Crowdfunding: Branding in a Social Media World - Article Example

One of the latest developments in the social networking is crowd funding. It involves financing a creative project through the audience. The artist promises to reward the backers once the project is complete. There are various purpose-built crowd funding sites which allow various levels of reward to create the project. Crowdfunding has totally altered the way people raise money to start up a business or charity or even to meet medical expenditure. In fact, this new trend has led to the demise or decline of various traditional forms of fund raising like family, friends, venture capital and business angels. In fact, this change took place as a result of the Jobs Act. Presently, there are a large number of online funding websites. Some very common and famous crowd funding websites are kichstarter.com, payable.com, rockethub.com, and seedmatch. Lawton writes about the advantages of crowd funding over other forms of funding. It is reported that of the leading crowdfunding agency Indiegogo reported no fraud over the last four years, and similar is the case of Crowdcube. As Lawton points out, unlike the traditional investment paradigm, the advantage of crowdfunding is that the more the story gets, the more the chances are that any fraud will be exposed by people who are aware of the same. The CSR blog of Forbes reports that crowdfunding is the newest and hippest strategy of raising capital for businesses today. It is pointed out by Kerten that the ‘second internet’ or Web 2.0 companies are keen to ensure that sharing is done at its best. Some of them are Facebook, Twitter, Tumblr, LinkedIn, Pinterest and YouTube (qtd in Aman. Forbes). In fact, it is not possible for brands to buy audiences without ensuring that social media users are ready to share positive information about them. As an example, he provides the story of the gaming company Zynga. The company attracted 100 million users to its game Cityville by making Facebook users share their interest in the game. In fact, an entrepreneur needs social media for crowdfunding. Trigonis points out that if one is not active on the social networks, crowdfunding is not for him. The reason is that crowdfunding thrives on email, Twitter, Facebook and such other sites. Thus, it becomes evident that a strong social life is necessary for companies to utilize the fruits of crowdfunding. Steinberg points out the factors that prove that crowdfunding is more like a marketing that simple fundraising. First of all, one will see that crowdfunding fails if one has nothing of value in exchange. In other words, the people who back the businesses expect something meaningful in exchange for the money they give. So, an entrepreneur needs to present a compelling picture to lure people. Also, it is necessary that every project should have a good promotional plan. In other words, there should be a perfect promotional plan which will ensure the utilization of multiple channels like press, fan forums, and social media. Such strategies might include effective testimonials of influential people, screenshots, and so on. Anyway, without these strategies which gradually unfold as the project progresses, it is possible that the target audience may lose interest as time passes. Another important point is that outreach should be constant and ongoing. Upon debuting, it is necessary to ensure continued chatter around the project. It is at this point that social media again reigns supreme because of its effectiveness in keeping discussions alive for long. El Skid, the director of music videos for the lies of Feeder and Dolores O’Riordan explained (“Interview with El Skid”) how he manages to ensure crowdfunding for his projects. According to him, it is easier to lure the people to back your work if they already have heard or seen your work. That means making a crowd is the first and foremost task of the entrepreneur. In the opinion of El Skid, if one has something valuable to offer, there are plenty of people with enough time and money to support the same. What El Skid did at first is that he shot a lot of episodes for a series and put the same on YouTube to view for free. Through digital marketing on Twitter and blogs, he managed to become a YouTube partner page. Thus, when he developed a second album, people were happy to fund the same because they know he is capable of doing so and that his product will be good. In simple terms, giving the people a taster will raise the possibility of success in crowd funding (“Interview with El Skid”). The second point, according to Robin Schmidt, is to keep the momentum. He points out that people will easily get bored if they are made to wait for long for the next release. So, it is highly necessary to keep people curious and interested about the coming projects. For this purpose, the best thing is to have blog or Tumblr. These will ensure that the fans always remain linked. Robin managed to raise sufficient funding through the proper use of Twitter to raise fans, use of various blogs, and YouTube (“Interview with Robin Schmidt”). Brittany Edwardes, an expert in crowd funding, points out how one can utilize the social media for crowd funding. The first step, according to her, is identifying ones platforms. To illustrate, one should start from recognizing the media platforms like Facebook, Twitter, and LinkedIn. She says that though other forms of media are effective, none is as effective as these are. Once this is done, the second step involves learning the effective use of social media. In fact, there are various strategies the social media managers use to spread the name of their brand. They may include effective posts, contests, polls and so on (“Interview with Edwardes”). Another important point, according to her, is the creative content. It is claimed by her that videos and pictures are likely to get 20% more viewers than links. That means in order to ensure more attention, it is necessary to come up with creative videos and images. These videos and pictures should lead to the page where they can donate. One thing is clear: crowdfunding is growing like wildfire and as an alternative to banking. As Hall points out, in the year 2011, crowdfunding platforms raised nearly $ 1.5 billion, showing a growth of 63%. It is estimated that the amount will rise to nearly $ 3 billion by 2012. Admittedly, crowd funding is an effective alternative to bank credits. It is seen that most of the projects in this trend are from music, film, art, theater, publishing or design. According to reports (as qtd in Skinner), nearly 7388 music projects tried crowd funding in June 2012, and out of them 87% projects raised $ 10000 or less; also, it is noticed that nearly half of the projects failed to achieve the required funding. However, Bill Payne, an Angel Investor, is very precise about the problems involved in crowd funding. The first problem pointed out by the investor is that there is radical information asymmetry. In simple terms, there are certain requirements set by the SEC to ensure the protection of the small investors including an explanation of all the risk factors. However, in crowd funding, this vital information can be effectively hidden, thus cheating people away from their money (“Interview with Bill Payne”). Secondly, effectively valuing the project offered by an early stage company is a risky task. That means if one is not so familiar with the project he or she is investing money for, there is a risk of losing the same. Another point is that the high cost of being transparent and accountable may prevent new and smaller companies from full disclosure of the realities. Thus, according to Bill Payne, crowd funding cannot be considered as an effective alternative to banking. Despite all these negative points, the reality is that social media and the internet have made it much easier for people to access financial resources, talent and customers. In the opinion of Kamande, there are various factors which enhanced the growth of crowd funding on social media and internet. The first one among them is high speed internet and social media. To illustrate, this allowed people around the world to have communities of common interests and passions. The second important point is the online international payment options. There are secure online payment facilities with credit and even debit cards, which enable money to travel across borders in no time. That means any person from any part of the world can come to know about great ideas and projects in any part of the world and can fund the same in no time. In fact, this is not possible through other traditional means like bank loans or venture capital. The third point, according to Kamande is the macro-economic policies of governments. To illustrate, the Jumpstart Our Business Startups Act allows people to raise up to $ 1 million through crowdfunding on an annual basis without the rigorous disclosure procedures. That means anyone with a radically innovative idea can come out, create a social network, build trust and make people pay for ones cause. In ‘The Enduring Logic of Industrial Success’, Chandler claims that the pioneers, or the first movers will dominate the industry and will continue to do so ahead. The scholar points out that those companies which manage to identity the changing situations and make use of the same become successful. The scholar provides a lot of examples like that of L’Oreal. In fact, this company successfully competes in the world market. Its strategy is that when it enters a new market, it purchases the local products, repackage them, make them famous around the world, and sell them. The main strategy the company uses is aggressive promotion. Admittedly, there are two important points which prove that this theory is essential in the case of crowd funding too. First of all, the companies and entrepreneurs who became aware about the growth of internet and social media are the ones who make benefit out of crowd funding. First of all, there are various social, technological, and cultural developments in the present day world, which make crowd funding an effective strategy. First of all, social media has become the most effective form of social interaction in the world. It has made it possible for people to interact with others around the world. Also, people tend to give more importance to the opinion of their friends and other influential people than to commercials. As a result, social networking has become the most effective way of propaganda. That is the reason many companies have aggressively started making their presence in social networks. Also, it is clear that the companies are supposed to come up with innovative ideas to continue growth, and these ideas should be developed in accordance with the social changes. Admittedly, the fad of the time is social networking. So, it is for organizations to come up with radically new ideas to converse with the people. Also, it is for these organizations to ensure that their presence is sustained long by retaining the curiosity in people. That means they have to come up with something new time to time. Thus, one can say that in these days, social media has totally altered the business world. In this new world, it is possible for every entrepreneur to come up with a novel idea and establish ones own business by publicizing the same and getting funding from others. In order to achieve this, they have to publicize their project, create interest in people about the project, and make people fund the project by offering returns. According to reports, a number of crowd funding sites like Indiegogo and Kickstarter have helped considerable number of projects to fund their needs. According to statistics, in Kickstarter alone, the number of projects is nearly 30,000 and the amount raised is nearly $ 300. The people who invest money are playing various roles; that of philanthropists, investors, and customers. When the entrepreneurs manage to come up with innovative displays, they get much more than they expect. For example, the ‘Pebble’ wristwatches of Eric Migicovsky raised $10 million through crowdfunding; ten times more than what he expected. Thus, presently, social media has made crowd funding the trend of the time; replacing the traditional investment paradigms. Works Cited Chandler, Alfred D. “The Enduring Logic of Industrial Success”. March 1990. Harvard Business Review. Web 19 Nov 2012 http://hbr.org/1990/03/the-enduring-logic-of-industrial-success/ar/4 Hall, Alan. “New Research Shows Optimism For Crowdfund Investing Continues To Rise”. Forbes, Jan 11, 2012. Web 19 Nov 2012 http://www.forbes.com/sites/alanhall/2012/11/01/new-research-shows-optimism-for-crowdfund-investing-continues-to-rise/ Interview with El Skid, business owner Interview with Robin Schmidt, business owner Interview with Brittany Edwardes, crowd funding expert Interview with Bill Payne, Angel Investor Kamande , Wangari. Crowdfunding is on steroids thanks to social media. Social Media Group, April 25, 2012. Web 19 Nov 2012 http://socialmediagroup.com/2012/04/25/crowdfunding-steroids-social-media/ Lawton , Kevin. Senate crowdfunding tweaks will cause US brain drain. The Crowdfunding Revolution, March 23, 2012. Web 19 Nov 2012 http://www.thecrowdfundingrevolution.com/ Singh, Aman. Crowdfunding: another social media fad or every entrepreneur’s opportunity? Forbes, March 14, 2012. Web 19 Nov 2012 http://www.forbes.com/sites/csr/2012/03/14/crowdfunding-another-social-media-fad-or-every-entrepreneurs-opportunity/ Steinberg, Scott. Crowdfunding more marketing than fundraising. CNBC, May 24, 2012. Web 19 Nov 2012 http://www.pearltrees.com/#/N-play=1&N-s=1_4482506&N-fa=4094805&N-u=1_209890&N-p=51655444&N-f=1_4482506 Skinner, Chris. “Crowdfunding: a clear alternative to banks”. Financial Services Clubs Blog, July 11, 2012. Web 19 Nov 2012 http://thefinanser.co.uk/fsclub/2012/07/crowdfunding-a-clear-alternative-to-banks.html Trigonis, John. You Absolutely Need Social Media in Crowdfunding. Dailycrowdsource. Web 19 Nov 2012 http://dailycrowdsource.com/crowdsourcing-training/tips/1277-you-absolutely-need-social-media-in-crowdfunding Read More