Steven Neo explores the exciting opportunities and potential pitfalls emerging from the crowd sourcing market.
2014 is an exciting year for crowd sourcing where Kickstarter reached USD $1 Billion in pledges to support over 58 thousand projects, and Earth Hour Blue , a crowd funding platform for environmental projects, was successfully launched with WWF projects from Australia, Indonesia, Singapore, China, Nepal, India, Russia, Uganda, South Africa, Madagascar, Canada and Columbia. We also saw the successful launch of companies such as Oculus that gathered USD $2.4 Million from more than 9,500 backers, and was acquired by Facebook for USD $2 Billion. Excited by these positive developments, I decided to explore the opportunities and potential pitfalls of crowd sourcing.
Opportunities of Crowd Sourcing in Asia
According to Merriam Webster dictionary, crowd sourcing is defined as “the practice of obtaining needed services, ideas, or content by soliciting contributions from a large group of people and especially from the online community rather than from traditional employees or suppliers”. Under Wikipedia’s entry for crowd sourcing, it was suggested that the earliest example of crowd sourcing is the use of volunteers to identify words and provide example quotations exemplifying their usages for the Oxford English Dictionary.
Crowd funding is one of the most recognized applications of crowd sourcing, which can be further categorized into equity-based, lending-based, donation-based, and rewards-based. In 2012, there are over 536 active crowd funding platforms worldwide that accounted for over USD $2.7 Billion in crowd sourced funds (81% increase) with 95% of the total market activity in North America and Europe. This development indicates a huge growth opportunity for crowd sourcing platforms in Asia. In fact, a crowd sourcing race has already begun in the region.
Crowd sourcing or “witkey” is highly competitive in China. The country is home to some of the largest crowd sourcing platforms in the world such as Zhubajie , a crowd sourced job listings platform that has registered over 1.9 Million transactions worth USD $404 Million. Other exciting platforms in Asia include:
• Viibar , a Japanese crowd sourced video production platform that is invested by GLOBIS Capital Partners and GREE Ventures for JPY300 million.
• Dilivrit , a Singaporean crowd sourced delivery platform for mobile phones that has successfully secured pre-seed investment, and iJam funding through Crystal Horse Investments.
• Sribu , an Indonesian crowd sourced design marketplace that has successfully raised Series A investments from Infoteria Corporation for a 34.5% stake.
• Conyac , a Japanese crowd sourced translation platform that has managed to raise over USD $500,000 in funding from investors Skylight Consulting, Samurai Incubate, United and ANRI.
Potential Pitfalls of Crowd Sourcing
Startups and entrepreneurs are excited at the opportunities of equity funding for early investments under USD $1 Million. Private investors are using equity platforms to crowd source their investment ideas and to follow the movements of leading angel investors. Although curated platforms, such as AngelList and CircleUp, provide benchmarks and validation for investment ideas, startup investing is still a tricky business and requires due diligence in the selection of projects and platforms to support. The USD $2 Billion acquisition of Oculus by Facebook left Kickstarter supporters with a bad aftertaste as they are not entitled to a share of the acquisition.
Crowd sourcing platforms can also expose your ideas to competition from major players. According to a recent TechInAsia article, major Chinese phone maker, Xiaomi, has potentially copied product ideas from two Kickstarter projects for extra customizable buttons for smartphones, namely Pressy and Kuai Anniu. In addition, Xiaomi has priced their product clone at only RMB 4.9 compared to the pre-order price of USD $27 for Pressy.
Despite these pitfalls, crowd sourcing is still a vibrant and exciting high growth market for entrepreneurs, investors, and consumers with crowd sourced funds reaching USD $5.1 Billion in 2013. North America crowd funding volumes grew 105% to USD $1.6 Billion while European crowd funding volumes grew 65% to USD $945 Million. There is a huge growth potential in Asia, and you should consider getting into the game right now. Just remember to practice due diligence and research extensively before placing your bets.