Kickstarter’s mission creep

By Felix Salmon
March 12, 2012
designed to help creative professionals realize projects.

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I had a fascinating conversation last night with a chap from Kickstarter, a site designed to help creative professionals realize projects. And it’s still doing that, pretty well. But there’s clearly a degree of mission creep at Kickstarter, too — especially with regard to some of the most successful and highest-profile projects on the site.

“A project is not open-ended,” says Kickstarter: “Starting a business, for example, does not qualify as a project.” Yet that’s exactly what Matter is doing with Kickstarter.

What’s more, Kickstarter can only be used to fund projects “from the creative fields of Art, Comics, Dance, Design, Fashion, Film, Food, Games, Music, Photography, Publishing, Technology, and Theater”. Which one of those fields is a bar of soap supposed to fall into? Design, I guess. But if the fields of Design and Technology can be so broadly construed as to mean anything, they ultimately mean nothing. And the bar of soap — just like Matter or the famous $1.5 million iPhone dock — is at heart an attempt to start a business, much more than it is an attempt to fund a creative project.

The bar of soap and the iPhone dock are glossy and sophisticated sales pitches: one of the questions yesterday was whether they were closer to SkyMall or to QVC. But there’s a huge difference: SkyMall and QVC sell products which exist. On Kickstarter, you’re buying a hypothetical future product. And I worry that this is going to end in high-profile tears and recriminations at some point, the first time a big funded project fails to produce what it promised.

Getting a product to market is hard. Even companies with business plans and executives and millions of dollars in funding — and a fully-functioning product — can fall down on that front. Look for instance at the Switch lightbulb: in July 2011, Farhad Manjoo of Slate said it would go on sale in October 2011 for $20. In August 2011, Dan Koeppel of Wired magazine ran an article saying that the bulb would go on sale in October for $30. But here we are in March 2012, there’s still no sign of the thing, and the company’s Facebook page is filling up with comments saying things like “I’m going to start my own company making a product that no one can buy. Hmm….what should I not sell? So hard to decide.”

There are two big hidden risks which I think that Kickstarter should emphasize much more than it’s presently doing. The first is on the side of the person with the project. It’s easy, when you’re trying to raise funds, to promise lots of things to lots of people, in that glorious utopian future where you’ve raised the cash that you need and you can actually finish your project. So then you finish the project, and you’re still incredibly busy and stressed, but now you have hundreds or even thousands of things to send out. Which can be a decidedly unpleasant chore. Kickstarter buries its page warning about how shipping “may end up being a bigger part of your budget than you thought”, and doesn’t really talk at all about the massive time commitment involved. For rewards which are individually hand-made, the result can be something much sloppier than the project owner originally intended. Which isn’t really good for anybody.

The bigger risk, however, is on the side of the funder — and that’s the risk that the project will get funded, you will spend your money, and you will end up getting nothing in return. For original-concept Kickstarter projects, that’s probably OK: you supported the arts by funding an artist, and you hoped to get a memento of that funding, but the reward was just a reward, and not necessarily the main reason you funded the project. For things like bars of soap and iPhone docks, however, the great majority of the funders are thinking of themselves as buying a thing. And they’re not properly discounting the very real risk that they will end up with nothing at all.

Even the most well-intentioned projects can run into unanticipated obstacles, some of which could be fatal to the project. And of course there’s the risk too of outright merchant fraud. You put together a glossy Kickstarter video, raise a few hundred thousand dollars, and then just pocket the money while telling everybody that the project is taking longer than expected.

In either situation, your funders have very little recourse. They may or may not, at some point, be able to get a refund from their credit-card company, if they paid with a credit card. But it’s extremely unlikely that they’ll be able to get a refund from the project owner.

Kickstarter doesn’t keep statistics on the number of projects which get funded but not completed, or the number of projects where funders fail to receive what they were promised. It’s hard to know how such statistics could possibly be generated, since projects don’t come with deadlines by which the rewards are deliverable. I, for one, have a number of Kickstarter receivables coming to me; I don’t have them listed anywhere, however, and if they don’t arrive, I’m not going to be particularly upset. There are 12,521 people expecting an iPhone dock, however, and 21 of them have paid upwards of $5,000 to receive 100 docks or more. If I was expecting a shipment of 100 iPhone docks, I’d consider that a real business contract, rather than a much fuzzier form of support for some creative project.

The JOBS act which recently passed in the House would allow Kickstarter to allow project backers to receive equity, rather than specific rewards, in return for their money. The regulatory and compliance costs for Kickstarter would surely be enormous, but might well be worth it, given that SecondMarket is now valued at $200 million. But before Kickstarter moves into the realm of equity stakes, it should probably start thinking much harder about the way in which it’s becoming a shopping site. Because if it doesn’t have a good way of regulating the people on its platform who are fundamentally just selling things, then it’s going to have a really hard time becoming a platform for people selling ownership stakes in companies.

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Comments
10 comments so far

It would be interesting to hear stories about people who don’t get things from Kickstarter and try to reverse the charges with their credit card company. Who eats that chargeback — the credit card company, Amazon (who handles Kickstarter’s payments), Kickstarter?

There was a minor Internet kerfuffle a few months back about a indie game studio that was essentially trying to do Kickstarter without Kickstarter — they needed $X in pre-orders so that they would have the resources to fund game development, which they just accepted directly through PayPal. After a few days, PayPal shut down their account — freezing thousands of dollars in preorder cash — because preorders of nonexistent projects have a very high chargeback risk, and PayPal was not willing to shoulder that risk.

Posted by jfruh | Report as abusive

Could also mitigate high profile failures by forcing projects looking to raise amounts greater than $100K to submit to a review by Kickstarter before they can list. Certainly goes against the crowdsourced ethos, but could help them avoid nasty media fallout.

Posted by rossgneumann | Report as abusive

I agree that the soap and iPod dock linked by Felix come across as pre-sales of products much more than funding for projects. At some point when one of these gets big enough and ends in tears with no product delivered, an enterprising state attorney general is going to have some thoughts on how state consumer fraud laws apply to Kickstarter projects – especially when there are rewards offered like “a lifetime supply of Stock soap”.

Posted by realist50 | Report as abusive

My first exposure to Kickstarter was with the Backcountry Boiler (which tempts me but which I have not bought). That made it for me an inventor, tinkerer, maker, thing first. That sort of thing does not seem to me as mission creep at all. Moreover, as I’ve said, I think Kickstarter kicks all over the old inventor-networking system. Much more exposure to potential customers, much less skim.

Of course, any successful money raising network will inspire the lazy, foolish, or dishonest to join in, but that is life.

Posted by john_on_i10 | Report as abusive

FWIW, I have no problem with soap. If it flies it is a success, if it fails it is a lesson (at small cost).

I think buyers/funders are smart enough to balance risk, look for demonstration of effort and/or at the maker’s resume.

Posted by john_on_i10 | Report as abusive

“Stack soap”, not “Stock soap”

Posted by realist50 | Report as abusive

I have the same beef with Kickstarter because they rejected my project/business. I looked around at the other “projects” and saw how they were largely people with new product ideas getting seed funding. They rejected us because they said they only do projects–which is blatantly not true. My project, to finance the development and first run of http://getbrode.com, was no less a project than any of the others. I love what they are doing, but I hate the arbitrary process and lying about their criteria.

Posted by brodezor | Report as abusive

At some point when one of these gets big enough and ends in tears with no product delivered, an enterprising state attorney general is going to have some thoughts on how state consumer fraud laws apply to Kickstarter projects. http://www.cheapmonsterbeatsfr.com

Posted by feitian | Report as abusive

KickStarter is ridiculous when it comes to projects. Who are they to tell you what is good or not? I am a reddit fan, and I remember a project that got rejected by KickStarter, and the project owner when to RocketHub.com (one of the largest open platforms) and raised over $100K+. I believe in open-source, open platform. Kickstarter is closed, why the gaming community supports that is beyond me.

Posted by jaysonpaulino | Report as abusive

At iPledg (http://ipledg.com/) we do not judge the projects submitted. We feel this is the role of “the crowd”. As long as the project meets the crtieria set out in our project guidelines (largely covering the legal and moral outlines) then we are happy for the crowd to determine the suitability for it to receive exposure and funding. And isn’t that the essence of Crowd Funding??

Posted by iPledg | Report as abusive
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