Kickstarter: Bringing creative projects to life
Kickstarter connects creators and backers to bring creative projects to life.
“I have a bright idea, but I don’t have enough money to work on it.”
This is an issue faced by millions of entrepreneurs. Perry Chen, the founder of Kickstarter, was one of them.
Kickstarter is a multi-sided platform where individuals or groups (“creators”) can request funding for a project and supporting people (“backers”) can pledge money for the projects. Since the service’s launch in 2009, 19 million people have backed a project, $5.6 billion has been pledged, and 197,214 projects have been successfully funded. [1]
Kickstarter offers the fixed model, or All-or-Nothing model, where a creator can get the funding only if she hits the funding goal. In exchange for the funding, backers get reward from the project such as a copy of what’s being made, a limited edition, or a custom experience related to the project.
The platform is definitely creating values for both creators and backers. For creators, the crowdfunding service increases the accessibility to funding. If an entrepreneur follows a traditional way, she either has to go to several banks to ask for a loan or has to pitch many times to angel investors or venture capitals to raise money. Both of the paths require promise for good financial returns and good reputation as an entrepreneur, which are big hurdles for many entrepreneurs.
In addition, Kickstarter acts as a good marketing channel. Having a project on Kickstarter helps entrepreneurs to let people know about their products and services. It can create a buzz. Although creators still need to do additional marketing to meet their funding target, Kickstarter helps them to get some traction because backers on the platform are genuinely interested in new products and projects.
The platform also creates values for backers. First, it provides backers convenience of browsing new projects and investing in them. Backers can discover new products and services which are launched worldwide without needing to tap their network or browsing internet or social media.
Also, backers get rewards by pledging money to a project. Thought the reward is not a financial return as they do not get any equity in exchange for their money, many backers enjoy receiving a new product and getting a new experience with a new service.
Last but not least, Kickstarter minimized risk for backers. The service is known for a rigorous curation upon registration. Unlike its competitor, Indiegogo, which allows anyone to start a project on its platform, Kickstarter reviews projects thoroughly to ensure they comply with its policies – no personal projects or raising for charity or without a working prototype. This mitigates backers’ risk of investing in fake projects or in projects that fail after the funding.
So, how do Kickstarter capture value? First, it monetizes the service by charging 5% fee on all projects that are successfully funded. Charging creators only is a good strategy since multi-homing effect is low for creators and high for backers.
In addition, Kickstarter has lowered cost by significant automation. One example of automation can be seen in their customer support. The CS and Data teams identified human actions that could be automated with the help of machine learning. Then, they created a service known as Sassy (1) to automatically determine ticket priority and route tickets to the appropriate agent or group and (2) to automatically respond to some simple tickets. [2]
The scalability of the platform is huge. It has a strong network effect where the increase in the number of creators attracts more backers and the increase in the number of backers attracts more creators. In addition, it has great potential in expanding to different genre of projects and to different countries. It has indeed expanded to different variety of projects from arts to film to tech in 25 countries up to date.
Some considerations still loom. First, would Kickstarter be able to keep the project quality high? As mentioned earlier, Kickstarter is known for its rigorous curation of projects which allowed the platform to enjoy higher success rate. As the number of projects increase on its platform, there is a question whether the team will be able to curate as rigorously as they have done in the past.
Second, if its current competency in quality fades going forward, how will they be able to keep differentiate themselves from competitors? Should they focus on arts and design which they were initially known for or should they further expand to other genres? Should they even expand its service to complement its core business?
After experiencing a sharp decline in its revenue due to the pandemic [3], it is now a time for Kickstarter to make a big decision.
[1] Kickstarter website. https://www.kickstarter.com/about?ref=global-footer
[2] Doker, J., 2017. How we built automated support. [online] Medium. Available at: https://kickstarter.engineering/how-we-built-automated-support-f2ea669252f
[3] Carman, A., 2021. Kickstarter’s CEO on why he doesn’t think the company will only do crowdfunding forever. [online] The Verge. Available at: https://www.theverge.com/2020/5/29/21272287/kickstarter-aziz-hasan-layoffs-update-pledge-project-crowdfunding
Hi Kanako,
Thanks for writing such a great blog! I wondered though, when it comes to scale and sustainability, how ‘copyable’ is the current business model? As we have seen, a great strategy is often replicated and I wonder what is their unique value creation that will be hard to replicate?
Thanks Pranav for the comment! Yes, we indeed learned the lesson first hand!
I agree that the business model is copyable to some extent. It seems that the competitors (e.g., Indiagogo, GoFundMe) have similar model, i.e., charging transaction fee to those created a project. Potential differences maybe that they are focusing on different genres, have different funding model (all-or-nothing vs get whatever you gathered), and have different reward model (equity vs reward) etc. So it seems that different players are pursuing different strategy here.
Great post Kanako! Kickstarter is truly democratizing entrepreneurship while at the same time providing opportunity to small investors participate in the upside. I would be curious to know if disintermediation is a risk to Kickstarter’s model.
Interesting post Kanako! I’m a great fan of Kickstarter, I enjoy checking the new gadgets being proposed, when I need a creativity boost. However, I’m curious about the effectiveness of the platform in the long term. I cannot think of any project (that I know) which was originated in Kickstarter and became commercial and well-known. I feel that after being something popular and new for a couple years, the platform is slowly stagnating.