Kickstarter’s growing pains

By Felix Salmon
May 1, 2012
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It was a little bit uncomfortable, watching Jason Tanz talk to Kickstarter co-founder Yancey Strickler at today’s Wired conference. Jason, who’s my editor at Wired when I write for them, tried in a couple of ways to ask the kind of questions I’ve been raising about the company. And Strickler tried in a couple of ways to answer them. But the result was ultimately fuzzy and unsatisfying; it’s pretty obvious that Kickstarter itself, which just celebrated its third birthday, hasn’t come close to working out how and even whether it’s going to resolve these issues.

Strickler did cite with approval the latest grouchy email from Bob Lefsetz, who says that “Musicians are using Kickstarter the wrong way. They’re focusing on themselves instead of their fans.” He’s also a big fan of Amanda Palmer, whose Kickstarter campaign for her next album managed to raise $250,000 in its first day, with the rest of the month to go. Lefsetz’s big insight is that while Kickstarter was originally embraced by the undiscovered and impecunious, its greatest potential, in the music industry, is actually with established acts who already have a large following.

Palmer is a great example, with her 550,000 Twitter followers, her substantial blog and Facebook following, and in general the degree to which her fans are devoted to her. She’s also a music-industry veteran, who’s walking into this album project with her eyes wide open. She has already recorded the album, and is telling her funders that the recording costs, of about $110,000, represent only about 17% of her total album-related expenses of $650,000 or so.

You can see why Strickler loves Palmer: she’s doing it right. She has a business plan, she has multiple income and funding streams (including an innovative idea for paying “creative interest” on loans of $25,000 to $50,000), and the success of her previous Kickstarter projects shows that she knows exactly what’s involved in fulfilling and shipping everything that she promises on the site. Plus, she’s exactly the kind of highly creative individual Kickstarter was built for.

Meanwhile, Strickler is clearly much more conflicted about the way that his site’s most high-profile projects — the latest being the ridiculous Pebble watch — are turning the site into some kind of online shopping platform. He came onstage directly after Marc Andreessen, who was talking about how Kickstarter was something of a Plan B for Pebble, after they had failed to raise venture funding. Now that the company has shown that there’s more than $7 million of real demand out there for its project, however, that “derisks the company”, says Andreessen, and makes it more likely that they can raise VC funds.

This didn’t sit particularly comfortably with Strickler. “Kickstarter is for creative projects,” he said. “We prefer creative expression to maximization.” More generally, he said that “we don’t allow corporations to use Kickstarter”, and talked of the “danger” that funders will view a project as a commercial transaction — spending money on a thing — as opposed to a funding transaction. “People need to have the right expectations going in,” he said.

But, clearly, they don’t. I feel entirely comfortable in saying that the 51,700 “backers” of the Pebble watch do not, as a rule, consider themselves to be funding a project, so much as they consider themselves to be buying a watch. (That’s especially true of the 15 people who have bought the “MEGA DISTRIBUTOR PACK” of 100 watches for $10,000.) And I don’t see Kickstarter doing anything, really, to reset the expectations of the people who view the site as a place to buy stuff, rather than a place to fund projects.

One of the reasons is that Kickstarter has grown and evolved in ways that the founders didn’t necessarily anticipate, and they don’t want to put themselves in a gatekeeper role telling people what they can or can’t do. Strickler was adamant that Kickstarter itself doesn’t investigate projects, beyond ensuring that they fit the basic ground rules: that you’re not a charity, you’re not raising equity for a business, that kind of thing. “56% of projects don’t meet their goal,” said Strickler. “That’s policing. We’re relying on the crowd to do that, and we don’t want to become more involved in that. ”

Except, as Kickstarter grows, it becomes less and less tenable for Kickstarter to retain that attitude. Yes, there are dodgy projects which don’t get funded. Call those the true negatives. There are also great projects which do get funded — the true positives. Put them together, and you have a very successful ecosystem. The ecosystem can also live quite happily with the false negatives, great projects which for whatever reason don’t manage to reach their funding goals. That’s the beauty of Kickstarter’s no-harm-no-foul system: if you don’t meet your goal, then no one is out of pocket.

The problem is with the false positives — dodgy projects which do get funded. Statistically speaking, these things are certain to exist. Jason asked Strickler about some hypothetical crook who looked at the millions of dollars being raised by the likes of Pebble, and hatched a scheme to simply defraud a lot of people out of their money, by putting up a glossy video for some sexy gadget, and then simply absconding with the money. How is Kickstarter addressing that risk? It seems, listening to Strickler, that the short answer is that it isn’t.

That said, Strickler did make two countervailing points. Firstly, for all the publicity that they get, the Kickstarter-as-QVC projects only account for 5% of the site’s projects, and no more than 15% of its total revenues. And secondly, in a world where we’re used to being able to click a button on Amazon and have something automagically delivered to our door a day or two later, Kickstarter is helping people rediscover the process of manufacturing and fulfillment, through Kickstarter updates and simply by waiting some unknown amount of time for their stuff to finally arrive.

“My concern is for backers to understand that they’re likely buying something that doesn’t exist,” said Strickler. “Part of that is really exciting: you get to see how things get made, and you get to learn.”

I just hope that lots of people don’t end up learning these lessons the hard way. And that Strickler puts some serious effort into educating the 2 million people who have funded Kickstarter projects, and ensuring they understand exactly what they’re doing.

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