incidents to provide real-time, updated information to app users.

Key Takeaways

Crowdsourcing is the collection of information, opinions, or work from a group of people, usually sourced via the Internet.
Crowdsourcing work allows companies to save time and money while tapping into people with different skills or thoughts from all over the world.
While crowdsourcing seeks information or work, crowdfunding seeks money to support individuals, charities, or startup companies.
The advantages of crowdsourcing include cost savings, speed, and the ability to work with people who have skills that an in-house team may not have.

Understanding Crowdsourcing

Crowdsourcing allows companies to farm out work to people anywhere in the country or around the world; as a result, crowdsourcing lets businesses tap into a vast array of skills and expertise without incurring the normal overhead costs of in-house employees.

Crowdsourcing is becoming a popular method to raise capital for special projects. As an alternative to traditional financing options, crowdsourcing taps into the shared interest of a group, bypassing the conventional gatekeepers and intermediaries required to raise capital.

Crowdsourcing usually involves taking a large job and breaking it into many smaller jobs that a crowd of people can work on separately.

Crowdsourcing vs. Crowdfunding

While crowdsourcing seeks information or workers' labor, crowdfunding instead solicits money or resources to help support individuals, charities, or startups. People can contribute to crowdfunding requests with no expectation of repayment, or companies can offer shares of the business to contributors.

For example, popular crowdfunding platforms include Indiegogo and Kickstarter, both online platforms in which individuals can contribute a small amount of money and collectively bring a new business idea or product to fruition. Platforms like Kickstarter make money by charging a small platform fee, whereas some of the best crowdfunding platforms specialize in helping creatives (Patreon), investing (StartEngine), the real estate industry, nonprofits (Mightycause), or even startups trying to raise capital (SeedInvest Technology).

Especially as recent years have seen grassroots activism ramp up, communities have used platforms like GoFundMe to support families affected by police brutality or other violent attacks. If crowdfunding sounds like an intriguing option, read more on the best alternatives to Kickstarter for your cause.

Advantages and Disadvantages of Crowdsourcing

The advantages of crowdsourcing include cost savings, speed, and the ability to work with people who have skills that an in-house team may not have. If a task typically takes one employee a week to perform, a business can cut the turnaround time to a matter of hours by breaking the job up into many smaller parts and giving those segments to a crowd of workers.

Many types of jobs can be crowdsourced, including website creation and transcription. Companies that want to design new products often turn to the crowd for opinions. Rather than rely on small focus groups, companies can reach millions of consumers through social media, ensuring that the business obtains opinions from a variety of cultural and socioeconomic backgrounds. Oftentimes, consumer-oriented companies also benefit from getting a better gauge of their audience and creating more engagement or loyalty.

But that being said, crowdsourcing isn't a magic bullet for companies that hope to lighten their workload while pursuing the next shining star of an idea. Many times, someone will have to sift through all the ideas being pitched, fundraising goals can fall short in all-or-nothing type funding platforms, and the right crowd can be difficult to find or engage.

Pros

Crowdsourcing brings together communities around a common project or cause
Efficient way of solving time-intensive problems
Deeper engagement by communities, who resonate and build loyalty to the product or solution

Cons

Results can be easily skewed based on the crowd being sourced
Lack of confidentiality or ownership of an idea
Potential to miss the best ideas, talent, or direction and fall short of the goal or purpose

Examples of Crowdsourcing

Companies that need some jobs done only on occasions, such as coding or graphic design, can crowdsource those tasks and avoid the expense of a full-time in-house employee.

While crowdsourcing often involves breaking up a big job, businesses sometimes use crowdsourcing to assess how multiple people perform at the same job. For instance, if a company wants a new logo, it can have dozens of graphic designers assemble samples for a small fee. The company can then pick a favorite and pay for a more complete logo package.

What Are the Main Types of Crowdsourcing?

Crowdsourcing involves obtaining information or resources from a wide swath of people. In general, we can break this up into four main categories:

Wisdom - Wisdom of crowds is the idea that large groups of people are collectively smarter than individual experts when it comes to problem-solving or identifying values (like the weight of a cow or number of jelly beans in a jar).
Creation - Crowd creation is a collaborative effort to design or build something. Wikipedia and other wikis are examples of this. Open-source software is another good example.
Voting - Crowd voting uses the democratic principle to choose a particular policy or course of action by "polling the audience."
Funding - Crowdfunding involved raising money for various purposes by soliciting relatively small amounts from a large number of funders.

What Is Real Estate Crowdsourcing?

Real estate crowdfunding allows everyday individuals the opportunity to invest in commercial real estate, purchasing just a portion of a piece of development. It's a relatively new way to invest in commercial real estate and relieves investors of the hassle of owning, financing, and managing properties.

Does Netflix Use Crowdsourcing?

Yes. Netflix uses crowdsourcing to help improve its entertainment platform. Most notably, in 2006, it launched the Netflix Prize competition to see who could improve Netflix's algorithm to predict user viewing recommendations and offered the winner $1 million.

How Does Amazon Mechanical Turk Use Crowdsourcing?

Amazon's Mechanical Turk (MTurk or AMT) is a crowdsourcing marketplace that businesses or researchers can use to outsource parts of their jobs, everything from data validation to finding survey respondents to content moderation. Anyone can sign up through their Amazon account to be a Mechanical Turk Worker.

The Bottom Line

Especially as the nature of work shifts more towards an online, virtual environment, crowdsourcing provides many benefits for companies that are seeking innovative ideas from a large group of individuals, hoping to better their products or services. In addition, crowdsourcing niches from real estate to philanthropy are beginning to proliferate and bring together communities to achieve a common goal.