How crowdfunding is a façade of a storefront
Published: Wednesday, October 31, 2012
Updated: Wednesday, October 31, 2012 21:10
Crowdfundng at its surface seems like a gift for aspiring entrepreneurs and indie artists. The concept in general is that someone with an idea or project can receive pledges and funding from individuals in order to amass the necessary funds to go through with the project. The main example of crowdfunding is the popular Kickstarter, which has funded everything from iPhone accessories to music albums. While there are success stories on Kickstarter, a recent backlash has shown that as much of a marketplace as it is, it is still a façade of an online store.
The backlash that Kickstarter received was tied to benefactors funding projects that ended up being delayed or having a less than satisfactory end product. The way Kickstarter and most crowdfunding works is that people asking for funding will often offer something in return. For example, an entrepreneur may promise that the people who pledge $100 will get the one of the first product shipments. The problem is that there is no responsibility on the part of fund recipients to deliver. This has caused people to post great ideas, receive tens of thousands of dollars, and then either delay production or deliver a product that isn’t as great as promised. With a normal store, dissatisfied customers can often return the product for a refund. This isn’t necessarily the case with Kickstarter. Backers can be out $100 and left with nothing but a dysfunctional product.
With many projects culminating in this, Kickstarter released some changes to help combat this problem. For starters, projects need to include a section that details possible bumps in the road and how the creator plans on addressing those issues. Projects can also only be shown to do what the current prototype is able to do. There aren’t supposed to be renderings of a future possible product or promises of features being added to the end product that aren’t already in the prototype. Even with these supposed improvements, it doesn’t really help the backers on Kickstarter. The staff even admitted that they can’t review every project that goes up for its legitimacy or even verify the possible risks and solutions that are posted.
In the end it still comes to the discretion of the backers to decide what projects will get accomplished and which ones will just become money pits. This is one of the other facets of crowdfunding that make it different from traditional online stores. With other products there are normally user reviews. People have already gotten their hands on the product, tested it out, and can judge whether or not it meets up to expectation. Generally speaking, crowdfunding projects can’t be tested because they haven’t been fully developed yet and they come from the hands of a couple of aspiring entrepreneurs rather than established businesses. This leaves people to base their backing decisions on what the founders of the project decide to tell them and how they choose to present themselves and their project.
But perhaps the biggest façade that backers succumb to in the crowdfunding process is the idea how to view their money. Many may falsely assume that it is translating into a purchase because in exchange for their funding they are often receiving some kind of product. Some view it as an investment, but individuals don’t receive equity or share in the success of the project if it becomes a wildly profitable business down the line. The best description is a donation. The products you receive are nothing more than complimentary gifts, and as such there shouldn’t be an expectation of quality. Equally like donations, once you give your money to a project, it’s hard to ask for it back.
At its best, Kickstarter is a special kind of marketplace that wants to promote creativity. At its worst, it is a swindler’s dream platform. However, as much as people like to view sites like Kickstarter as a treasure trove of great innovative products, it sadly isn’t the case, and given the limitations of the crowdfunding process, this will never be the case.