During the 2012 holiday season, the growth in online giving outpaced the growth in e-commerce. This season promises to grow even further. One reason is crowdfunding. Blackbaud, which offers technology for fundraising, estimates crowdfunding campaigns made up about 10 percent of online donations, bringing in $2.4 billion to charities for all of last year.
Small charities are using websites like Fundly, Indiegogo and Causevox to raise money for a wide variety of causes. Crowdfunding solicits small amounts of money from a large number of individuals to finance a project by leveraging social media sites like Facebook, Twitter and LinkedIn to reach out to networks of friends, family and colleagues.
While it makes up a small slice of the $300 billion in total charitable contributions, crowdfunding has the potential to increase giving. Nonprofits see it as a good way to engage the younger crowd who want to feel their donation is making an impact.
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"Giving a small amount of money to a larger project is a way that they can feel like they are accomplishing something," said Cody Switzer, The Chronicle of Philanthropy's web editor.
He added these online campaigns can help charities cultivate the next generation of givers, "getting donors involved in your cause at that small level is a good way to get them to the next level, and make them lifetime donors, especially those younger donors who have years and years to give."
Small charities are also using the technique to compete with larger, more established organizations for fundraising dollars. The Warrior Canine Connection , a 2-year-old charity that breeds and trains service dogs for wounded service members, stumbled onto crowdfunding after co-founder Molly Morelli had the idea for a live "puppy cam." The cams used the Internet to connect with fellow pet lovers who might also want to help veterans. "I launched my own little puppy cam and shortly after that ... a large foundation picked us up and started broadcasting it," said Morelli.
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That exposure helped bring in a grant from the Annenberg Foundation and placement on explore.org, a portal that helps people discover causes, and explore's "Dog Bless You" site. Subsequently approached by Crowdrise, the Warrior Canine Connection has raised more than $168,000 from 1,559 donors, with 90 percent of those donations no more than $100. It also helped bring in "puppy parent" volunteers and spread the word about the project, "Our organization is now pretty much nationally known, whereas prior to starting this we were lucky to be known in our town," Morelli said from the dog training center in Brookeville, Md.
Established nonprofits are also in the crowdfunding game. The Salvation Army has solicited supporters to become online kettle bell ringers, last year adding $2 million in donations. But it's still a drop in the bucket to the familiar red kettles. The old-fashioned ringers, standing outside and physically ringing their bells collected $147 million in their kettles.
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—By CNBC's Hampton Pearson and Stephanie Dhue. Follow Pearson on Twitter @HamptonCNBC and Dhue @StephanieDhue.