Why Do Big Companies Crowdfund?

Above image: Intertwined strands bonded together share the
same shared fate of pulling a heavy load.

“Why Do Big Companies Crowdfund?”  Suprinsingly, it’s often not about the money.

That was the very question that was asked at Crowd Conference hosted in San Francisco yesterday. I had some stage time, but also listened into the panel where my contact Syndey Armani from CrowdFundBeat was speaking.

What’s crowdfunding? Instead of turning to traditional investment institutions, you can turn to regular people from around the globe to contribute money towards a good, services, or experience.

It’s pretty easy to guess why people crowd-fund, I see at least five reasons: A sense of ownership, revenue sharing, equity growing for resell later, access to goods before others, and of course, an opportunity for a better return than placing money elsewhere.

While this makes a lot of sense for scrappy startups, indie artists, and impoverished villages, why would a wealthy big company do crowd funding?

Why Do Big Companies Crowdfund? 
Certainly, big companies have plenty of money, so why would they crowdfund? here’s a few reasons why:

1. Market testing: A great way to test if your future product will sell is to see if the crowd is already interested. While there are dozens of social software tools that measure organic social media sentiment and online community services that act like focus groups, these don’t ask for commitment in terms of money.  Expect social analytics firms to start aggregating data from Kickstarter and Indiegogo to find out what the market wants.  Also expect white label open source versions of Kickstarter to integrate with enterprise social business software platforms.
2. Pre-Payment: In some crowd funding programs, it’s simply a form of pre-payment. Where the crowd funders will get access to early products as the first beta users, or receive specialized premium versions. This tactic is heavily used in the online gaming space where early registrants receive customize characters to play that others don’t get. While a startup, the Pebble watch raised funds on Kickstarter, offering early versions to investors.
3. Keeping members engaged: Keeping potential customers and prospects engaged is a hallmark goal for many marketers. Now you can send your crowd investors frequent updates on project progress, early sneak peaks, and rally them to advocate for you. The great thing is, it’s opt-in for everyone. See how Dodge Dart Registry tapped the crowd to get your friends and family to pay for parts of your car, a brilliant maneuver involving a whole social group. Also see how Barclay Card tapped a community for good.
4. Shared Fate: To me, this is the most important reason. Marketers have often said the highest form of engagement is word of mouth and advocacy. I believe that crowd-funding, where the crowd investors actually share an end result with the company is the highest form they’re in it together till the end. See how U-Haul Investors Club has really lead the way by living the DIY mantra, and allowing their own customers to own trucks and equipment as crowd investors.

So there you have it, big companies may crowdfund, not just because of money, but because: 1) Market testing 2) Commitment to pay 3) Deep engagement 4) A Shared Fate.

(Creative commons image by Eryn)