Crowdfunding: A Question of Precedent

One of the pleasures of writing a book is that it forces me to consider thorny, subtle questions that I would ignore in a magazine article, and also provides me with the kind of  time frame in which to slowly develop answers to them. One such question was whether or not to include crowdfunding in the book at all. Crowdfunding, in broad strokes, involves tapping the crowd's wallets to fund everything from movies to software projects to football (er, soccer) teams to third-world entrepreneurs.

I originally underestimated crowdfunding's potential, but in the last year or so crowdfunding has emerged as a surprisingly robust and flexible model of financing. In the end I devoted an entire chapter to crowdfunding, and early readers have been both surprised and impressed by the stories within it. What my editors (on both sides of the Atlantic) were intelligent enough to note is that crowdfunding provides a final, persuasive link in the crowdsourcing argument.

To wit: The crowd can think it, the crowd can make it, the crowd can refine it, but who's going to pay for the crowd's crazy ideas? Oh, right: The crowd has that covered too. Crowdfunding has forced me to broaden my definition of crowdsourcing a bit: It's not that crowdsourcing replaces employees, but that it replaces "designated agents." The simple way to phrase this is that crowdsourcing takes place when the many perform the functions once restricted to the few.   

But I'm still troubled by a trickier question that's plagued me ever since I first started researching crowdfunding models: How is this different from political fundraising? Haven't candidates always been dependent on the crowd? Has the Internet—which was famously used to great effect by Howard Dean in 2004—changed the nature of political fundraising in a qualitative fashion ("More small donors change the whole  paradigm!") or merely quantitative manner? ("Pshaw. Small donors have always been an essential ingredient to a campaign. Now they're just a bit more important.")

I think we have an answer to this question, and please excuse me for burying the lede: Today Barack Obama announced that he had collected contributions from one million donors. As Jeanne Cummings notes in yesterday's Politico, "The source of the Democratic strength is the fundraising story of the year: the rise of the small donors, those who give less than $200." McCain, by contrast, has only 150,000 small donors (Which historically speaking, is also a huge number of small donors, says Michael Malbin of the non-partisan Campaign Finance Institute) and Hillary Clinton has 225,000. Here's Meyer:

To appreciate the impact of his small-donor base, consider these facts:

In 2004, there were a total of 2.5 million donors to the entire presidential field — Republicans and Democrats. At the rate he’s attracting small donors, Obama alone could surpass that number if his campaign marches on to November.

Only about 3 percent of Obama’s donors have given the maximum contribution of $2,300, his campaign says. That means he can go back and ask for more money from 97 percent of his contributors.

The sum raised by his small givers through January — $47 million — roughly accounts for the difference between his net contributions for the primary race from individuals, $132 million, and Clinton’s, $96 million.

Based on today's announcement, and the accompanying political analysis, I'm staking out a position: Crowdfunding is an unprecedented phenomenon. While it predates the Internet in theory, it doesn't do so in practice. Obama, a game changer in so many other ways, has become the first crowdfunded presidential candidate. Care to disagree? As always, I love nothing better:

Comments

[Alan Booker]

Your post is very timely Jeff.
“Has the Internet—which was famously used to great effect by Howard Dean in 2004—changed the nature of political fundraising in a qualitative fashion ("More small donors change the whole paradigm!") or merely quantitative manner?”
“Now they're just a bit more important.” A bit more inportant?
The qualitative and quantitative elements within the crowdfunding process are huge when it comes to political motive and public perception.
“How is this different from political fundraising?” This appears to be political fundraising driven not purely by politics but by popular will. The difference is exactly as you stated the combination of quantitative and qualitative input has shifted the nation.
That Obama could say during the debate yesterday that the vast number and majority of donors have given no more that a few dollars was a pivotal moment. There was a palpable shift in mood. That fact once uttered opened up a trove of secondary but immeasurable realities.
It forged the connection of a political process with the hearts and souls of a nation in a way that, not only is a rare occurrence, but forced the acknowledgement that his campaign is being carried by the people. It did this in a way that certainly shifted the paradigm regarding recent political action. Such a large number of small donations spoke volumes.
I would argue that politicians have, increasingly over the past decade or so, not been dependant on the crowd but rather machinations that have made the people impotent. In fact just that truth, recognized by the ordinary citizen, was why Obama has found his way to a vein of gold! Not a vein that leads to Fort Knox but one that has united a common need for change that cannot be denied.
Jeff, your staked out position appears to be secure, mind out for land grabbers though!
Cheers, Alan

[Jaap Bloem]

Dear Jeff,

Apart from a few big crowdsourcing/funding/managing/etcetera moves the big issue for many remains how to mobilize these apparently all-important crowds? TechCrunch's Erick Schonfeld published a nice posting on Feb 18, and the comments to that one are worthwhile and straight-from-the-heart too.

IMHO the power of "Three Is A Crowd", which goes for many open-source & crowdsourcing innitiatives, i.e. the cherrypicking from a global pool of exactly the right few people, is of the essence. This elementary cherrypicking is related to as well as different from the community management of Procter & Gamble and the like, both sides being the "poles" of a ("maturity level" in a) crowdsourcing-continuum.

How, I asked myself, could this be expressed in a captive way? Then my son disturbed me rudely by battering this blooming song through the house: "Losin'Your Mind" by Xzibit, Snoop Dogg & Dr Dre. There was my answer, thanks to divine serendipity, I guess. The song text starts like this:

“Out of a crowd, picking em out (and what?)
Digging em out to kicking em out (and what?)
Surviving the game is what it’s about (and what?)”

Voila entrepreneurs: "Losin' Your Mind Over Crowdsourcing?" Xzibit & friends provide you with the first important clue.

Please feel free to use this in your forthcoming book.

Since your comments box doesn't support HTML:
= Use the following string after the first slash at techCrunch: 2008/02/18/first-look-klusters-market-approach-to-crowdsourcing
= The song you find on Youtube by typing watch?v=4iWIsgVX_3U after the slash.

[Alan Booker]

You were right about the comments section, very interesting Jaap!

The predominant attitude toward the crowdsourcing phenomena appears to be strongly focused upon a very traditional model, making money.

Cambrian House and Threadless are examples of successful ventures that are succeeding. They both started up early on and unfolded organically. Threadless harnessed an on-going activity, formulized and implemented a plan, and the rest is history.

Cambrian house harnessed an idea and used technology to implement it but both appear to have had a core group of people who initiated an impulse as seed motivators.

“The big issue for many remains how to mobilize these apparently all-important crowds?”

I suspect that real success might come from the bottom up rather than top down model although there will be exceptions.

Success as I would define it, as one can see in the Obama example, is when the crowd self mobilize with the predominant seeds/motivation being an objective that has some value or interest other than purely economic!

The heart of the issue is just what impulse feeds a process and does that impulse originate from an interest that is bound by individual biography or personal motivation.

The top down model injects a plan into a vacuum and hopes to catch some air.

Regards, Alan

[Joshua McKenty]

Very timely, as usual. I blogged about this just yesterday, with what I think is an appropriate analogy that you've missed - the Stock Market.

http://blog.bountyup.com/2008/02/27/reframing-bountyup-explaining-the-stock-market-as-crowdfunding/

It *is* crowdsourcing - although in a strictly hierarchical, rigidly organized way. And it's been going on since the 1600s (see my even OLDER post about this for more historical context: http://blog.bountyup.com/2007/12/27/thestockmarketassocialcommerce/ )

The second issue, that of crowdsourcing as selection of the *right* people from the crowd, rather than mass participation, which has come up in the comments yet again - I hope you will pursue further in the future. What's of interest to me in that regard, are the tools and techniques for such selection, and not just the reality of its occurance.

Thanks again for the insights - those Obama numbers are quite encouraging for folks like myself, who are trying to build a business on just such mechanics.

http://www.bountyup.com

[Monica Hamburg]

Just drawing your attention to the following brilliant post by Sean Howard on a related subject

(http://www.onedegree.ca/2008/03/crowd-enabling.html
OR if the entire link doesn't appear, type 2008/03/crowd-enabling.html after onedegree.ca/ )

P.P.S - To: Jaap, mentioning that XZIBIT song was just cruel. Simply awful. I listened to it out of curiosity - My mistake.

Also, Is there some magical button that translates your site into English. ;) (A girl can dream...)