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Does Online Crowdfunding Actually Reward Innovation? (strategy-business.com) 93

Posted by EditorDavid from the wisdom-of-the-cloud dept.
Slashdot reader Anirban Mukherjee is an assistant marketing professor at Singapore Management University who led a team analyzing every Kickstarter project ever launched in nine product-oriented categories. An anonymous reader summarizes their results: One 2013 report predicted $96 billion a year in crowdfunding by 2038 -- nearly twice as much as what's currently funded by venture capitalists. (In a foreword, AOL co-founder Steve Case touts the potential of crowdfunding for "the rise of the rest.") "Many have predicted that online crowdfunding will democratize product development," writes business journalist Matt Palmquist, "allowing small entrepreneurs who lack the contacts, resources, and experience of larger companies to overcome economic, geographic, and social barriers on their way to market." But a large-scale analysis discovered that the biggest barrier may be consumers themselves. "The study's authors found that the amount of money pledged increased when the product description emphasized either originality or utility -- but dropped when both attributes were mentioned. The findings suggest that the crowd does not yet prize true innovation."

"The authors posit that the high degree of ambiguity surrounding crowdfunding might scare consumers away from supporting groundbreaking projects. In the typical shopping context, they point out, consumer regulations protect the buyer. But in crowdfunding, consumers may never receive the product... Another study found that more than 75 percent of successfully funded Kickstarter projects are significantly delayed... 'We speculate that the higher level of uncertainty in the crowdfunding context drives backers to choose modest innovations and shy away from more extreme innovations, i.e., innovations that are high on both novelty and usefulness,' the authors write."
After reviewing 50,310 projects, the team concluded that crowdfunding "may not be the panacea for innovation."
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Does Online Crowdfunding Actually Reward Innovation? More

Does Online Crowdfunding Actually Reward Innovation?

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  • Here's a serious question: (Score:5, Interesting)

    by hey! ( 33014 ) on Saturday October 07, 2017 @07:42PM (#55329055) Homepage Journal

    Who cares if crowdfunding projects meet some academic definition of "innovation"?

    That question asked, I suspect the "problem" has to do with the tech adoption cycle: early adopters and pragmatists are two different groups that are important at different phases of a product's life. Anyone who has ever sold a tech product into a market that's never seen tech before (granted a less common experience than it was twenty years ago) knows you can't appeal to both groups at the same time.

    In the end success means winning the pragmatists over, but early adopters are a key step toward that goal.

    • Who cares if crowdfunding projects meet some academic definition of "innovation"?

      Indeed. The most cost effective innovations are incremental improvements to existing products. Sure, we should fund an occasional moonshot, but that is not where most R&D money should be spent.

      • Re: (Score:2)

        by fermion ( 181285 )
        It could be that crowdsourcing misrepresents itself by claiming to offer a product when in fact people are making an investment, or, in some cases, more accurately making a donation.

        Innovation does require that people, some of who are called early adopters, take risks. If no one buys the product, if no one invests in the product, then no innovation occurs. What wins and does not win is determined as much by sales as it is by innovation. Many would agree that Apple products are not always the most innov

        • I find it very interesting as to how backers perceive a product/project: as an investment, a donation, or a purchase. You are correct that it may not align with what it âoeoughtâ to be. There is research on this but not that much is known formally.
          • Here's the way of thinking about it... If you provide funds to a crowd funding activity, you are not legally considered an investor /and/ you are not legally purchasing a product under contract. You are entering into a buyer beware, uncontracted engagement with an entity in which any terms agreed to are tacit rather than explicit. As such, if you engage in crowd funding and you do not receive anything, receive something that is substantively dissimilar to the product stated (such as a backers only update),

        • It could be that crowdsourcing misrepresents itself by claiming to offer a product when in fact people are making an investment, or, in some cases, more accurately making a donation.

          People are never making an investment. At best they get the product. Just look at Oculus Rift. Did the the people who bought into that product see any of the profits when Facebook bought the company?

          Crowdsourcing is a hack which really only exists because laws in the USA don't allow some types of speculative investment by anyon

          • Re: (Score:2)

            by fermion ( 181285 )
            Not all investments are equal. Not all investors receive dividends which are directly connected to profits. Some investors simply receive profits if the values of the stock increases, which is not necessarily linked to any profits. Some companies with profits actually see their stock valuations fall, which is a loss to some investors.

            • And participants in crowdfunding get none of the investment proceeds. No dividends. No capital appreciation. Nothing.

              Crowdfunding is not an investment. It's a speculative purchase.

              • That's one of the reason crowdfunders might be conservative. If a venture capitalist funds ten startups, all it takes is one big success to make it financially worthwhile, covering the costs of all ten and then some. If I contribute to ten Kickstarter projects, and one wins big, I've got one good whatever. If the product is a huge success for its company, I've got my whatever, and that's it.

                If something's innovative, that means it has a good chance of going bust and a real chance of making it big. As

      • My initial expectation was that most Kickstarter projects are moonshots. But they are not. The vast majority of them are quite modest âoeinnovationsâ. A âoenewâ backpack, jacket, wallet, watch etc.

        • Re: (Score:3, Funny)

          by easyTree ( 1042254 )

          modest âoeinnovationsâ. A âoenewâ backpack, jacket,

          Someone should start a KickStarter which will deliver working Unicode to Slashdot :D

      • Re: (Score:2)

        by tlhIngan ( 30335 )

        Indeed. The most cost effective innovations are incremental improvements to existing products. Sure, we should fund an occasional moonshot, but that is not where most R&D money should be spent.

        Exactly. The problem with moonshots is twofold. First, you have to make the final objective achievable - a moonshot that no one believes is possible will attract the gullible, but rational actors will not ante up.

        The other problem with a moonshot is marketing. It's easy to sell an incremental innovation because pe

    • Novelty by itself only has curiosity value. Usefulness by itself does not transcend the status quo. Hence, creativity and innovation is their joint. Our work, unfortunately, canâ(TM)t speak to innovators vs âoepragmatistsâ: a limitation of Kickstarter is that one doesnâ(TM)t really know who is pledging support. It would be interesting to know how innovators differ from early adopters, or how it matters for crossing the chasm (Moore 1991).

      • Re: (Score:3)

        by hey! ( 33014 )

        Well, actually having been in the position of developing products, the part you're missing is the way novelty and utility dovetail. A pragmatist won't buy something until it's proven to work. The way you do that is you sell novelty to early adopters and prove that it works with them.

        You can't use the same message for early adopters and pragmatists; you can't sell to them both at the same time. But they're both on the long term path to success.

    • Who cares if crowdfunding projects meet some academic definition of "innovation"?

      Since it's voluntary, I certainly don't care. But it is still interesting academically, and perhaps useful when examining the phenomenon for other reasons (such as trying to detect and/or prevent abuses of the system).

      To my non-expert eye, it seems apparent the average person is as bad at picking crowdfunding winners as he is at managing his own finances. And I'm sometimes amazed at the (in my mind) garbage some people are willing to throw money at. I think if there's a problem, it's at least in part becaus

    • There's a bigger problem in that just because a product harps on about being original or offering a lot of utility doesn't mean either of those things are actually true.

      I suspect that online crowd funding rewards people who (try to or claim to) provide what other people want. Selling food isn't very innovative, but I reward my grocer for doing so on a regular basis.

    • Crowd funding, just like any other type of funding, places value on the pitch rather than the product. Fundamentally you need to accept that first and then talk about innovation.

      Ultimately though innovation and funding are independent. The real discussion should be about funding efficacy for high-risk projects by source. I opened a savings account yesterday with 0.07% interest! While not my purpose, can you imagine "saving" money like that... clearly there is an opportunity for high-risk funding, but to be

    • Comment removed based on user account deletion

  • Not sure what's being said here (Score:3)

    by Kjella ( 173770 ) on Saturday October 07, 2017 @07:50PM (#55329077) Homepage

    It seems obviously to me that successful Kickstarter projects provide people with something they already know they want. Even if the project can't deliver people have already internalized their desire for it. Truly novel and innovative ideas are typically things people don't yet know they want, like it's famously said that if Ford had asked people what they'd want they'd say faster horses. I didn't understand I wanted a smartphone until I actually had one, if you'd ask me up front what I wanted from a next-gen phone I'd probably say battery life, call quality and whatever else you'd want from a dumb phone.

    • Re:Not sure what's being said here (Score:5, Informative)

      by ShanghaiBill ( 739463 ) on Saturday October 07, 2017 @08:02PM (#55329117)

      I didn't understand I wanted a smartphone until I actually had one

      You were not alone. Back in 2007, the Slashdot consensus was that the iPhone was lame, had pointless features, and was doomed to failure since nobody wanted to use an iPod as a phone.

      • Re:Not sure what's being said here (Score:4, Insightful)

        by Anonymous Coward on Saturday October 07, 2017 @08:15PM (#55329157)

        Well, the original iPhone was pretty useless. There was no app store. There was a very limited set of provided apps on it. At that time, Windows Mobile was a better option (Symbian sucked, but at least was more powerful). Hacked phones and apps made by people doing hacks to the OSX SDK at least provided some hobby potential to the original iPhone. It was when they made an official SDK and introduced the App Store that the iPhone had true potential. The 3g was probably the true turning point in not just having access to useful apps/games, but also having enough bandwidth to make it useful as a true mobile device.

        • Are you kidding?! Compared to what was on the market at the time, it was a huge change. I still remember sitting in a conference room when my meeting was over, looking at the presentation, and saying "wow... this is huge!"

          Even if it was just a giant touchscreen... it changed the idea of what a "smart phone" was.

      • More than âoeasking people what they wantâ, this is the equivalent of Steve Jobs walking out and doing a demo of the first iphone and people saying âoeno thanks, I would prefer my horse to your carâ. (With due apologies for mixing up the various metaphors and analogies.)

      • PDA (Score:2)

        by DrYak ( 748999 )

        Back in 2007, the Slashdot consensus was that the iPhone was lame, had pointless features, and was doomed to failure since nobody wanted to use an iPod as a phone.

        On the other hand, another slice of the geek population has had been having PDAs such as Psion and Palm for a around a decade.
        They already had pocket computers, with very rich ecosystems of application.
        And some already used to connect their PDAs to networks thank to nascent Wifi or by pairing (Bluetooth or even IrDA) with GPRS-capable dumb phones.

        (That was my case : Palm IIIc, then Tungsten T3. Pairing with IrDA, then Bluetooth to an Ericsson T39, then a Wifi SDIO card)

        To that crowd, an iPhone was pretty la

        • Actually, my original iPhone did pretty much everything I used a PDA for, so I stopped using the PDA. It could keep track of my schedule and my contacts, and it had decent web-based games, and it did more. It handled my email well and had a good web browser. It even made phone calls.

    • Our findings hold across the board: if we filter out small projects (for eg., goal less than $10k) or large projects (for eg., goal more than $100k). We originally thought this would be something only for the big, potentially implausible projects. But that doesnâ(TM)t seem to be the case.

    • Throwing money at a problem doesn't fix it.

  • It's tough to make predictions (Score:2, Insightful)

    by Anonymous Coward

    One 2013 report predicted $96 billion a year in crowdfunding by 2038

    Trying to predict technology and economics 25 years out is sillier than trying to forecast the weather that far.
    What would 1976 predictions of 2001 computer investment have looked like?

    • What would 1976 predictions of 2001 computer investment have looked like?

      The big thing that everyone said about computers when I was in college was that someday a basketball court sized computer would fit into your pocket. And was a lot later than 1976, though it had been around then too IIRC. I know this because everyone was dumping money into faster and faster computers while I, and a small minority of others, kept asking where's our pocket computer because it became fast enough three cpu generations ago.

      There was a lot of wintel money to be made convincing people they neede

      • Re: (Score:1)

        by Kjella ( 173770 )

        I know this because everyone was dumping money into faster and faster computers while I, and a small minority of others, kept asking where's our pocket computer because it became fast enough three cpu generations ago. (...) There was a lot of wintel money to be made convincing people they needed more GHz, bigger towers and megabytes, so I guess we had to go down that path till it burnt itself out.

        Well one gigahertz was reached in 2000, a good while before that you had PalmPilot and other PDAs but the interface kept it from being more than a small curiosity for businessmen. I tried one of the Microsoft tablets around 2003, it had plenty power but the interface made me wish for a laptop. The killer feature of the iPhone/iPad that "reinvented" those products was the multi-touch screen. Mind you, Apple could probably have gotten a good chunk of the market anyway taking the iPod and adding basic phone fu

  • originality IS innovation (Score:4, Insightful)

    by gurps_npc ( 621217 ) on Saturday October 07, 2017 @08:03PM (#55329125) Homepage

    Utility is something that happens AFTER the product is created.

    A truly original product has unknown utility. We didn't know what you are going to use the internet for before we invented it.

    When someone claims both utility and originality before the product is created and sold it is a key symptom of a scam artist. They are claiming that they personally created a unique, wonderful project with tons of use - and that everyone else was a moron for not thinking of it's obvious uses before them.

    You can discover massive utility for a slight innovation, or you can discover a huge innovation with unknown utility. But when people talk about both, they are most likely a scam artist.

    • It is possible that our findings are driven by skepticism.

    • Re: (Score:2)

      by mark-t ( 151149 )

      You can have a huge innovation with some specific pre-imagined utility, although such utility is often substantially narrower in scope than what will ultimately happen if the innovation is big enough.

      The telephone comes to mind as one thing that was invented with a very specific utility imagined for it before it was created.

    • https://www.youtube.com/watch?... [youtube.com]

      I think they got most of it

    • Re: (Score:1)

      by q_e_t ( 5104099 )
      If utility exists as such, and can be measured, then whilst it may happen after a product is created, the likely utility can be estimated, which is what companies do all the time. The estimate may not be exact, but estimates often aren't.
  • Nobody ever claimed that it was. In fact, I don't think anybody in has honestly shown that X is the panacea of Y. It's a new, different, and complementary way of funding a project. There are others such as public fundings and VC. Nobody said kickstarter was going to replace those. News at 11.

  • Why should crowdfunding be for innovation? (Score:5, Insightful)

    by gweihir ( 88907 ) on Saturday October 07, 2017 @08:35PM (#55329223)

    Crowdfunding allows the creation of goods that the have a smaller number of people interested in them and that would not exist otherwise. Nothing says that these goods need to be "innovative". If I and 10'000 others keep the creator of a web-comic financed because I like his comic, that is not innovation. That is merely funding a specific form of entertainment that appeals to a smaller number of people and that the commercial publishers with their focus on the mass-market would never have funded in any way.

  • because i dont want to spend hundreds of dollars for a product that does not exist, build it, test it, when it is a verified product that actually does what it is supposed to do then i will buy it, LimeSDR is one that caught my interest, they claim to have a product, but i never seen it for sale at amazon, HRO, gigaparts, or dxengineering or anywhere else reputable and trustworthy for selling high tech electronics

  • Tell me what's going to happen tomorrow. No? Ok then.

  • Are there any crowdfunded projects that have lived to be successful long term businesses that sell products or services? The only ones I ever hear about are the likes of solar roadways, or something that everyone says is a great idea (or more likely a stupid idea that goes viral over its stupidity), then you never hear from them again.

    Not as bad as child molesters [theonion.com]

  • The research doesn't check for actual innovation (Score:3)

    by ET3D ( 1169851 ) on Sunday October 08, 2017 @03:50AM (#55330083)
    The methodology went like this: take all projects with goals between $1,000 and $100,000, and check how many times their descriptions say 'novel' (or a synonym of it) and 'useful' (or a synonym of it) compared to the size of the description (i.e., percentage of these words), and compare to money made. This doesn't really reflect usefulness or innovation. Just from normal ads, I tend to associate exaggerated claims of innovation and quality with shoddy products, and I imagine that Kickstarter projects which harp on how innovative and useful the product is do so in an attempt to convince backers that's the case, not necessarily because it really is. So the real conclusion of the research might be not that people don't want innovative, useful products, but that the advertising strategy of emphasising these aspects doesn't work. (It's hard to know what the case is without a more detailed research, but I'm certainly not going to do that research.)
    • The actual research doesn't claim that more/less innovative projects are more/less funded. The use of 2SLS/instrumental variables explicitly rules out unobserved variables (including how innovative the project really is). Hence, the research only makes claims regarding the extent of novelty and usefulness claims and does not speculate on the underlying nature of the project. The evidence does not support exaggeration. Making novel and useful claims is linked (causally) to much more money being pledged to t

  • Sure (Score:3)

    by drinkypoo ( 153816 ) <drink@hyperlogos.org> on Sunday October 08, 2017 @06:52AM (#55330437) Homepage Journal

    It rewards innovation in attention whoring and advertising, but I repeat myself.

  • It's all about money, not progress, at least in America. Therefore, the question is absurd.

  • "But a large-scale analysis discovered that the biggest barrier may be consumers themselves."

    Indeed, those fuckers will just buy what they like or want, it's a shame.

  • The market in general is very risk averse. Innovation requires risk..a step into the unknown. Almost every new invention or innovation requires at least a small group of 'early adopters' who will take a chance on the new thing enough to get some market traction. If the product is truly good, then lots of people will jump on board once they know most of the risks have been eliminated. But until then, it sees little support. This is a primary reason many startups fail. They are caught in a 'catch-22'. Cannot

    • Innovation is risky. It can flop completely, or it can be a big success. With crowdfunding, you have all the possibility of losing everything you contributed, combined with the lack of ability to succeed big. Not a good fit.

  • That is IMHO not the strong side of crowdfunding. Crowdfunding is best when the solution is well known, desired by some potential users, but not being produced by the market because the product is financially not interesting enough (could be "too small userbase" or too risky).

    • As far as I can tell, the effect persists even if one looks at very modest "innovations". Categories like apparel are mostly minor tweaks on well accepted designs/norms. Yet, we find the same effect. I thought this might be limited to only big/radical innovations for exactly the same reasons but as far as I can see in the data, that does not seem to be the case.

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