DEFINITION of '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 on a voluntary basis. For example, traffic apps encourage drivers to report accidents and other roadway incidents to provide real-time updated information to app users.

BREAKING DOWN 'Crowdsourcing'

Crowdsourcing allows companies to farm out work to people anywhere in the country or around the world, which lets businesses tap into a vast array of skills and expertise without incurring the normal overhead costs of in-house employees. Crowdsourcing usually involves taking a large job, something that requires hundreds or thousands of individual tasks, and breaking it into many smaller jobs that a crowd of people can work on separately.

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.

Examples of Crowdsourcing

Many types of jobs can be crowdsourced, including website creation and transcription. Uber, which pairs available drivers with people who need rides, is an example of crowdsourced transportation.

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.

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.

Advantages 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. 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.

The Difference Between Crowdsourcing and Crowdfunding

While crowdsourcing seeks information or work product, crowdfunding seeks money to support individuals, charities or startup companies. People can contribute to crowdfunding requests with no expectation of repayment, or companies can offer shares of the business to contributors.

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