Crowdfunding (Part 2 of 2)

by mcampbell on December 17, 2012

 

Kickstarter – Funding platform that is becoming a video game hotbed

Kickstarter was started a year after Indiegogo, in 2009. It is nominally very similar in purpose, a platform to fund creative projects, except that projects are subject to an approval process and the system concentrates on entrepreneurial endeavours. Kickstarter is not designed for charities; the project must fit their categories and the outcome must be tangible.

In terms of some rather massive fundraising campaigns that occurred in 2012, Kickstarter seems to be developing a bit of a specialization … video games.

Last October I watched, somewhat obsessively, while an established and profitable gaming company (Obsidian Entertainment) amassed millions of dollars in backing from private individuals who essentially donated their money to turn a vision into a reality. It is called Project Eternity.

The whole process was surreal … the money just rolled in. After a month of online fundraising, the final ‘telethon’ consisted of streaming video where the development staff sat around listening to music, partying, and getting inebriated. Their final figure was $3,986,929 from 73,986 backers. There were additional funds sent through PayPal bringing the total to over $4 million. Shares weren’t offered, bonds weren’t issued, there’s no chance to win a jackpot, the starving weren’t fed, and there will be no free medicine for poor Tiny Tim … just the promise to create a software product, a game. Over $4 million in funding…

Based on Project Eternity and other smash successes, the outcome of a Kickstarter investment campaign (for gaming) seems to be dependent on three things:

1)     The charisma of the investee(s) and ‘product vision’ that is presented in the campaign (naturally).

2)     The reputation of the individuals requesting financing. Celebrity is a factor that the successful campaigns seem to recognize, and well-known game designers can deliver star power.

3)     A hidden pocket of demand that marketers in large companies either do not see or disregard. Reimagining’s of old classic products generate a lot of hype. The campaigns for other Kickstarter projects (i.e. Double Fine Adventure, Wasteland 2, and Star Citizen) stand as testimony to this.

Project Eternity wasn’t the first big success nor was it the last, but it was a fascinating campaign and, for the gaming software industry, it was the largest Kickstarter breadwinner to date.

I don’t know how I feel about this. On one hand, companies such as Obsidian Entertainment are existing, successful firms. This investment money is mostly free of cost and risk; although, it does burn some sales pipeline and failure may hurt reputations. The investor loses their capital immediately (Even Kiva usually gives you back your capital … and it’s a charity!). Investing (or backing) seems a little foolish, contributing more than the value of the product you (might) get seems downright crazy.

On the other hand, it does enable the consumer to vote, through their monetary support, on the products they want to see brought into existence and how they want those products delivered to the marketplace. The middleman, namely the large software publishers, mass marketers, and venture capitalists, are left out of the equation. This may be a good thing. Consider that EA Games, a large gaming software publisher, managed to secure The Consumerist magazine’s Golden Poo award in 2012 for consumer animosity (beating out Bank of America, AT&T, Comcast, Walmart, and Citibank). That’s a lot of hate, and EA Games seems to be disregarding it (Senior, 2012).

Maybe this strange combination of capitalism and democracy is the beginning of a new economic model?

 

 

References cited:

Senior, T.. (2012) “EA wins “worst company in America” Golden Poo award”. PCGamer, April. Available online: http://www.pcgamer.com/2012/04/05/ea-wins-worst-company-in-america-golden-poo-award/ Accessed: Dec 2012.

 

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Crowdfunding (Part 1 of 2)

by mcampbell on December 13, 2012

Crowdfunding is the process of obtaining investment from many people (called backers), in small amounts, to finance the undertaking of a project that these backers would like to bring to reality. There is a strong charitable element to this process, but the backers may derive some tangible benefits from the outcome.  For non-profit activities, crowdfunding can make small, but meaningful, projects possible. For new businesses, it is a method of bypassing the traditional vehicles of financing, such as loans and venture capital, which may not be available to the project or would only be available under unreasonable conditions. It also significantly reduces risk.

Advancements in technology continue to disrupt established systems by introducing the possible and challenging us to rethink convention. Below are two major internet-based companies that facilitate crowdfunding and may redefine how businesses, products, and services come into being: Indiegogo and Kickstarter.

 

 

Indiegogo – International funding platform for creative projects

Indiegogo was started in 2008 as a means to finance creative projects that otherwise couldn’t be made due to lack of funding. These include films, documentaries, books, art, music, and theatre. It has since expanded to include other types of projects such as inventions, entrepreneurial goods and services, and charitable causes.

The backers usually get some value for their money when a tangible good or service is being produced. Provided their donation is over certain amount thresholds, they are promised a copy of the final product or access to the service, and then perhaps some added content with increasing amounts. Large donations are often associated with some type of prestigious award, such as an invitation to an event held by the fundraisers or a higher value prize.

Success in fundraising does not guarantee project success. A contributor must keep in mind that the product or service may not ever materialize and, if it does, the quality may be disappointing.

In the case of charitable causes, projects may involve a single issue, such as funding surgery or working abroad. This allows the backer to become involved in issues that matter to them on a personal level (in a manner similar to that employed by Kiva and Zidisha). These are not projects, per se, and outcomes can be quite nebulous.

 

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Money and microfinancing in the developing world (Part 3 of 3)

December 12, 2012

  Zidisha – Peer to peer lending The trouble with Kiva (and other well-meaning institutions with similar strategies) is that while they make capital available, the high (possibly usurious) interest rates can prove a disaster for some lenders: “What does this mean in human terms? According to a recent survey of microfinance borrowers in Ghana [...]

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Money and microfinancing in the developing world (Part 2 of 3)

December 11, 2012

  Kiva Microfunds – Charitable lending through intermediaries Kiva is designed for microfinancing. It allows people to lend money for the purpose of enabling small projects, usually in the developing world, that would otherwise not be able to secure funding. The system is internet based, and allows potential lenders to peruse a list of people [...]

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Money and microfinancing in the developing world (Part 1 of 3)

December 10, 2012

The developing world has become a catalyst for change. Traditional (western) systems of finance do not function well in countries that have limited infrastructure, are impoverished, and have a large remote population. As the people still need financial services and a source of credit in order to improve their situation, some novel solutions have arisen [...]

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Future Implications of Three D Printing

December 6, 2012

Cooler than cool. Few things on the tech scene fascinate me more than three dimensional printing.   If you are unfamiliar with the technology, 3D printing allows for the creation of real world objects, layer by layer, from a digital model. What have they made with this technology? They have created plastic toys, metal artwork, [...]

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Energy: Could lithium-air batteries be a viable solution for portable energy?

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The trouble with current battery technology is threefold: 1) they have very limited energy storage, 2) they are large, and 3) they are heavy. These limitations have constrained the development of several other areas of technology that depend on portable energy, such as mobile computing and electric cars; but, that may change with a new [...]

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Will mobile innovation be the undoing of Microsoft, perhaps Intel? (Part 2 of 2)

July 26, 2012

“Analysts have been trimming their expectations for Intel recently, as PC sales continue to stagnate…In emerging markets like China, PC sales are still growing, but in the U.S., consumers are shifting their money toward smartphones and tablets. Intel hopes to be a player in chips for non-PC devices as well, but its prospects there are [...]

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Will mobile innovation be the undoing of Microsoft, perhaps Intel? (Part 1 of 2)

July 25, 2012

“Microsoft Corp reported its first quarterly loss as a public company on Thursday as it took a previously announced hit for writing down the value of its ailing online unit, but held up better than expected in the face of stagnant computer sales.” (Rigby, 2012)   The Innovator’s Dilemma is a theory that the markets [...]

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Apple, Steve Jobs, and the Innovators Dilemma

July 24, 2012

“A lot of times, people don’t know what they want until you show it to them.” (Steve Jobs in Business Week, 1998)   Apple spearheaded the disruptive innovation of personal computing and the technologies that would topple older, better established manufacturers of mini- and mainframe computing. Despite its initial success, Apple itself almost succumbed to [...]

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