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

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."

Comments

Here's a serious question:

[hey!]

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.

Re:Here's a serious question:

[ShanghaiBill]

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: Here's a serious question:

[anirban.mukherjee]

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: Here's a serious question:

[anirban.mukherjee]

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.

Re: Here's a serious question:

[anirban.mukherjee]

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: Here's a serious question:

[hey!]

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.

Re: Here's a serious question:

[easyTree]

modest âoeinnovationsâ. A âoenewâ backpack, jacket,

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

Not sure what's being said here

[Kjella]

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

[ShanghaiBill]

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

[anirban.mukherjee]

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.

Re:Not sure what's being said here

[Anonymous Coward]

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.

Re:Not sure what's being said here

[aaarrrgggh]

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.

It's tough to make predictions

[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?

Re:It's tough to make predictions

[thinkwaitfast]

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 needed more GHz, bigger towers and megabytes, so I guess we had to go down that path till it burnt itself out.

originality IS innovation

[gurps_npc]

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.

Why should crowdfunding be for innovation?

[gweihir]

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.

The research doesn't check for actual innovation

[ET3D]

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.)

Sure

[drinkypoo]

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