In one or two paragraphs, define the term ...

[lb_gilbert]

In one or two paragraphs, define the term crowdfunding.

Question 2

In two or three paragraphs, outline at least three different ways in which a social networking site might monetize its visitors.

[iceage]

Answer to Question 1

In addition to finding a lender who can provide funds for a business idea, entrepreneurs can sell partial ownership in their ventures to investors. Social networking sites that provide exactly this opportunity, called crowdfunding, include Kickstarter and IndieGoGo. These sites allow businesses and individuals to sell equity interests in their activities to participants around the world. Most new business owners fund their new ventures with savings and credit card debt, then they raise capital from friends and family members. However, few people are able to afford the risk of making large investments in new businesses.
Crowdfunding changes the combination from one of a few people each providing a lot of money to one of many people, each providing a small amount of money. Crowdfunding thus reduces the investors individual risk but still can provide substantial total equity funding for new ventures.

Answer to Question 2

Small social networking sites that have a specialized appeal can draw enough visitors to generate significant amounts of advertising revenue, especially compared to the costs of running such a site. For example, software developer Eric Nakagawa posted a picture of a grinning fat cat on his Web site in 2007 with the caption I can has cheezburger? as a joke. He followed that with several more cat photos and funny captions over the next few weeks and added a blog so that people could post comments about the pictures. Within a few months, the site was getting more than 100,000 visitors a day. Nakagawa found that a site with that kind of traffic could charge between 100 and 600 per day for a single ad.
Although most social networking sites use advertising to support their operations, some do charge a fee for some services. For example, the Yahoo Web portal offers most of its services free (supported by advertising), but it does sell some of its social networking features, such as its All-Star Games package. Yahoo also sells other features, such as more space to store messages and attached files, as part of its premium e-mail service. These fees help support the operation of the social networking elements of the site.