Crowdsourcing is the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people, often from an online community, rather than traditional employees or suppliers.





Crowdfunding

..Crowdfunding is similar, but it refers more to the collective effort of individuals who network and pool their money, usually via the Internet, to support efforts initiated by other people or organizations.

(The following section and those marked by * have been added by Luke McEyeson)

..The first apparent use of the term ‘crowdfunding’, is said to been uttered in 2006 (Howe, 2008). Even then crowdfunding was said to be similar to crowdsourcing and has been said by some to have derived from it (Bayus, 2013; Howe, 2008; Kleemann et al., 2008), as well as Micro financing (Bradley & Luong, 2014: 96). Micro financing can be described as the provision of small loans to those of low income and thus lack of accessibility to credit through normal financial means (Hannam & Cheng, 2012: 369; Idolor & Eriki, 2011: 53).

..Bellaflamme et al. & Prive (2014: 8; 2012) state similar definitions to the one provided above, adding that this process can be undertaken as a form of charity or for some kind of reward in exchange for donating and/or investing. The clarity of the definition is something that Mollick (2014: 2) considers, as crowdfunding already covers and is likely to increase in, the high amount of disciplines it does cover, over time. His discussion produces a clearer definition that is highly inclusive due to the lack of specificity of any one discipline or concept.

..........Crowdfunding refers to the efforts by entrepreneurial individuals and groups – cultural, social, and for-profit – to fund their ventures by .............drawing on relatively small contributions from a relatively large number of individuals using the internet, without standard financial intermediaries
............................................................................................................................................................................– (Mollick, 2014: 2)

..Valanciene & Jegeleviciute (2013: 410) agree with the definition provided by Mollick, as they view a definition of crowdfunding should emphasize not only the most important features of it, but also the link between the three involved parties. As of current, Mollicks definition proves to be one of the most comprehensive and fitting to describe crowdfunding. It acknowledges the many various elements of crowdfunding and how it works as a process. Howver negates to recognise that firstly, not all crowdfunding is subject to small contributions, therefore reducing the need for 'large' numbers of them. Secondly there is no mention of the return a donator can receive for their donation towards the venture. With these additions to Mollicks definition a suitable description of crowdfunding can be supplied.

..As implied, whilst defining crowdfunding, it is an alternative to the ‘traditional methods of financing, especially the banking system of which people are now sick of’ (Scott, 2013). The term has gained more recognition in modern society seemingly due to the 2008 global financial crisis and people subsequently looking for alternative means of financing (Kuti & Madarász, 2014: 355). Proving true on the statement by Scott. The utilisation of Web 2.0 to facilitate crowdfunding has been said to have acted as a catalyst fuelling the popularity & recognition of crowdfunding practices (Bellaflamme, et al., 2013: 8).This can be explained by the capabilities of Web 2.0 to allow for user generated content and ease and speed of monetary transactions. Even so, the term 'crowdfunding' has existed for some time with the basic renewed concept recently coming to prevalence (Jones, 2013).

..Crowdfunding is currently associated with start-ups, but the landscape could easily change. A given example is the Kickstarter campaign for a full length Veronica Mars movie successfully surpassing its $2 million, by $3.7 million from more than 91,000 backers (Spence, 2014). This shows that ventures can successfully utilise an existing fan base to achieve its goals. This is one instance but has also been shown to have been the case of other projects such as the Robocop statue in Detroit (Child, 2013). Established companies may also utilise their existing customer base to also raise funds as given the instance where the Caterham Formula One crowdfunded £2 million to enable the team to take part in the last race of the season, offering advertising space on the car in return for investment (Bridge 2014).

Types of Crowdfunding*

crowdfunding models.jpg
Above: Three types of Crowdfunding view.

..So the basic premise of Crowdfunding is that a user, usually referred to as a founder, has an idea which requires funding. This is pitched to a group or ‘crowd’ of potential backers and those willing to support will contribute money towards a set target decided by the founder. These interactions and exchanges are usually facilitated by an intermediary party. Whilst trying to define crowdfunding it is clear that there are a few ways to do so as it appears so many acts have been referred to as crowdfunding by scholars, journalists & the vast number of ‘crowdfunding’ websites in existence (Carjaval et al., 2012: 642-645). As a result there is a disputed definition and also referral to the number of types of crowdfunding.
..At the current moment searching through relevant literature it appears there are indeed a variety of views on how many types of crowdfunding there is, with numbers ranging from two to five. However after reviewing the literature it appears that the most frequently stated and distinctive types of crowdfunding appear to amount to four. Milner, Retchman & O’Callaghan (2015 & 2014: 32) and others focus on only two and three distinct types of crowdfunding. They are respectively determined to be reward & equity and reward, charity and equity based crowdfunding. Milner suggests that reward and charity based crowdfunding are similar in terms of a reward being given to the donator even if it would be considered nominal therefore bridging the two together. However Retchman & O’Callaghan separate reward crowdfunding into two distinct categories of donation and reward based models.

..In summary it appears most literatures stating two types of crowdfunding are either simplistic in writing or group variants of crowdfunding together. The descriptions they supply are utilised as an umbrella term encompassing the many varieties. Therefore it could be summarised that there are two different categories in which the four different types of crowdfunding lie. The categories currently seem to be reward-based and equity-based. Reward-based covers the obvious physical reward in return for donating but is also inclusive of the reward of the feeling of goodwill, in the case of charitable donations and also intangable rewards, such as credits. Equity-based consist of both share in return for investment and also any peer to peer lending.

Four Types of Crowdfunding*

..Contributions by people towards a venture can take many forms leading to more distinct types of crowdfunding as recognised by Colgren, Kuti & Madarász and Mollick (2014: 56; 2014: 355; 2014: 3). In their works they have established four distinct types of crowdfunding of which is widely accepted by many others including Fundable (2014) a crowdfunding platform and industry reports such as those undertaken by Massolution (Charman-Anderson, 2012), the World Bank (infoDev, 2013: 20) and partially by a joint study by Nesta & the University of Cambridge (NESTA, 2014). Interestingly enough all but the report by the World Bank stated just four distinct types. The World Bank report separated the four into two categories of crowdfunding models, Donation and Investing. Donation in this instance encompasses donation and reward with Investment including credit and equity types. However evidence and discussion provided by the aforementioned scholars prove that four distinct types can be defined. Each of these four types of crowdfunding are distinguished, largely due to the way in which the crowd contributes towards each venture and what they then consequently receive in return. Bradford (2012) presents a comprehensive study on the types of crowdfunding of which will be referred too and also notes that it is not unsual for more than one type to be used in the same instance.

Donation-based*

..Donation-based crowdfunding is relatively straightforward. Retchman & O’Callaghan describe it as involving a nominal or no return for the donator, who has contributed towards a cause (2014: 32). Bradford expands on the description by explaining that whilst the contributors motives intentions ae charitable the recipients need not be and also states that not even nominal returns are awarded (2012: 15). For example Crowdrise operates on a charitable donation ideology, where people can donate to causes that they choose, which are charitable in the sense funds raised are going to those in need (Crowdrise, 2015), due to adverse circumstances. However as Bradford stated charitable crowdfunding can still be used in a business context where there is no return on investment, essentially for business funding such as the Earth Encounters board game campaign (Kickstarter, 2015).

Reward-based crowdfunding*

..Reward-based crowdfunding is similar to donation-based as the crowd donates money towards a venture, however differs greatly as significant contributions can be rewarded with something in return (Retchman & O’Callaghan, 2014: 32). Bradford (2012: 16) distinguishes this model by stating that whilst a reward is given it is not in the form of interest or shares in the company. The reward can also be included to be pre-purchase of the product funded at a discounted price, as well as its ability to be intangible as well as tangible. Milner’s (2015) report outlines just some examples of what can be offered in exchange for a contribution towards a venture. In some examples a multi-tiered system is used whereas the contribution increases so does the reward, as in the case of Camden Town Brewery.

Credit-based*

..Credit-based is also known as peer to peer lending or debt-based. This type differs from the prior, as the contributions are investments rather than donations. Bradford (2012: 20) describes how contributors provide loans on a temporary basis with expectations the money will be paid back in full. He goes onto say that there are two different variations within this type with some organisations facilitating this method expecting interest on repayment while others do not. This method is essentially a more accessible form of normal financial agreements with differing degrees of liability on the investment made.

Equity-based*

..Equity-based crowdfunding has been described by Bradford (2012: 24) to be where investors are offered a share of the profits or part of the business in return. He goes on to mention that Equity crowdfunding is not as common in the United States (US) as it is elsewhere in the globe. The most notable reason for this is that inclusion of a sale of a security of which matters are highly regulated (Mollick, 2014: 3). This is something that Mitra (2012: 69) also notes, saying that most intermediaries offering this type exists in Europe and to some extent Australia. This type of crowdfunding is highly associated with the Jumpstart Our Business Startups (JOBS) Act of 2012 in America to help encourage growth thus carefully regulate this specific market (Retchman & O’Callaghan, 2014: 30; Bradley & Luong, 2014: 101). A good example of a site that offers equity-based crowdfunding is Crowdcube, which operates in the United Kingdom, specialising in investment for entrepreneurial ventures (Crowdcube, 2014).

Crowdfunding and Business Creation*

Benefits*

..Ventures, very popularly aimed at business creation, as mentioned above have a variety of options to choose from when undertaking crowdfunding. A range of scholarshave discussed crowdfuunding's usefulness with Agrawal et al. (2013) credited by many for providing a comprehensive analysis of the pros and cons of using crowdfunding. The benefits of which can be seen below.

crowdfunding table.png
A summarised table showing the benefits of crowdfunding
..Other academics have also analysed the potential benefits of using crowdfunding such as Kuit & Madarász (2014: 357) noting that scholars have likened crowdfunding to social media where users can interact with a plethora of people, gain feedback, build contacts and also potential customers can get emotionally attached during the process unlike the traditional means of financing. This of course gives potential to build a customer base and improve or refine operations and products. Bellaflamme et al. (2014) have also highlighted that utilising crowdfunding benefits a business through:
  • Increased attention - Lowers marketing costs & allows for promotion
  • Access to feedback - Free market testing and validation
  • Supporting mass customisation & user-based innovation.

..The many benefits that arise allow generally for a reduction in costs of which would be incurred through marketing activities, as mentioned and obviously increased accessibilty to finance (Bechter et al., 2013 & Sigar, 2012). Utilisation of crowdfunding could also crucially allows a business to gauge the success, if the enterprise were to reach its targets, through popularity and potential customers showing interest and giving feedback. This then can be used as a leraning curve especially if combined with elements of crowdsourcing to ultimately refine and improve an existing business model for better efficacy and efficiency.

Case Studies of Crowdfunding (Samantha Petrie)

Wrapsit – A Kickstarter Example


wrapsit-converts-your-lawn-chair-into-a-pet-crate-5666.jpgwrapsit-converts-your-lawn-chair-into-a-pet-crate-7523.jpg

Screen Shot 2015-04-27 at 16.18.13.png

Product: Slipcover Crate

Date: April, 2015

Status: Complete

Goal: $25,000

Achieved: $3,500 - Unsuccessful



Wrapsit was designed to solve a problem of the common folding chair not providing an area to store belongings and a place to keep pets. Thus Wrapsit was created to convert an ordinary folding lawn chair into a pet crate and a place to store personal belongings (Odditymail, 2015). Wrapsit founders were confident that they had developed a product that is simple to use and will add value to leisure time while maintaining a sleek and stylish appearance (Bishop and Collette, 2015). The creators decided to fund their great idea through the use of Crowdfunding through Kickstarter. They had hoped to raise $25,000 to fund the manufacturing of materials to create their product to be ready for purchase by the public. Cost of materials, production of the product and logistics of delivering the product are all ways the creators had hoped to raise money for. The creators provided several levels of rewards in order to entice the public to fund their product.

Benefits
Screen Shot 2015-04-27 at 16.15.58.png
- Simply and easily converts wasted space beneath a folding camp chair in 5 cubic feet of dry, mesh-sided security for your pet and/or personal valuables.
- Instantly ready to use anytime and anywhere you take your chair.
- Easily closes with chair and wraps for carrying.
- Eliminates the hassle of locating and carrying a pet crate or a leash, providing visual contact between pet and owner.




Risks and Challenges
Previously to this funding scheme, creators Bishop and Collette had succeeded in the difficult and time-consuming development process and thus was ready to begin the first production run once the Wrapsit had met its funding goal. Hence the location of a factory was needed to manufacture their product. Money needed to be raised over Kickstarter to provide capital for raw materials and production processes. Production is said to take 60 to 90 days, however, the creators will be competing for production space and thus may experience production delays. This may discourage users to purchase the product due to these delays and thus Wrapsit would need to raise these funds to minimise this risk.


Outcome
Unfortunately, the creators were not able to raise the full amount needed, however, they created the awareness needed through social media to raise interest of the product. From the money raised, they would have been able to raise money to produce a few hundred products to sell to the public. Although this example does not report on success story in regards to goal completion, it does however, prove that this form of social funding raises a large awareness and sparks interest among social communities. This product, for example may be seen by a large company and the idea may be bought out. It is this important tool that gives the average person a chance to put their idea into practise and fund their ideas through a social site. Wrapsit may not have gained the correct amount of money, but it did however, spark interest. The general public can purchase this item from major online sellers such as Amazon or Ebay, and without Kickstarter or Crowdfunding, the creators would be unable to pursue their idea.









Edit by Massimo Shayegan - 242912

Platforms for Crowd Funding


There are multiple ways for the public to become a part of a crowdfunding initiative. Meyskens & Bird (2015, p.160) found that “two of the most popular crowdfunding websites in the United States are Indiegogo and Kickstarter”. Both of these websites have become wildly successful in the way they allow people to potentially fund a company. This could be due to these websites having an “easy user interface, brand recognition and large audience reach” (Meyskens & Bird, 2015, p.160). It may interest a lot of potential start-ups because if they are raising capital for a business that is deemed non-profit then they are eligible for a “25% discount on fees” (Meyskens & Bird, 2015, p.160). However, this discount can’t be applied to all potential start-ups and could be biased to only non-profit start-ups.

kickstarterimagefornewsarticle.jpg


The way Kickstarter works is, as Chafkin (2013, p.94) explains, ‘Creators make a pitch for funding and offer something in return to their patrons’. This would allow capital to be gained for the start-up and to incentivise potential backers. The potential start up would need to raise the capital they require in a ‘predetermined time frame’ (Chafkin, 2013, p.94). If the start-up reaches the goal limit they ask for, then they gain the funding and ‘Kickstarter takes a 5% fee’ (Chafkin, 2013, p.94).
Conversely, if the sum of the funding is a vast amount, then Kickstarter could take away a portion that could be vital to the business. But no money is exchanged if the total of the goal funding isn’t reached. This could also be problematic for potential start-ups. Suppose the goal funding is a high amount, it can be hard to try and market the idea to potential backers and then the project may never be made. Therefore, a potential start-up would need to have an attractive marketing campaign in order to generate the funding they require.


indiegogo.jpeg


Indiegogo is another crowdfunding platform that works in a similar way to Kickstarter. Indiegogo charge a ‘4% fee to the funds raised for successful projects’ (Forbes, 2013), making it slightly more attractive to potential start-ups compared to Kickstarter. But there is a huge difference in the success rate between the two platforms. Forbes (2013) had reported that ‘80% of Indiegogo projects fail to raise more than 25% of the total goal’, which shows that it is not as successful than Kickstarter. Indiegogo could be less popular than Kickstarter, which could contribute to the low success scores and could mean less exposure on potential start-ups.

Disadvantages of Crowdfunding


Problems can arise from the use of crowdfunding as a main source of gaining capital. There can be a risk with what Kuti & Madarász (2014, p.358) describes as ‘disclosure risk’. As the product or idea needs to be advertised through crowdfunding outlets, there is a risk that all the information associated with the start-up could be available to the potential backers. Risks to patentability could arise as copies of the product or service could have been launched as a result of the information disclosed. This can be detrimental to a start-up and could mean ruining a potentially prosperous business. This further corroborated by Manchanda & Muralidharan (2014, p.371) who found that crowdfunding allows for ‘loss of confidentiality’. As a result of this, ideas can be stolen from the initial proposal from a potential start-up. Therefore, as said before, copies can flood the market and make the initial start-up that came up with the idea to become worthless.

Another disadvantage to crowdfunding is that ‘investor management may be more costly’ (Kuti & Madarász, 2014, p.358). This is because of the large amount of investors that would be involved with the crowdfunding initiative. As a result, there can be problems with trying to track all investor comments down and could hinder effectiveness. In addition to this, there can be disagreements between investors on the visions for the business. There can be major disagreements between investors on how to further advance the product or service. A serious re-think could be made on the product and the end product could be massively different from the original concept. This also can be a problem for the start-up getting their product or to the market as the process would be slower. Creativity could therefore be limited through the use of crowdfunding because of this disadvantage.
Padgett & Rolston (2014, p.65) found that crowdfunding platforms, like Kickstarter, ‘takes away attention and funding from other worthy projects from lesser-known people’ because of high profile celebrities using the site. It means that creativity can be stunted as mainstream personalities take the spotlight away from small, unknown people trying to promote their own brand. Therefore, potential start-ups may not gain an equal chance as better-known companies and personalities to gain fiance for their ventures. So a bias can be seen on crowdfunding platforms. This can be further corroborated with the views from Cholakova & Clarysse (2015, p.148) who found that ‘1% of the projects account for 36% of the funds’. It can be very hard for new start-ups to compete against a better-known company, as they may not be able to market their campaigns as effectively.
A certain ethical issue can be raised as well from the use of crowdfunding. It was seen that one candidate on Kickstarter was looking to raise $100,000 for an album to be made. The final total raised for the project was over $1 million, which is way above the $100,000 needed for the project. It was found out that the candidate ‘spent the rest of the money that was raised on personal expenses’ (Padgett & Rolston, 2014, p.65). This means that there could be a certain amount of deception to potential backers, as capital made may not go to the project that has been advertised on. A recommendation would be that if a certain threshold that was needed for the project has been reached then the campaign would be over rather than letting more investors putting money in the project. This would mean that there would be no deception for investors and the potential start-ups would gain the capital necessary for their project.

Examples of Successful Kickstarter Campaigns

Pebble_watch_trio_group_04.png


The Pebble wristwatch was one of the most successful Kickstarter campaigns of all time. It is a digital wristwatch that as Entrepreneur (2015) explains ‘works with your apps from your iPhone and Android’. The campaign was wildly successful as it gained ‘$1 million of support in only 28 hours’ (Entrepreneur, 2015), showing the power of successful marketing on Kickstarter. It was shown to be much better than competing companies with similar products, so it was natural that potential investors were drawn into investing in Pebble. However, it may have not attracted such a buzz around it if it didn't have a large influx of investors at once. It may also mean that they raised the goal fund and had money left over, which may have not been spent on the aims and research that was promised on the Kickstarter pledge. There was a total of ‘78,741 backers supported the project’ (Techcrunch, 2015), which shows massive support for the product and the amount of investors that can be included in one product.


oculus-rift-person.jpg


Oculus Rift is another success story from Kickstarter. The product in question is a virtual reality headset to be used in conjunction with video game systems and media devices. The Verge (2014) has found that the Oculus Rift ‘raised $2.4 million on Kickstarter’, which again is a wild success story as this was way over the amount requested. As a result of the successful Kickstarter campaign, ‘Facebook bought Oculus a year and a half later for $2 billion’ (The Verge, 2014). This shows the extent to what crowdfunding can achieve for a fledging start-up. It could mean that there is exposure for an idea that could be further developed by bigger companies. Through this example it could show how small companies with revolutionary ideas could be the next big things. As a result of the Oculus Rift, many major electronic companies that have advanced the idea have picked up virtual reality headsets as a major product. However, it could mean again that the creative ideas could just be bought up and copied by better-known companies, and therefore it could stop small companies coming up with revolutionary ideas to bring to public attention.

Future for Crowdfunding

Green crowdfunding can be one direction for the future of crowdfunding. Kunkel (2014, p.79) explains that Green crowdfunding is a way for investors to fund ‘improved energy performance of buildings’. This is an important direction that crowdfunding can take for the future, as there is investment to be made for improving efficiency and renewable energy initiatives. It would allow renewable energy projects to gain the funding they need ‘outside traditional financial institutions’ (Kunkel, 2014, p.80). More positive responses can be made for these projects, as banks may not lend them the capital they need to initiate their projects and may never be able to start them. It could mean more radical ideas would get the funding they need to solve worldwide issues. However, there is a point that capital would be raised for the project and it could prove to be a failure as with many small eco start-ups, so there is a potential ineffectiveness to this direction of crowdfunding.

Peer-to-peer lending platforms seem to be a more optimistic future for crowdfunding. Burton et al. (2015, p.12) explain that it ‘allows individuals to lend not only to other individuals but also to established firms’, which allows for greater scope when it comes to actual lending. As not only can just individuals be crowdfunded but established firms, which could lead to increased creativity within the market. This is very important as peer-to-peer lending is ‘gaining recognition in developing economies’ (Burton et al., 2015, p.12). Increased growth can be achieved through this revelation and companies may be able to expand intro developing countries as a result of this. Therefore, developing countries may have increased growth and have multi-national companies expand into there. Forbes (2014) found this to be useful as ‘P2P crowdfunding can offer a good savings opportunity that is not only a source of funds for business but also a better place to put your money’.

This shows that people may move away from more conventional institutions and use this advanced trend in order to make transactions and savings. It’s shown that investors make a better return through the peer-to-peer crowdfunding means. So the popularity could increase massively for this trend in crowdfunding. Forbes (2014) found that through peer-to-peer lending would ‘increase competition for some business, it is more likely to lead to innovation’. As a result there could be better deals for potential markets. Potential investors would be able to have more attractive opportunities through this development.

References


Bruton, G., Khavul, S., Siegel, D. & Wright, M. (2015) New Financial Alternatives in Seeding Entrepreneurship: Microfinance, Crowdfunding, and Peer-to-Peer Innovations. Wiley-Blackwell. Available from:[e-book accessed.
Chafkin, M. (2013) 'Kickstarter Can Fund Your Dreams'. Fast Company, (174), pp. 92-115.
Cholakova, M. & Clarysse, B. (2015) 'Does the Possibility to Make Equity Investments in Crowdfunding Projects Crowd Out Reward-Based Investments?'. Entrepreneurship: Theory & Practice, 39 (1), pp. 145-172.
Entrepreneur (2015) The 10 Most Funded Kickstarter Campaigns Ever [Online] Available from: http://www.entrepreneur.com/article/235313 [Accessed 04/10, 2015].
Forbes (2014) The Future Of Crowdfunding: Where To From Here? [Online] Available from: http://www.forbes.com/sites/freddiedawson/2014/07/31/the-future-of-crowd-funding-where-to-from-here/ [Accessed 04/11, 2015].
Forbes (2013) Donation-Based Crowdfunding Sites: Kickstarter Vs. Indiegogo [Online] Available from: http://www.forbes.com/sites/chancebarnett/2013/09/09/donation-based-crowdfunding-sites-kickstarter-vs-indiegogo/ [Accessed 04/11, 2015].
Kunkel, S. (2015)'Green Crowdfunding: A Future-Proof Tool to Reach Scale and Deep Renovation?'. In: Gerhard, D., Christiane, E. ed. World Sustainable Energy Days Next 2014Linz: Springer Fachmedien Wiesbaden, pp. 79-85.
Kuti, M. & Madarász, G. (2014) 'Crowdfunding'. Public Finance Quarterly (0031-496X), 59 (3), pp. 355-366.
Manchanda, K. & Muralidharan, P. (2014) 'Crowdfunding: a New Paradigm in Startup Financing'. Global Conference on Business & Finance Proceedings, 9 (1), pp. 369-374.
Meyskens, M. & Bird, L. (2015) 'Crowdfunding and Value Creation'. Entrepreneurship Research Journal, 5 (2), pp. 155-166.
Padgett, B.L. & Rolston, C. (2014) Crowd Funding: a Case Study at the Intersection of Social Media and Business Ethics. Jordan Whitney Enterprises, Inc. Available from:[e-book accessed.
Techcrunch (2015) Pebble Time’s $20M Kickstarter Campaign By The Numbers [Online] Available from: http://techcrunch.com/2015/03/29/pebble-times-20m-kickstarter-campaign-by-the-numbers/ [Accessed 04/10, 2015].
The Verge (2014) If you back a Kickstarter project that sells for $2 billion, do you deserve to get rich? [Online] Available from: http://www.theverge.com/2014/3/28/5557120/what-if-oculus-rift-kickstarter-backers-had-gotten-equity [Accessed 04/10, 2015].



References
(Used in the sections edited by Luke McEyeson)
Agrawal, A. K., Catalini, C. & Goldfarb, A. (2013) 'Some simple economics of crowdfunding'.NBER Working Paper. No. 19133.
Bayus, B. (2013) ‘Crowdsourcing new product ideas over time: An analysis of the Dell IdeaStorm community’. Management Science 59 (1): 226-244.
Belleflamme, P., Lambert, T., & Schwienbacher, A. (2014) ‘Crowdfunding: Tapping the right crowd’. Journal of Business Venturing, 29 (5): 585-609.
Bechter, C., Jentzsch, S. & Frey, M. (2011) 'From wisdom of the crowd to crowdfunding', Journal of Communication and Computer, 8 (1): 951-957.
Bishop, L. & Collette, C. 2015. Wrapsit™ slipcover crate... pet, purse and peace of mind! [Online]. Available: https://www.kickstarter.com/projects/wrapsit/wrapsittm-slipcover-crate-for-pet-purse-and-peace [Accessed 23rd April 2015].
Bradford, S. C. (2012) ‘Crowdfunding and the federal securities laws’, Columbia Business Law Review, 1 (1): 1–150.
Bradley, D., & Luong, C. (2014) 'Crowdfunding: A new opportunity for small business and entrepreneurship’. Entrepreneurial Executive, 19 (1): 95-104.
Bridge, R. (2014) ‘Soapbox: Established businesses should consider using crowdfunding too, says Adam Blaskey’, The Telegraph, [Online] Available at: http://www.telegraph.co.uk/finance/festival-of-business/11303322/Soapbox-Established-businesses-should-consider-using-crowdfunding-too-says-Adam-Blaskey.html (Accessed: 14 March 2015).
Carvajal, M., García-Avilés, J. A. & González, J. L. (2012) ‘Crowdfunding and non-profit media’. Journalism Practice, 6 (5-6): 638-647.
Charman-Anderson, S. (2012) ‘Crowdfunding Raised $1.5bn in 2011, Set To Double In 2012’, Forbes, [Online] Available at: http://www.forbes.com/sites/suwcharmananderson/2012/05/11/crowdfunding-raised-1-5bn-in-2011-set-to-double-in-2012/ (Accessed: 18 March 2015).
Child, B. (2013) ‘RoboCop statue to guard Detroit after successful Kickstarter campaign’, The Guardian, [Online] Available at: http://www.theguardian.com/film/2013/sep/26/robocop-statue-detroit-kickstarter (Accessed: 14 March 2015).
Colgren, D. (2014) 'The Rise of Crowdfunding: Social Media, Big Data, Cloud Technologies', Strategic Finance, 96 (4): 56-57.
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Hannam, M., & Cheng, P. (2012) 'Financing sustainable micro-lending in London', Strategic Change, 21 (7/8): 369-378.
Howe, J. (2008) Crowdsourcing: Why the power of the crowd is driving future of business. New York: Crown Publishing Group.
Idolor, J., & Eriki, P. (2012) 'Financial analysis of assessment of impact of micro-financing institutions towards poverty reduction in Nigeria’. Journal of Financial Management & Analysis, 25 (1): 51-60.
infoDev (2013) Crowdfunding’s Potential for the Developing World. [Online] Available at: http://www.infodev.org/infodev-files/infodev_crowdfunding_study_0.pdf (Accessed: 13 March 2015).
Jones, R. (2013) ‘Crowdfunding offers alternative to traditional investments’, The Guardian, [Online] Available at: http://www.theguardian.com/money/2013/may/04/crowdfunding-alternative-traditional-investments (Accessed: 10 March 2015).
Kickstarter (2015) Earth Encounters: The Journey to Save Earth. [Online] Available at: https://www.kickstarter.com/projects/294038001/earth-encounters-the-journey-to-save-earth?ref=recommended (18 March 2015).
Kleemann, F., Voß, G.G., & Rieder, K. (2008) ‘Un(der)paid innovators: The commercial utilization of consumer work through crowdsourcing’. Science, Technology and Innovation Studies, 4 (1): 5-26.
Kuti, M. & Madarász, G. (2014) 'Crowdfunding', Public Finance Quarterly, 59 (3): 355-366.
Milner, L. (2015) ‘A beer or a milkshake? Crowdfunding can bring delicious dividends’, The Guardian, [Online] Available at: http://www.theguardian.com/money/2015/mar/10/a-beer-or-a-milkshake-crowdfunding-can-bring-delicious-dividends (Accessed: 10 March 2015).
Mitra, D. (2012) ‘The role of crowdfunding in entrepreneurial finance’, Dehli Business Review, 13 (2): 67-72.
Mollick, E. (2014) ‘The dynamics of crowdfunding: An exploratory study’, Journal of Business Venturing, 29 (1): 1-16.
NESTA (2014) Understanding alternative finance: The UK alternative finance industry report 2014. [Online] Available at: http://www.nesta.org.uk/publications/understanding-alternative-finance-uk-alternative-finance-industry-report-2014 (Accessed: 13 March 2015).
Prive, T. (2012) ‘What is crowdfunding and how does it benefit the economy’, Forbes, [Online] Available at: http://www.forbes.com/sites/tanyaprive/2012/11/27/what-is-crowdfunding-and-how-does-it-benefit-the-economy/ (Accessed: 10 March 2015).
Rechtman, Y., & O'Callaghan, S. (2014) 'Understanding the Basics of Crowdfunding', CPA Journal, 84 (11): 30-33.
Scott, M. (2013) ‘Crowdfunding: putting your money where your values are’, The Guardian, [Online] Available at: http://www.theguardian.com/sustainable-business/crowdfunding-money-values (Accessed: 10 March 2015).
Sigar, K. (2012) 'Fret no more: Inapplicability of crowdfunding concerns in the internet age and the JOBS Act's safeguards', Administrative Law Review, 2 (64): 474-505.
Valanciene, L. & Jegeleviciute, S. (2013) 'Valuations of crowdfunding: Benefits and drawbacks', Economics & Management, 18 (1): 39-48.
Unknown. 2015. Wrapsit Converts Your Lawn Chair Into A Pet Crate [Online]. Available: http://odditymall.com/wrapsit-converts-your-lawn-chair-into-a-pet-crate [Accessed 25th April 2015].








2014-02-13-crowdsourcing.jpg

Crowdsourcing (Added by Joshua Skinner)



New trends driven by technology within the ICT industry are influencing the future of aspects such as employment, innovation and creativity (Holtgrewe, 2014). These new developments in technology are ‘enhancing the integration and expansion of value chains and workflows beyond organisational boundaries’ which has led to the proliferation of crowdsourcing and its commercial applications (Holtgrewe, 2014:10). Crowdsourcing encompasses many facets such as open innovation, cloud labour and crowd creativity (Crowdsourcing, 2015). Cloud labour is where crowdsourcing is used to connect employers with virtual employees that are available on demand to complete both simple and complex tasks, whereas crowd creativity is where crowdsourcing is used to create art, media or content (Crowdsourcing, 2015). This section of the wiki however, will focus explicitly on open innovation in addition to the disadvantages and limitations associated with crowdsourcing.


Open Innovation (Added by Joshua Skinner)



The concept of open innovation is where an organisation utilises communities via crowdsourcing as a tool for innovation. This is done by integrating a base of customers in ‘different stages of new product development’ ((Chesbrough, 2003) cited in (Mladenow et al, 2014:78)). This enables organisations to design products and services incorporating customers’ values and needs. Open innovation practises are categorised as either ‘inbound’; where an external technology or ideas are brought into an organisation or ‘outbound’; where unexploited internal ideas are given to other organisations (Chesbrough & Brunswicker, 2014:16). There are numerous types of open innovation. The most popular types of inbound open innovation are: ‘customer co-creation, informal networking, and university grants’ and the most popular types of outbound open innovation are ‘Joint ventures, selling market-ready products, and standardization’ (Chesbrough & Brunswicker, 2014:16). Inbound open innovation helps to create new ideas to improve and test products and services, through unbiased customer feedback. It has a wealth of benefits for organisations such as reducing the risk of a product or service launch, elevating ‘market acceptance of the developed products’ and has the potential to ‘strengthen customer loyalty’ (Mladenow et al, 2014:84).
A good example of facilitating inbound open innovation is through the utilisation of information management systems. ‘InnoCentive’ are a company that have created an information management system or in other words, collaborative software that supports open innovation through crowdsourcing. They sell software products such as ‘InnoCentive@Work’ which helps organisations to solve problems and generate ideas leading to innovation by engaging ‘diverse innovation communities’ such as employees, customers and partners through privately crowdsourced challenges (InnoCentive, 2015). It has been seen that ‘on average, InnoCentive’s hobby scientists solve 30% of these problems’ (Blohm, 2013:199). InnoCentive, (2015) state that their software helps organisations ‘to easily engage and promote collaboration with the right individuals, communities, and networks to innovate faster, more cost effectively, and with less risk than ever before possible’. Furthermore, research has shown that information management systems ‘increase communication’ between ‘innovation partners’ ‘within adopting organisations’ (Troshani et al, 2011:89).


However, innovation management systems such as those created by InnoCentive have a number of disadvantages which limit its ability to commercialise innovations. It has been seen that software instability regularly impedes the use of information management systems making them difficult to use and leading organisations to delay adoption of them until this software has been stabilised (Troshani et al, 2011:88). Moreover, the larger the organisation that adopts an information management system, the less likely it is to become a suitable tool for open innovation (Troshani et al, 2011:89). This is likely to be due to a more complex collaboration process between participants. Additionally, it has been seen that ‘innovation challenges do not succeed at generating solutions with competitive advantage potential’ (Malhotra, 2014:103). This significantly retracts from the facilitation of open innovation, as organisations as the main aim of innovation is to acquire a competitive advantage.


Despite these disadvantages, there are three methods that organisations can utilise to improve the results from open innovation challenges. It has been proven that when crowds are managed in innovation challenges, organisations produce solutions with more potential to create a competitive advantage (Malhotra, 2014:103). This is done through a number of suggestions: firstly, organisations should guarantee that crowds ‘contribution diversity is high’, secondly, participants should be encouraged through incentives to ‘engage in knowledge integration’ and finally, participants should be encouraged to share different types of knowledge in order to fill gaps and create a more comprehensive solutions and innovations (Malhotra, 2014:119-121).


nextgov-medium.jpg



Disadvantages and Limitations of Crowdsourcing (Added by Joshua Skinner)



Despite the proposed advantages of open innovation for organisations, crowdsourcing in a more general context (including cloud labour and crowd creativity) has some major disadvantages and limitations. This is due to the challenges found when implementing crowdsourcing platforms. The main problem with crowdsourcing is that when information is collected (including solutions or ideas) froma large quantity of participants, an enormous amount of big data is created. This generates problems for organisations; especially if they ‘lack the capabilities and routines for making sense of, and then using, crowdsourced data’ (Blohm, 2013:200). This has caused organisations to become inundated with big data. Consequently, they find it a ‘time-consuming, resource-intensive and costly challenge’ to create value or any benefit for the organisation from this (Blohm, 2013:200).

Another concern regarding crowdsourcing is the rise of employment issues that have occurred during the employment of participants on a short term basis or through the loss of jobs. It has been seen that employers are ‘searching for new workforces that are cheaper, more flexible’ and ‘more adequately skilled’ (Holtgrewe, 2014:18). This is achieved through the use of crowdsourcing to employ people from outside the organisation, getting them to complete tasks such as video production. The use of crowdsourcing by employers has raised a number of concerns regarding fair employment practises. This is due to the loose regulations surrounding crowdsourcing. Using this online labour network, organisations are able to ‘shift costs’ and reduce risk by creating a ‘flexible, scalable workforce that sits outside the traditional boundaries of labour laws and regulations’ (Bergvall-Kåreborn, 2014:213). For instance, this practice has recently been executed by IBM. New developments in Web 2.0 have enabled IBM to cut 8000 jobs by restructuring their workforce through the use of internal and external crowdsourcing platforms (Holtgrewe, 2014:18). Despite the organisational advantages this transformation has brought to the company, the loss of jobs to employees is a major ethical issue surrounding crowdsourcing.


Moreover, it has been identified that the practice of crowdsourcing external employees creates jobs that involve ‘tedious and repetitive’ tasks, such as creating logos. These employees are also paid a low rate for small tasks ‘with remuneration often well below minimum wage’ (Bergvall-Kåreborn, 2014:213). In some cases, there can be no guarantee of pay at all because the employer picks the best work while employees compete to be chosen for pay. For example, an online crowdsourcing tool called ‘Amazon Mechanical Turk’ ‘leaves payment completely up to the discretion of the employers’ (Hyman, 2013:19). This means that if employers are unsatisfied with the work quality, then they are able to simply not pay the creators. In addition to this, it has been acknowledged that there are no employment laws that cover employment via crowdsourcing. This creates a ‘legal uncertainty’ in regards to unfair treatment of employees (Felstiner, 2011:168). Consequently, up until this point in time employers have been able to freely misuse the crowdsourcing network to get free or cheap employment. These disadvantages of crowdsourcing make the commitment much less worthwhile for employees and give the practise a bad name for employers that use crowdsourcing.


Additional References (For Joshua Skinner’s Section)


Bergvall-Kåreborn, B. & Howcroft, D. (2014) 'Amazon Mechanical Turk and the commodification of labour'. New Technology, Work & Employment, vol. 29 (3), pp. 213-223. [Online] Available from:

Business Source Complete (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=162&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=99619774) [Accessed: 25/04/2015].

Blohm, I., Leimeister, J.M. & Krcmar, H. (2013) 'Crowdsourcing: How to Benefit from (Too) Many Great Ideas'. MIS Quarterly Executive, vol. 12 (4), pp. 199-211. [Online] Available from: Business Source Premier (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=138&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=buh&AN=92734273) [Accessed: 25/04/2015].

Chesbrough, H. & Brunswicker, S. (2014) 'A Fad or a Phenomenon?'. Research Technology Management, vol. 57 (2), pp. 16-25. [Online] Available from: Business Source Complete (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=128&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=94779839) [Accessed: 25/04/2015].

Crowdsourcing. (2015) Crowdsourcing: The Industry Website [Online] Available from: http://www.crowdsourcing.org/ [Accessed 27/04/2015]

Felstiner, A. (2011) 'Working the Crowd: Employment and Labor Law in the Crowdsourcing Industry'. Berkeley Journal of Employment & Labor Law, vol. 32 (1), pp. 143-203. [Online] Available from: Business Source Premier (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=155&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=buh&AN=67233022) [Accessed: 25/04/2015].

Holtgrewe, U. (2014) 'New new technologies: the future and the present of work in information and communication technology'. New Technology, Work & Employment, vol. 29 (1), pp. 9-24. [Online] Available from: Business Source Complete (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=131&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=94990203) [Accessed: 25/04/20125].

Hyman, P. (2013) 'Software Aims to Ensure Fairness in Crowdsourcing Projects'. Communications of the ACM, vol. 56 (8), pp. 19-21. [Online] Available from: Business Source Complete (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=144&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=89594045) [Accessed: 25/04/2015].

InnoCentive (2015) InnoCentive@Work[Online] Available from: http://www.innocentive.com/innovation-solutions/innocentive-at-work [Accessed 25/04/2015].

Malhotra, A. & Majchrzak, A. (2014) 'Managing Crowds in Innovation Challenges'. California Management Review, vol. 56 (4), pp. 103-123. [Online] Available from: Business Source Premier (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=117&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=buh&AN=97950438) [Accessed: 25/04/2015].

Mladenow, A., Bauer, C. & Strauss, C. (2014) 'Social Crowd Integration in New Product Development: Crowdsourcing Communities Nourish the Open Innovation Paradigm'. Global Journal of

Flexible Systems Management, vol. 15 (1), pp. 77-86. [Online] Available from: Business Source Premier (http://web.b.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=125&sid=9d67d8da-d5d1-42ee-9e90-cb8766669686%40sessionmgr198&hid=125&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=buh&AN=94517169) [Accessed: 25/04/2015].

Troshani, I., Rampersad, G. & Plewa, C. (2011) 'Adopting Innovation Management Software in University Innovation Commercialization'. Journal of Computer Information Systems, vol. 52 (2), pp. 83-92. [Online] Available from: Business Source Complete (http://web.a.ebscohost.com.ezproxy.bathspa.ac.uk:2048/bsi/detail/detail?vid=3&sid=d8dbff02-bbc6-477f-b4aa-4d9e94814a09%40sessionmgr4004&hid=4101&bdata=JnNpdGU9YnNpLWxpdmU%3d#db=bth&AN=75042665) [Accessed: 27/04/2015].



Howe, J. (2008) Crowdsourcing: Why the power of the crowd is driving future of business. New York: Crown Publishing Group.

(Added by Joshua Skinner)

New trends driven by technology within the ICT industry are influencing the future of aspects such as employment, innovation and creativity (Holtgrewe, 2014). These new developments in technology are ‘enhancing the integration and expansion of value chains and workflows beyond organisational boundaries’ which has led to the proliferation of crowdsourcing and its commercial applications (Holtgrewe, 2014:10). Crowdsourcing encompasses many facets such as open innovation, cloud labour and crowd creativity (Crowdsourcing, 2015). Cloud labour is where crowdsourcing is used to connect employers with virtual employees that are available on demand to complete both simple and complex tasks, whereas crowd creativity is where crowdsourcing is used to create art, media or content (Crowdsourcing, 2015). This section of the wiki however, will focus explicitly on open innovation in addition to the disadvantages and limitations associated with crowdsourcing.

(Added by Joshua Skinner)

The concept of open innovation is where an organisation utilises communities via crowdsourcing as a tool for innovation. This is done by integrating a base of customers in ‘different stages of new product development’ ((Chesbrough, 2003) cited in (Mladenow et al, 2014:78)). This enables organisations to design products and services incorporating customers’ values and needs. Open innovation practises are categorised as either ‘inbound’; where an external technology or ideas are brought into an organisation or ‘outbound’; where unexploited internal ideas are given to other organisations (Chesbrough & Brunswicker, 2014:16). There are numerous types of open innovation. The most popular types of inbound open innovation are: ‘customer co-creation, informal networking, and university grants’ and the most popular types of outbound open innovation are ‘Joint ventures, selling market-ready products, and standardization’ (Chesbrough & Brunswicker, 2014:16). Inbound open innovation helps to create new ideas to improve and test products and services, through unbiased customer feedback. It has a wealth of benefits for organisations such as reducing the risk of a product or service launch, elevating ‘market acceptance of the developed products’ and has the potential to ‘strengthen customer loyalty’ (Mladenow et al, 2014:84).
A good example of facilitating inbound open innovation is through the utilisation of information management systems. ‘InnoCentive’ are a company that have created an information management system or in other words, collaborative software that supports open innovation through crowdsourcing. They sell software products such as ‘InnoCentive@Work’ which helps organisations to solve problems and generate ideas leading to innovation by engaging ‘diverse innovation communities’ such as employees, customers and partners through privately crowdsourced challenges (InnoCentive, 2015). It has been seen that ‘on average, InnoCentive’s hobby scientists solve 30% of these problems’ (Blohm, 2013:199). InnoCentive, (2015) state that their software helps organisations ‘to easily engage and promote collaboration with the right individuals, communities, and networks to innovate faster, more cost effectively, and with less risk than ever before possible’. Furthermore, research has shown that information management systems ‘increase communication’ between ‘innovation partners’ ‘within adopting organisations’ (Troshani et al, 2011:89).
However, innovation management systems such as those created by InnoCentive have a number of disadvantages which limit its ability to commercialise innovations. It has been seen that software instability regularly impedes the use of information management systems making them difficult to use and leading organisations to delay adoption of them until this software has been stabilised (Troshani et al, 2011:88). Moreover, the larger the organisation that adopts an information management system, the less likely it is to become a suitable tool for open innovation (Troshani et al, 2011:89). This is likely to be due to a more complex collaboration process between participants. Additionally, it has been seen that ‘innovation challenges do not succeed at generating solutions with competitive advantage potential’ (Malhotra, 2014:103). This significantly retracts from the facilitation of open innovation, as organisations as the main aim of innovation is to acquire a competitive advantage.
Despite these disadvantages, there are three methods that organisations can utilise to improve the results from open innovation challenges. It has been proven that when crowds are managed in innovation challenges, organisations produce solutions with more potential to create a competitive advantage (Malhotra, 2014:103). This is done through a number of suggestions: firstly, organisations should guarantee that crowds ‘contribution diversity is high’, secondly, participants should be encouraged through incentives to ‘engage in knowledge integration’ and finally, participants should be encouraged to share different types of knowledge in order to fill gaps and create a more comprehensive solutions and innovations (Malhotra, 2014:119-121).

(Added by Joshua Skinner)

Despite the proposed advantages of open innovation for organisations, crowdsourcing in a more general context (including cloud labour and crowd creativity) has some major disadvantages and limitations. This is due to the challenges found when implementing crowdsourcing platforms. The main problem with crowdsourcing is that when information is collected (including solutions or ideas) from a large quantity of participants, an enormous amount of big data is created. This generates problems for organisations; especially if they ‘lack the capabilities and routines for making sense of, and then using, crowdsourced data’ (Blohm, 2013:200). This has caused organisations to become inundated with big data. Consequently, they find it a ‘time-consuming, resource-intensive and costly challenge’ to create value or any benefit for the organisation from this (Blohm, 2013:200).
Another concern regarding crowdsourcing is the rise of employment issues that have occurred during the employment of participants on a short term basis or through the loss of jobs. It has been seen that employers are ‘searching for new workforces that are cheaper, more flexible’ and ‘more adequately skilled’ (Holtgrewe, 2014:18). This is achieved through the use of crowdsourcing to employ people from outside the organisation, getting them to complete tasks such as video production. The use of crowdsourcing by employers has raised a number of concerns regarding fair employment practises. This is due to the loose regulations surrounding crowdsourcing. Using this online labour network, organisations are able to ‘shift costs’ and reduce risk by creating a ‘flexible, scalable workforce that sits outside the traditional boundaries of labour laws and regulations’ (Bergvall-Kåreborn, 2014:213). For instance, this practice has recently been executed by IBM. New developments in Web 2.0 have enabled IBM to cut 8000 jobs by restructuring their workforce through the use of internal and external crowdsourcing platforms (Holtgrewe, 2014:18). Despite the organisational advantages this transformation has brought to the company, the loss of jobs to employees is a major ethical issue surrounding crowdsourcing.
Moreover, it has been identified that the practice of crowdsourcing external employees creates jobs that involve ‘tedious and repetitive’ tasks, such as creating logos. These employees are also paid a low rate for small tasks ‘with remuneration often well below minimum wage’ (Bergvall-Kåreborn, 2014:213). In some cases, there can be no guarantee of pay at all because the employer picks the best work while employees compete to be chosen for pay. For example, an online crowdsourcing tool called ‘Amazon Mechanical Turk’ ‘leaves payment completely up to the discretion of the employers’ (Hyman, 2013:19). This means that if employers are unsatisfied with the work quality, then they are able to simply not pay the creators. In addition to this, it has been acknowledged that there are no employment laws that cover employment via crowdsourcing. This creates a ‘legal uncertainty’ in regards to unfair treatment of employees (Felstiner, 2011:168). Consequently, up until this point in time employers have been able to freely misuse the crowdsourcing network to get free or cheap employment. These disadvantages of crowdsourcing make the commitment much less worthwhile for employees and give the practise a bad name for employers that use crowdsourcing.

Crowdsourcing (Added by Joshua Skinner)New trends driven by technology within the ICT industry are influencing the future of aspects such as employment, innovation and creativity (Holtgrewe, 2014). These new developments in technology are ‘enhancing the integration and expansion of value chains and workflows beyond organisational boundaries’ which has led to the proliferation of crowdsourcing and its commercial applications (Holtgrewe, 2014:10). Crowdsourcing encompasses many facets such as open innovation, cloud labour and crowd creativity (Crowdsourcing, 2015). Cloud labour is where crowdsourcing is used to connect employers with virtual employees that are available on demand to complete both simple and complex tasks, whereas crowd creativity is where crowdsourcing is used to create art, media or content (Crowdsourcing, 2015). This section of the wiki however, will focus explicitly on open innovation in addition to the disadvantages and limitations associated with crowdsourcing.Open Innovation (Added by Joshua Skinner)The concept of open innovation is where an organisation utilises communities via crowdsourcing as a tool for innovation. This is done by integrating a base of customers in ‘different stages of new product development’ ((Chesbrough, 2003) cited in (Mladenow et al, 2014:78)). This enables organisations to design products and services incorporating customers’ values and needs. Open innovation practises are categorised as either ‘inbound’; where an external technology or ideas are brought into an organisation or ‘outbound’; where unexploited internal ideas are given to other organisations (Chesbrough & Brunswicker, 2014:16). There are numerous types of open innovation. The most popular types of inbound open innovation are: ‘customer co-creation, informal networking, and university grants’ and the most popular types of outbound open innovation are ‘Joint ventures, selling market-ready products, and standardization’ (Chesbrough & Brunswicker, 2014:16). Inbound open innovation helps to create new ideas to improve and test products and services, through unbiased customer feedback. It has a wealth of benefits for organisations such as reducing the risk of a product or service launch, elevating ‘market acceptance of the developed products’ and has the potential to ‘strengthen customer loyalty’ (Mladenow et al, 2014:84).A good example of facilitating inbound open innovation is through the utilisation of information management systems. ‘InnoCentive’ are a company that have created an information management system or in other words, collaborative software that supports open innovation through crowdsourcing. They sell software products such as ‘InnoCentive@Work’ which helps organisations to solve problems and generate ideas leading to innovation by engaging ‘diverse innovation communities’ such as employees, customers and partners through privately crowdsourced challenges (InnoCentive, 2015). It has been seen that ‘on average, InnoCentive’s hobby scientists solve 30% of these problems’ (Blohm, 2013:199). InnoCentive, (2015) state that their software helps organisations ‘to easily engage and promote collaboration with the right individuals, communities, and networks to innovate faster, more cost effectively, and with less risk than ever before possible’. Furthermore, research has shown that information management systems ‘increase communication’ between ‘innovation partners’ ‘within adopting organisations’ (Troshani et al, 2011:89).However, innovation management systems such as those created by InnoCentive have a number of disadvantages which limit its ability to commercialise innovations. It has been seen that software instability regularly impedes the use of information management systems making them difficult to use and leading organisations to delay adoption of them until this software has been stabilised (Troshani et al, 2011:88). Moreover, the larger the organisation that adopts an information management system, the less likely it is to become a suitable tool for open innovation (Troshani et al, 2011:89). This is likely to be due to a more complex collaboration process between participants. Additionally, it has been seen that ‘innovation challenges do not succeed at generating solutions with competitive advantage potential’ (Malhotra, 2014:103). This significantly retracts from the facilitation of open innovation, as organisations as the main aim of innovation is to acquire a competitive advantage.Despite these disadvantages, there are three methods that organisations can utilise to improve the results from open innovation challenges. It has been proven that when crowds are managed in innovation challenges, organisations produce solutions with more potential to create a competitive advantage (Malhotra, 2014:103). This is done through a number of suggestions: firstly, organisations should guarantee that crowds ‘contribution diversity is high’, secondly, participants should be encouraged through incentives to ‘engage in knowledge integration’ and finally, participants should be encouraged to share different types of knowledge in order to fill gaps and create a more comprehensive solutions and innovations (Malhotra, 2014:119-121).Disadvantages and Limitations of Crowdsourcing (Added by Joshua Skinner)Despite the proposed advantages of open innovation for organisations, crowdsourcing in a more general context (including cloud labour and crowd creativity) has some major disadvantages and limitations. This is due to the challenges found when implementing crowdsourcing platforms. The main problem with crowdsourcing is that when information is collected (including solutions or ideas) from a large quantity of participants, an enormous amount of big data is created. This generates problems for organisations; especially if they ‘lack the capabilities and routines for making sense of, and then using, crowdsourced data’ (Blohm, 2013:200). This has caused organisations to become inundated with big data. Consequently, they find it a ‘time-consuming, resource-intensive and costly challenge’ to create value or any benefit for the organisation from this (Blohm, 2013:200).Another concern regarding crowdsourcing is the rise of employment issues that have occurred during the employment of participants on a short term basis or through the loss of jobs. It has been seen that employers are ‘searching for new workforces that are cheaper, more flexible’ and ‘more adequately skilled’ (Holtgrewe, 2014:18). This is achieved through the use of crowdsourcing to employ people from outside the organisation, getting them to complete tasks such as video production. The use of crowdsourcing by employers has raised a number of concerns regarding fair employment practises. This is due to the loose regulations surrounding crowdsourcing. Using this online labour network, organisations are able to ‘shift costs’ and reduce risk by creating a ‘flexible, scalable workforce that sits outside the traditional boundaries of labour laws and regulations’ (Bergvall-Kåreborn, 2014:213). For instance, this practice has recently been executed by IBM. New developments in Web 2.0 have enabled IBM to cut 8000 jobs by restructuring their workforce through the use of internal and external crowdsourcing platforms (Holtgrewe, 2014:18). Despite the organisational advantages this transformation has brought to the company, the loss of jobs to employees is a major ethical issue surrounding crowdsourcing.Moreover, it has been identified that the practice of crowdsourcing external employees creates jobs that involve ‘tedious and repetitive’ tasks, such as creating logos. These employees are also paid a low rate for small tasks ‘with remuneration often well below minimum wage’ (Bergvall-Kåreborn, 2014:213). In some cases, there can be no guarantee of pay at all because the employer picks the best work while employees compete to be chosen for pay. For example, an online crowdsourcing tool called ‘Amazon Mechanical Turk’ ‘leaves payment completely up to the discretion of the employers’ (Hyman, 2013:19). This means that if employers are unsatisfied with the work quality, then they are able to simply not pay the creators. In addition to this, it has been acknowledged that there are no employment laws that cover employment via crowdsourcing. This creates a ‘legal uncertainty’ in regards to unfair treatment of employees (Felstiner, 2011:168). Consequently, up until this point in time employers have been able to freely misuse the crowdsourcing network to get free or cheap employment. These disadvantages of crowdsourcing make the commitment much less worthwhile for employees and give the practise a bad name for employers that use crowdsourcing.