Loan-based Crowdfunding : Money for Each Other.


Crowdfunding has become a popular topic for authors in both academia and journalism, as well as on this webpage. Commonly, crowdfunding platforms allows entrepreneurs to gain capital for their operations through either donations or by offering partial ownership of their companies, resembling venture capital. Over the last years, the number of participants in crowdfunding campaigns greatly increased. One of the explanation for the sudden popularity of this form of acquiring funds for one’s business venture is that commercial banks have become very reticent when it comes to providing loans for entrepreneurs and small businesses. While the bank has traditionally been the first party entrepreneurs-to-be turned to, the credit crisis and the subsequent stricter legislation installed by governments resulted in the situation that banks hardly provide any commercial loans below 500.000 euro.

While the rise of crowdfunding is thus partly explained as an answer to the changed world wherein banks are highly reticent to provide loans below half a million euro’s, the types of financing that are commonly collected through crowdfunding platforms, donation-based and venture capital-like financing, are rather different from the common financing type collected through a bank, the loan.

In response to this contrast, a young Dutch crowdfunding platform called Geldvoorelkaar (Dutch for ‘Money for each other’) introduced an alternative way of crowdfunding. Money is not collected by gifts or transferring parts of the ownership of the firm, but by requesting a loan. Loans can not only be requested by firms or people with a business plan, but also individuals who look to buy for example a car or new kitchen, but lack needed money needed for these purchases at the present moment.

Geldvoorelkaar operates differently than the well-known crowdfunding platforms. An individual or firm can file a request on the website of Geldvoorelkaar with the desired amount of the loan and the interest rate they are willing to pay on the loan. Geldvoorelkaar then checks the credit worthiness of the person or firm which filed the request. Apart from doing their own assessment on the risk of borrowing money the person or firm, Geldvoorelkaar assesses the creditworthiness of individuals and firms in cooperation with the Dutch credit assessor Graydon by a Probability of Default (PD) score and uses the Dutch Central Credit Information System to calculate a BKR-score, such that people considering providing a loan through Geldvoorelkaar can assess the creditworthiness and connected risk of the particular loan with three different, independent ratings. Geldvoorelkaar accept only the files with a PD score of B or higher. The maximum probability of default, as assessed by Graydon, allowed is 4.99%.

The way in investors can contribute is similar to the common crowdfunding platforms. Investors can choose the amount which they want to provide, and have full control of their privacy options. The default privacy option is an anonymous contribution. An important difference though is that when the requested loan amount is reached, it is not possible for people to contribute more anymore.

The loans made take the form of an annuity. When an individual or firm successfully collects its loan, every month it has to pay both the interest and a redemption sum, such that at the end of the term of the loan, the loan is fully paid back. This form greatly decreases the risk of default and provides investors with a steady income on their loaned money.

It is extremely interesting to see this new form of crowdfunding unfolding. People can invest in exactly those people and projects they believe in, with a clear indication of the risk through various ratings and their reward, through the interest rates. This puts the ordinary man back in charge of what goes on with its savings, as opposed to the opaque ways banks and trust funds use the savings of the consumer they control.

And on the other hand, I believe it is greatly promising to see that this new form of crowdfunding provides a solution to the problem that individuals and small firms are not able to get a loan at a bank. Overcoming this problem may very well turn out to be a great stimulus for entrepreneurship, innovation and, in the end, healthy economic growth figures. Earning money by providing some of your savings to an individual who wants to make an impact on your local society, how could one oppose such a beautiful thing!

Co-Creation of Innovation in A Virtual World

Ward and Sonneborn (2009) and Rogers (2003) acknowledge that the emergence of web-based technologies has radically influenced the ways in which individuals around the world communicate, represent themselves, share ideas, and otherwise interact with one another. Virtual worlds allow users to engage in a very active and participatory form of co-creation which is impossible to replicate in other environments (e.g., blogs, social networking websites). An example of a virtual world is Second Life, which is a 3D world where everyone can see you as a real person and where you can visit places which were built by people like you. Second Life allows you to express yourself. You can design a 3D version of yourself or create a whole new persona. There are thousands of designer items designed and sold by other people which can be explored in the Second Life marketplace.

Due to engaging nature of virtual worlds like Second Life, it allows companies to engage customers in a new way of co-creation. In fact, the world of Second Life itself can be defined as a co-creation project as many of the worlds are created by Second Life users themselves. The motto of Second Life is:

“The largest-ever 3D virtual world created entirely by its users.”

Linden Labs (the developer of Second Life) provides users with a 3D building environment which is easy to use and allows users to collaborate with other users to create their world. Users can use scripts to add behaviors and animation to their creations and make them come to live. Creations can also be sold inside Second Life or on Xstreet SL.

Second Life can be used as a virtual shopping tool which many small companies have already realized as you can find many small businesses on Second Life. Some people have actually shut down their real-world businesses to open a business in Second Life (and are able to make a living out of it).

However, it is not easy to create a co-creating virtual world nor is it easy to participate in one. A study by O’Riordan, Adam and O’Reilly provides three recommendations:

The first recommendation for innovation co-creators is to ensure that sufficient time is taken to fully explore virtual worlds. Virtual world designers can make this process easier for innovation co-creators by ensuring that there is support for in-world exploration. For example, information about particular projects in Second Life is often shared in-world by word of mouth. The reason for this is that existing search and navigation mechanisms in Second Life are difficult to use (especially for new users) because the mechanisms have been created for particular purposes as necessary. One way to stimulate the diffusion of innovations and information through in-world communication channels would be to develop new community-level mechanisms which provide consistency and ease.

The second recommendation for innovation co-creators is to ensure that sufficient practical knowledge of virtual worlds is available. People tend to dislike to have to put in a lot of effort to acquire information. Virtual world designers should attempt to minimize the effort required to acquire practical knowledge. For example, virtual world designers could accelerate learning by developing and promoting high-quality in-world training courses for (potential) innovation co-creators. An interesting example of how a company uses Second Life to generate ideas is Xerox. The following video shows an avatar of Xerox introducing itself and explaining how Xerox generates ideas with the help of Second Life and explains how innovation co-creators can get in touch with them.

The third recommendation for innovation co-creators is to focus on tools and techniques that support self-reliance in teams. Virtual world designers should continue to ensure that individuals and teams can work effectively and autonomously because of the unique challenges associated with fully leveraging the collaborative affordances of virtual worlds (short term). Moreover, virtual designers must develop a robust understanding of the barriers preventing fully collaborative approaches to innovation co-creation in virtual worlds (long term).

Overall the study supports the view that virtual worlds are attractive for innovation co-creation. However, the authors acknowledge that more research needs to be done on how virtual world designers can leverage the collaborative affordances of virtual worlds.

The blog post is meant to provide an example of a new way of value co-creation. The key message of this blog post is that virtual worlds form the new frontier and, therefore, the affordances it has to offer have to be studied thoroughly by researchers AND by companies.


O’Riordan, Niamh; Adam, Frédéric; and O’Reilly, Philip, “INNOVATION CO-CREATION IN A VIRTUAL WORLD” (2012). ECIS 2012 Proceedings. Paper 191. Available at:
Rogers, E., M. (2003) Diffusion of Innovations. , New York, Free Press.
Ward, T. B. & Sonneborn, M. S. (2009) Creative Expression in Virtual Worlds: Imitation, Imagination and Individualized Collaboration. Psychology of Aesthetics, Creativity and the Arts, 3, 211-221.

Second Life (

World’s Smartest Lightbulb meets Smart users!

According to Randall et al (2005) moving the specification decisions of a product from producer to user can be a valuable decision considering that the user is the agent in the value chain with the most knowledge about user preferences.

In the case of Philip’s HUE, this was certainly situation. The HUE lighting system uses LED bulbs – with a twist! Opposed to being controlled by a switch, the Hue bulbs are controlled with your smartphone using an IOS app. The light lets you switch between a wide spectrum of colours and brightness settings, allowing you to customize the lighting in your home around mood or setting (Forbes, 2013). The “how many years does it take to change a lightbulb” is an amusing creative video that will allow you to get a feel for the product.

When the product was launched late in 2012, HUE had an enthusiastic group of users and hardware/software developers seeking to deliver extending compatible apps and integration with other products. Thus, Philips answered to this by formally launching HUE LED Lamp APIs and a software development kit. This opened the playing field for third party developers to create new, exciting applications using light (Philips 2013).

This was no mistake considering that the HUE community created rich functionality for an enhanced customer experience (Philips 2013). A cool example is that external developers have created apps that integrate Hue with music. Hue Disco controls HUE lamps dynamically based on the music beat picked up by the microphone in the smartphone (Ledsmagazine, 2013). Another example is a scheduling application that can integrate with a phone’s calendaring application.

The developers can use the new tools to more easily develop apps and this is still happening today. For example, manufactures currently working on universal TV remote controls are considering adding HUE support (LedsMagazine, 2013). Other devices such as thermostats might integrate HUE as well. (LedsMagayine, 2013)

According to Kevin Toms, Developer Advocate of Hue’s software developers’ platform, the response from the HUE community has been incredibly positive (Philips, 2013). Philips thus aims to continue redefining the possibilities of light by enabling developers to create apps that customers want and need.


How did Philips leverage developer communities for innovation?

  • Creating tools, guidelines and software libraries to support development
  • Facilitating Hackathons and Developer conferences
  • Being present and supporting discussions on social media (Twitter, Facebook, Community-founded sites)
  • Embracing the community!

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Results: Generating Innovation and PR that translates into sales!

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Advertising: Stimulant or Suppressant of Online Word of Mouth?

Word of mouth can be defined as informal communication among consumers about products and services. It includes interpersonal conversation and consumer brand advocacy. More recently, an increase can be seen in online word of mouth, otherwise known as word of mouse. Examples of word of mouse are discussion forums, boycott Websites and news groups.

Marketing research indicates that word of mouse can play an important role in influencing consumers’ purchase behavior. Therefore, some researchers believe that word of mouth should become an integral part of every company’s communications mix. The assumption in literature appears to be that word of mouth and advertising can serve as complements of each other. The paper by Feng and Papatla focuses on the relationship between online word of mouth and advertising. Their goal is to study whether increased advertising is negatively correlated with online word of mouth. They propose several reasons for the negative correlation between the two variables:

  • Consumer involvement relates to the argument by Dichter (1966) which argues that consumers’ desire to speak to other consumers about products can be understood in terms of different types of involvement. In particular, four types of involvement are product, self, other and message.
  • Selective consumer response relates to the suggestion that consumers can be quite heterogenous in their preference for different sources in their search for information before making purchases. Research by Klein and Ford (2003) has found that people who prefer traditional sources of information (e.g., advertising or visiting dealers) are less likely to be experienced with using the Internet and online sources. Therefore, following the implications of this research, increased advertising is more likely to attract buyers who are less likely to visit or provide online word of mouth.
  • The saturation effect refers to the decreasing response of sales to increased advertising. If the saturations effects do occur and sales do not increase as advertising spending increases, consumer word of mouth is also unlikely to increase as advertising spending crosses the saturation levels.

Product involvement refers to the consumers’ feelings regarding, and relationship with, the product. Self involvement refers to the consumer’s use of product-related conversations to satisfy emotional needs (e.g., demonstrating superiority). Other involvement refers to the consumer’s desire to give something to others (e.g., recommending or warning for products). Message involvement refers to word of mouth stimulated due to the consumer’s engagement by advertisements or public relations activities of the product’s manufacturer. Dichter (1966) suggests that factors that affect any of the four types of consumer involvement are likely to affect their desire to speak about products to others. Dichter implicitly assumed that marketing actions that increase any of the four types of involvement eventually increase consumer word of mouth. If so, marketing actions that reduce consumer involvement should decrease word of mouth.

Consumer involvement, selective consumer response and saturation effect are demand-side reasons for the negative correlation between advertising and online word of mouth. However, there are at least two supply-side reasons for the negative correlation between the two variables.

  • Differences in spending on advertising by manufacturers. If manufacturers of brands that do not have strong sales spend more on advertising than others, the relationship between advertising and word of mouth is likely to be negative for lower-selling brands since consumers are more likely to discuss brands that they own and use.
  • Dynamic adjustments of advertising budgets by manufacturers based on word of mouth response to advertising. If manufacturers decrease advertising spending as word of mouth increases, the relationship between advertising and word of mouth is negative.

The primary finding of the paper is that increased advertising expenditure can be associated with lower online word of mouth. Therefore, the assumption in literature that increased advertising can stimulate online word of mouth are disproved by this article. However, I am personally still in doubt as I do not believe that the relationship between advertising and word of mouth is so clear cut (e.g., what is the direction of the relationship? Causality?) For instance, word of mouth can also increase the effect of advertising as shortly explained in the following video:

The practical implication of the result of this paper is that advertising and word of mouth may not be complementary. Companies that want to increase word of mouth may have to reduce advertising expenditure to increase online word of mouth. Reduced spending on advertising has the advantage that it makes finances available which can be used in the effort to increase online word of mouth.


Dichter, E. (1966), “How Word of Mouth Advertising Works,” Harvard Business Review, 44, 147–66.

Feng, J. and Papatla, P. (2011). Advertising: Stimulant or Suppressant of Online Word of Mouth? Journal of Interactive Marketing 25, 75-84.

Klein, Lisa R. and Gary T. Ford (2003), “Consumer Search for Information in the Digital Age: An Empirical Study of Prepurchase Search for Automobiles,” Journal of Interactive Marketing, 17, 3, 29–49.