Making the crowd work for you
As is so often the way with technological innovation, the rise of crowdfunding from obscurity to $3 billion industry has occurred almost overnight [1]. While not a new concept (the base of the Statue of Liberty was funded in a similar manner), it is the internet that has facilitated a meteoric rise in the public funding of private enterprise. The concept is very simple – post an idea to a community and wait for potential ‘investors’ to fund your project, with payment only being taken when the project meets its target goal.
Crowdfunding has quickly revolutionised how small scale developers bring their products to market. Developers are able to pitch their products and ideas to consumers pre-development, with investment options offered in return for exclusive rewards, usually relating to early access. Although there are many crowdfunding platforms, Kickstarter has been at the vanguard, and has attracted the bulk of media attention. One of its most notable projects is Zach Braff’s ‘Wish I was here’, a follow up to the cult movie ‘Garden State’. For $20 donors will receive access to a production diary along with a preview of the soundtrack. Those that stumped up $100 will be invited to an advanced screening in Toronto and those who have invested a whopping $10,000 (or more) will be rewarded with a chance to appear in the film as a cast member. The impact of this kind of funding on the independent film industry has been notable - 10% of films at the 2013 Sundance film festival directly being funded through Kickstarter (and many more through other crowdfunding platforms).
Kickstarter has highlighted the flaws in a publishing industry that has on the whole been slow to adapt to the digital age. Innovation has long been curtailed by the necessity to only cultivate the most profitable opportunities. On some occasions, such as Scholastic’s punt on JK Rowling’s far-fetched tale of wizardry, publishers have been rewarded for accepting risk and embracing the possibility of failure. However, every success is countered by a disappointing return on investment (‘John Carter’ left Disney a box office shortfall of $200m). This has resulted in reluctance among publishers to back developers, writers or studios who cannot guarantee success at the first time of asking.
Small developers are subsequently left in a tricky position, often unable to source the funding to develop new and innovative intellectual property. However, it is evident that the evolution of social media is helping aid the demise of this traditional barrier. Aside from the direct channel of crowdfunding, developers can directly speak to their customers and more importantly instantly deliver their products into their hands; bypassing the traditional publishing powerhouses and replacing them with online distributers such as Apple, Valve (Steam) or Amazon.
The success of crowdfunding is not limited to the experience of small scale developers bringing their products to market. Three major themes can be attributed to rise of crowdfunding, proving relevant to any business operating in this rapidly changing consumer marketplace.
Openness and connection aren’t just buzzwords, they create goodwill
Bohemia Interactive (BI) are a small video games studio and publisher based in the Czech Republic responsible for the successful (if not bestselling) ‘Arma’ series of military simulations on the PC. BI has historically focused on community contribution with native support for user modification embedded in the series as early as 2001. Backed by online support, BI has harnessed a dedicated community who are actively engaged in the development of the game. This level of consumer interaction has resulted in the latest iteration of the series (Arma 3) being released in the form of an alpha (in the first stages of production). BI are effectively selling a product in development, cutting the cost of quality assurance, testing while raising much needed revenue, crucial for an independent studio who last released a major title in 2010..
Consumer appetite for novelty in products and experience knows no boundary
The Pebble e-paper watch is an ambitious project to develop the first commercial smartwatch, which was funded on Kickstarter to the tune of $10m (by 68,928 people). While reception following the January 2013 launch has been frosty, the levels to which consumers are drawn to new hardware has been highlighted, with projects such as Ouya (a video games console running the Android Operating System) and Form 1 (an affordable 3D printer) securing funding towards the latter part of 2012.
Engaged communities will help themselves… And you
The US based musician Amanda Palmer best known for being the lead singer of ‘The Dresden Dolls’, has a history of communicating with fans through forums, blogs, free music sites and social networks. She successfully crowdfunded her 2012 album ‘Theatre is Evil’ (raising over $1m), but perhaps the most interesting example of the strength of her online presence was her 2012 tour. Musicians were invited to play at each gig with the compensation of ‘beer, merchandise and hugs’ – saving a total of $35,000, an investment that would have made the tour unfeasible.
Reaction to crowdfunding has been mixed to say the least. Both Zach Braff and Amanda Palmer have drawn heat from fans and the press for promoting projects that have secured significant funding from other sources before listing. Many questioned Zach Braff (who reportedly earnt $350,000 per episode of TV comedy ‘Scrubs’) for not investing his own money, with criticism being compounded when Worldview Entertainment announced they were to provide ‘gap financing’ on top of contributions from fans [2]. The criticism has shown that the morality and vision of the crowdfunding movement still exists, although the very fact that Braff was able to raise $1m over his target suggests that crowdfunding has begun to outgrow its initial premise. While crowdfunding is not suitable for every project, the lessons emerging are relevant to every business regardless of size. As we’ve previously discussed on this blog, building your business around what you think consumers want is no longer enough, the consumer demands interaction with both the product and experience [3].
For more information feel free to contact me at tom.shadbolt@gfk.com
[1] Crowdfunding industry report: Market trends, composition and crowdfunding platforms, May 2012, Crowdsourcing.org
