Pepsi’s Challenge: the Problem with Crowdfunding Contests

In 2010, Pepsi decided to take the $20 million they normally spend on Super Bowl ads and sink it into Pepsi Refresh, a crowdsourced charity contest. Through Pepsi Refresh, the public can submit project proposals for funding in increments from $5K all the way up to $250K. Like so many crowdfunding contests, the winners are determined by votes, and anyone can vote up to ten times. In total, Pepsi reported funding 352 charities including programs that put instruments in the hands of high school band students and permanent roofs over the heads of foster children. In exchange, Pepsi has been enjoying a shiny new branding identity as a community miracle worker.

Any time thousands of dollars are up for grabs, though, there is the risk of foul play. Over the year, Pepsi Refresh faced cheating and contest manipulation common to all crowdfunding contests. The most controversial issue has been the allegation that a third-party voting service located in India was used, according to the New York Times, to generate last-minute votes in exchange for payment or a share of the winnings. The voting service known as Mr. Magic may have been instrumental in helping one animal shelter beat out another for a $50K prize.

To win crowdfunding contests, people launch round-the-clock campaigns akin to those in politics. Kris Horlacher, a representative for Shoes for a the Shoeless — a Dayton, Ohio charity dedicated to getting shoes and socks to needy children — says that their organization won the $50 K because of the local votes. In a recent NPR interview, she said “Our college campuses voted for us. Our high schools voted for us. We were on our local paper every week. We were on our local TV stations. We were on our local radio stations.” As Shoes for the Shoeless began beating out its competitors, a crafty loophole in crowdfunding contests made its presence known: voting blocs. Another children’s charity offered to have its supporters vote for Shoes of the Shoeless if Horlacher’s supporters would return the favor. While not outright nefarious, voting blocs such as these smudge the pristine image of crowdfunding contests with a big gritty smear of rule bending.

Though they can be an effective way to fund worthy causes, crowdfunding contests are not as simple as they seem. They are evolving into a contest of self-promotion and rule bending rather than philanthropy. As they grow in popularity, what other crowdfunding manipulations are likely to crop up? Can they be avoided?

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