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View Full Version : Will Crowdfunding Eventually Move More towards Individuals Rather Than Platforms?



SocialCam
08-22-2013, 03:48 PM
In my opinion I think there is a strong possibility that Crowdfunding will eventually move away from the popular platforms and more towards individual's websites. For example, the largest crowdfunding project ever is actually Star Citizen (https://robertsspaceindustries.com/comm-link/transmission/12762-Star-Citizen-Enlist-Your-Friends), which has raised over $15 million, last I checked, all from their very own website. With no large fees, often 7-8% which has to be paid to the platform like Kickstarter or Indiegogo, self hosted crowdfunding seems like the most lucrative way to go.

Sure maybe the platforms offer some protection as well as extra promotion, however, most of the largest projects do well, not because of the platform they are listed on, but instead how well they promote themselves via social media. Could we see the bulk of projects move off the major platforms, at least in the rewards/donation sectors, and onto private sites? Crowdtilt has just announced an open source crowdfunding plugin for Wordpress which seems to back up my thoughts: http://techcrunch.com/2013/08/22/crowdtilt-launches-crowdhoster-a-wordpress-for-crowdfunding-to-let-anyone-create-and-customize-their-own-campaign/

Opinions?

jordanbaines
08-22-2013, 05:33 PM
I'm not sure if I agree with your line of reasoning here, but (full disclosure) I work for one of those platform companies and tend to think we're doing the right thing.

The TC article you are citing is fairly direct in its reporting of Beshara's vision of a completely decentralized distribution of crowdfunding efforts. His argument, and seemingly yours, is that the ultimate value of a platform for entrepreneurs will be negative because of the fees charged by platforms don't measure up to whatever lift a campaign may receive for being on the platform. While we can point to anecdotal examples of campaigns with huge advertising budgets to push folks to crowdfunding efforts that went well or not (as the Ubuntu phone went), let's talk about platform value instead. If one of these large campaigns catches your interest and draws you to a platform, you have the opportunity to be exposed to myriad other campaigns that may be well suited to your interests, which you can then share to your networks and communities of similarly interested individuals. Discovery, as a value, is not something that a fully decentralized, crowdfunding-as-commodity future facilitates. There are lots of small players who would basically stand no chance in such an environment, and that means a lot of the amazing ideas that were discovered and shared widely enough to establish crowdfunding as a viable fund source would have had a much tougher journey. I see the difference here as predicting a future where crowdfunding looks like Facebook and Tumblr (platforms) or a future where crowdfunding looks like company public forums (decentralized crowdfunding).

Decentralization sounds like a quick way to kill viable dreams for the small entrepreneurs out there. The dream of being "found" goes part and parcel with the steadfast belief of entrepreneurs that they can build, compete, and thrive despite a lack of resources, connections, awareness, time, etc. Crowdfunding is destabilizing traditional funding by changing the dynamic by which folks get funding by reducing the difficulty for smaller players to get the funding they need. Decentralization defeats this purpose.

I do think this signals a call to platform providers to go out of their way to guarantee the value-add they provide. Platforms are going to differentiate themselves in many ways, and I'm sure the money-only platforms are going to see the greatest threat from what Crowdtilt is doing because they will be differentiating on their rates and user interfaces rather than on the development of knowledge centers, engaged communities, services, etc. Platforms have the opportunity to do so much more than just sit there and hope the "if you build it, they will come" mantra with regard to entrepreneurs and backers/investors. They can actively work to help companies establish themselves and grow. I think you'll see this effort as where the future success of platforms will be.

Again, I have a horse in this race, and I would more than welcome disagreement from other readers.

admin
08-22-2013, 08:51 PM
Jordan, what a great few paragraphs. I tend to agree with your thoughts on this. Although I do think there will continue to be people hosting their own campaigns, I do ultimately believe that platforms will be where most of the crowdfunding takes place. You are in a good spot right now as the growth is tremendous. It will be interesting to see the hundreds of platforms out there begin to differentiate themselves from one another.

Jason Cantrell
08-24-2013, 01:37 PM
As an individual trying to start my own self-publishing business, I have to say that I agree with the idea that a centralized platform is best. Any company that can raise $15 million in funding most likely had enough backing, support, and enough of a preexisting audience that they would have succeeded wherever they went.

The one specific example I'm personally familiar with is Rich Burlew's The Order of the Stick. I backed his project and that's how I discovered Kickstarter. But (while I don't know the specifics of what happened behind the scenes) Mr. Burlew already had an audience of thousands of fans. I'm sure some new people discovered him through Kickstarter, but he went into his campaign with an advantage he'd gained through years of hard work building his fan base. As a result, he had an extremely successful campaign (I think it hit like #1 for comic projects on Kickstarter and #6 for all time projects).

A completely unknown artist, author, etc won't have that advantage. For unknowns (such as myself) I think the platform matters. I don't really know much about the other platforms that exist, but personally, I'd take one of the larger platforms specifically for the higher chance of more traffic and exposure. I initially chose Kickstarter because it's the only platform I knew about. But even if I switch platforms on any future projects, I'll most likely try for a bigger platform unless I find some reason to think a small one can help me get more exposure.

SocialCam
08-25-2013, 08:57 PM
Yes Jason, but some of these companies which really already have a ton of followers and contacts are basically thowing away 8% to the platforms like Kickstarter and Indiegogo. 8% of $2-3 million is a heck of a lot of money they could be using for further development. Sure it takes a lot more work to host your own project, but if it means the difference of $250,000, it's crazy to not take the extra time to set things up yourself you would think.

jordanbaines
08-26-2013, 04:40 PM
Well, let's not be so hasty about throwing around numbers without thinking through what they represent.

For a quick breakdown, let's just look at what this would mean for a donation-rewards type fundraise, a la Kickstarter or Indiegogo.

An 8% rate from a platform will often include the money processing charge from the credit card or wire transfer handling partner, usually around 3-4%, which means the net potential upside from "going it alone" is roughly half of the platform rate. Now, we're talking about whether a platform can add a 4-5% increase in the aggregate amount raised for the campaign over what would be raised for a non-platform raise. Guess what, I don't have the data on hand; so, I'm not going to be able to point at it and say, "looky here." Honestly, I'm just guessing, but I'm more apt to assume there is a marginal lift to platform campaigns that comes from things like idle discovery, trust in the platform's fraud deterrence, recognition of the platform's brand, and a credible appeal to pack purchasing behavior (we tend to do as others do, go where they go, etc.).

Additionally, let's talk about the cost of advertising the host domain of the crowdfunding site, a cost which is largely taken up by platforms as we need to drive traffic to campaigns in order to survive. Let's talk about the cost of developing a user/back community, qualifying their interest in deals, and directing them toward what they are most likely to be interested in and share, which is (again) taken up by the platform as part of driving conversions in order to justify that rate. While there are campaigns with major PR and media campaigns behind them, the highest likelihood of conversion for a backer is always going to be from someone who has already backed a similar or complimentary campaign, and those folks are cultivated by platforms.

So, on a million dollar campaign with an 8% charge, the fundraiser would end up ceding $80k. Of that $80k, only $40-50k is going to the platform company. In terms of the economics, the wiggle room for the argument SocialCam is making would have to be tied to the belief that a platform's combination of services, community, and traffic will have little bearing on the success of a campaign and that the individual fundraiser would be able to spend enough on marketing to offset such a difference. Given that I'm coming from the platform world, I'm inclined to say the rates charged are actually quite fair.

SocialCam
08-27-2013, 11:26 AM
Jordan, very good argument you have there. I think it's fair to charge what the platforms charge, however my argument was simply that it may be best for projects which have already amazing followings to simply host it themselves. Having said this, you bring up very good points in that 3-4% will be for the payment processing, not to mention it is a ton of work handling all the charge backs, and customer support of hosting a project yourself. It will certainly be interesting to see where things go in the next 2-3 years as more and more platforms emerge on the scene. I'm sure there will be some major consolidation here in the next few years.